One of the most discussed issues in the Russian economy today is taxes. The VAT is being raised again; existing taxes, such as the so-called Simplified Tax System (USN) and the Patent Tax System (PSN), are being adjusted; insurance premiums, rates, fines, recycling fees and everything else are increasing – even though Putin recently promised there would be no increases in the near term. What is happening, and what will all this lead to?

This is not the first time the Russian authorities have lied about not raising taxes. Back in June at the St Petersburg International Economic Forum, Finance Minister Anton Siluanov says: we are in the middle of a perfect storm; the same is true of the budget; everything is under serious stress; but last year, we had discussed taxes and agreed, in principle, not to touch them – and that is the right thing to do, because they are a tool, an institution, for the predictability of our policy.

But at a Federation Council hearing in October, he explained that the VAT should be raised so that funds from the hike can be used to finance defense and security objectives. Incidentally, the same speech contained another false statement: social policy is the top priority. Meanwhile, in the draft budget, social policy expenditures are just over RUB 7 trillion, while national defense expenditures are RUB 12.6 trillion (with another RUB 4 trillion for national security and law enforcement).

I am absolutely certain that as long as Putin is in power, taxes will keep being raised. This is due both to the ongoing war and to preparations for potential new wars. The front line could be as broad as you like – from the Baltic states and Finland to Georgia (in the event of a change of power) or Kazakhstan. The main arguments used by official propaganda against Ukraine are almost entirely applicable to the latter – the rights of Russians, artificial borders and so on.

The population’s reaction to all this will be to retreat into the shadows. Businesses will respond by curtailing their operations and investing their available money in government bonds, shares of certain large companies and gold. This means that taxes on everyone else will have to be raised again.

The Federation Council also proposed abolishing the self-employment regime as early as 2026. Senators say it is being abused to underpay taxes and fees, with cases where regular employment relationships are registered as self-employment. What do you think? Freelancers and clients seem to have become accustomed to this system; everything is legal, without cash payments and civil-law contracts as before. But now…

Similarly, I believe this is just testing the waters. And it could be implemented as early as 2027. Especially since it is considered experimental until 2028, so supposedly bringing it forward by a year is no big deal. Meanwhile, Economic Development Minister Maxim Reshetnikov has stated that not only will the regime not be abolished, but these taxes will not be increased either.

In fact – and here I cannot help but praise the government – this regime, with a 4% income tax for individuals and a 6% income tax for legal entities, has proven quite sound. This is evidenced by its popularity: as of August, there were already 14.3 million self-employed Russians, a number that has increased by over 3 million in the last year alone. Many people need legal income (for example, to obtain a loan). Furthermore, many counterparties (legal entities) can only pay legally. But if the government decides it can significantly raise this, people will stop using it.

It is important to remember that the self-employed are mostly poor individuals who do not ask for government assistance but still try to earn their own income and are even willing to pay some taxes. This is to be welcomed.

If this regime is canceled, then the self-employed will likely become officially unemployed. By the way, a question about unemployment: in August, it reached a historic low of 2.1%. Is that not a major achievement of the era of developed Putinism?

I never tire of repeating that “unemployed” in this context means someone who has registered with the employment center and is ready to start work. That is, if you simply have no official income, are a housewife, a dependent, or work unofficially, you do not qualify. And since the employment center is unlikely to offer you a comfortable and high-paying job, people usually register for benefits. Incidentally, if you have turned down a job twice or 12 months (in some cases, 18 months) have passed, you are also removed from the register, even though you have not started working.

Furthermore, I do not believe Russia has a high unemployment rate, though it is undoubtedly higher than the official figure for the reasons I have described. Russia’s main problem is low wages in most sectors of the economy. The state could push them higher by raising public-sector wages (because of which private businesses would also raise wages), but it prefers to spend this money on the war.

The presence of millions of migrants from Central Asia also has a negative impact on wages. They are employed not only in low-skilled jobs that the native population is reluctant to take, but they are penetrating other areas as well.

Meanwhile, inflation in Russia has accelerated to record highs. According to Rosstat, prices rose 0.23% in the week from September 30 to October 6, versus 0.13% the week before. Year-over-year inflation rose to 8.08%. What are your inflation expectations?

I believe real inflation will be around 15%. Last year it was around 20%. It is not that hard to estimate – it is around the Central Bank’s refinancing rate. For example, in my daily life, I look at items I buy frequently, like juice and mineral water. Those with no seasonal fluctuations. Narzan used to be RUB 84 for 1.5 liters, and now it is RUB 96, a 14% increase.

Analysts believe the main driver of inflation is rising fuel prices: gasoline prices rose almost 1% in the first week of October and more than 10% year to date – this is the biggest rise in the autumn in a decade. Are Ukraine’s “direct sanctions,” unlike Europe’s, having an effect?

