Cross-subsidizes in the housing and utilities: the rich pay for the poor.

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April 22, 2016 18:18

Due to the economic reasons, people currently are not prepared to pay 100% of their housing and utilities bills. The new proposal envisages shuffling off the responsibility to cover the growing spending to subsidize low utility tariffs on to people with high incomes. However, the record-keeping of the rich citizens is problematic and the proposal will reaffirm people with higher incomes in the need to hide income.

On September 21st, 2012 during his visit to Mogilev, Alexander Lukashenko proposed that people with high incomes subsidized housing and utilities tariffs for the rest of the population.

After the June increase in the housing tariffs, the population started covering 23% of the utilities’ costs, provides Belarus’ report to the EurAsEC Anti-Crisis Fund. The rest is paid by the state.

The entire housing and utilities system, instead of reducing the services’ costs, seeks ways to justify the growing costs. Either there are no attempts to contain costs using internal resources or such attempts are not successful.

In the meanwhile, the population actually pays small amounts for the utilities. One bedroom 50 sq. m. apartment utilities costs are not more than USD 25. However, even such a small cost entails regular debts from some citizens groups. A significant increase in the utilities cost could result in people’s dissatisfaction and lead to a significant housing services payment debt.

In these circumstances, the state budget needs additional financial resources to cover the housing utilities costs. The idea to differentiate housing services tariffs was rejected due to fears of social unrest. And therefore the authorities came up with an idea to focus on people with high incomes and to make them liable for covering the needed amount. De facto, the government is talking about a kind of tax on wealth.

Traditionally, Belarusians demonstrate modest incomes to receive social benefits. The authorities cannot count on the voluntary consent by SMEs and entrepreneurs to become such donors. It should be anticipated, that they would start sheltering income to avoid unnecessary attention from the fiscal authorities. If implemented, this idea could transform into a mandatory fee for businesses and individuals if their incomes exceed a certain standard.

This measure is yet another way the government is set to demonstrate its social orientation. Instead of looking for internal funds for the housing system, the government tries to find those who could pay the utility bills for the majority of the population. Businesses, burdened with such obligations will use any opportunity to shadow their real incomes in order not to get into the list of “voluntary donors”.

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Growth in real wages may disrupt macroeconomic balance in Belarus
October 02, 2017 12:12
Фото: Дмитрий Брушко, TUT.BY

The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.

According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.

The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.

Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.

The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.

Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.

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