Yes, they are. This is evident both in the rising prices and in supply disruptions. The rise in electricity prices is significant. For households, they are up 12.6% since July 1. For industrial consumers, the increase ranged from 12.9% to 13.5% (depending on capacity), and for gas, it was 10.3%.

Of course, gasoline will not disappear, but prices will rise above inflation (currently the rate is double the latter) as Ukrainian attacks have demonstrated their ability to knock out significant capacity. The situation will get worse in regions where there are no refineries at all (like Crimea) or where there are few (like the Russian Far East, which has only two).

What do you think in general about a market economy, entrepreneurship and free trade in Russia? Igor Lipsits argues that the “NEP 2.0” era in Russia is over and that looking at the Russian economy as a market economy, judging it by market-economy indicators, is a mistake. At the same time, private capital, private commercial organizations and free trade have not disappeared. How do you understand all this?

I do not find these analogies apt, though I understand them. The fact is not all nationalizations are the same. The NEP was destroyed by a series of decisions that eliminated the price mechanism, which made private business unprofitable (secondarily, the decision to sharply raise taxes played a role). The final blow was the Council of People's Commissars decree from October 11, 1931 – it even banned markets where peasants sold their own produce.

In this sense, as long as the price mechanism exists, especially free export/import transactions and a market-based exchange rate, it seems to me to be a stretch to talk about NEP 2.0 being “canceled.” Still, the state can squeeze private business out of entire sectors. This is what happened, for example, in Moscow, where, by decree, the entire citywide housing stock was legally transferred to the management of state housing authorities (formally, this was done through the mass falsification of minutes of residents’ meetings). 

It is also important to understand that nationalization is hampered by the presence of “good businesses” at various levels, the Rotenbergs, so to speak, big and small. It is convenient for decision-makers if not everything is state-owned. And ordinary people can take advantage of this, too.

What is true, however, is that Rosstat data should be treated with extreme caution. Inflation of 9.5% in 2024 is laughable. Rosstat, like other government agencies, largely functions not as an impartial judge, but as an agitator, for which it has a host of tools at its disposal, such as calculating “statistically unrecorded growth in small businesses” – meaning, it does not exist in the reports, but it does in the conclusions.

Since we are talking about nationalization and statization, what do you think about the ongoing fight against the so-called oligarchs and the legacy of the privatization era? Is this good or bad from the standpoint of the effectiveness of the economy in meeting the needs of foreign policy?

The overwhelming majority of confiscated enterprises (with the possible exception of Solikamsk Magnesium Plant and Domodedovo Airport) have nothing to do with privatization. And many privatized enterprises – for example, Norilsk Nickel – are experiencing no problems. I am not saying they should be nationalized, but rather that the reason is not that someone is fighting with the “oligarchs from the 1990s.”

A gangster-style redistribution of property is underway. The most astonishing arguments are being used – for example, as in the case of Domodedovo, that they made dividend payments. Some foreign-policy arguments, such as aiding Ukraine (e.g., the food holding company KDV Group and the IT company Lesta Games), sound logical, but the evidence either relates to other people (former shareholders of Lesta) or is completely absurd (for example, the owner of KDV, Denis Shtengelov, is on Ukraine’s sanctions list).

Russia faces three years of stagnation, according to a new World Bank forecast: growth is not supposed to exceed 1% a year until at least 2028. In 2025, GDP is forecast to grow 0.9%, in 2026 0.8% and in 2027 1.0%. What is your forecast for the Russian economy?

I would say yes, this is the everything-stays-the-same scenario. But if commodity prices fall, a recession is entirely possible. Overall, it is fair to say that 2014-24 is a lost decade for Russia. If we look at GDP at current prices, we see it is hovering around $2 trillion.
Regarding stagnation, there are two scenarios.

The first, current one, is degradation, mostly gradual. But in some areas, a rapid decline is possible, because of the “wise” decisions of the authorities. We see how the internet is being disrupted, how car prices are being jacked up, turning them from a common commodity into a luxury, how serfdom is being introduced for medical school graduates, which will partly cause their flight [from the country] and partly lead to a decline in interest in the profession and willingness to complete the education required for it.

The second scenario involves a change of power. How that occurs – through succession, the “Prigozhin method” or some other means – is irrelevant. But when colossal resources are no longer burned in the furnace of war and preparation for future wars, a real improvement in the standard and quality of living is possible, even without any profound liberalization or democratization of political life. Liberalization would also be extremely beneficial, and there is demand for it from both the people and the elite, but whether it will happen is questionable. This requires the authorities to be willing to put limits on themselves.