“Business Russia”, a high profile lobby group representing companies outside the natural resources sector, has presented (World Bank) data to Group 6 indicating that the Russian 34% “insurance contribution” is much higher than in other countries. It also presented calculations on how to improve the position of the budget while reducing the rate. 

Jeff says that ….

(“Business Russia” argues that part of the “insurance contribution” is really a (hypothecated) “tax” and that this money should instead be raised by increased “excise”. Thus, this is as much a Group 6 issue as a Group 3 issue! I can only assume that the World Bank data is reliable – but so much depends on exact definitions! Some of the data on “property tax as a % of GDP” is a little surprising, and its ultimate source is not clear. A reliable 2006 Australian study indicated that “Australia has a relatively greater reliance on immovable property taxes (1.4 per cent of GDP) and transaction taxes (1.6 per cent) than the OECD-30 average (0.9 per cent and 0.6 per cent respectively). Transaction taxes are a significant revenue source for Australia’s state governments.” Thus, it would appear that the number that “Business Russia” quotes for Australia includes “stamp duty” on property transactions.)

“Business Russia” says that a large part of the 34% “insurance tariff” is not formulated on an individual right to receive compensation, and thus is not “insurance”. It says:

Fixed part of pension fund contribution (10%) is not of an insurance character

Individual part of pension fund contribution (16%) is of an insurance character

Medical insurance (5.1%) not insurance in character

Social insurance (2.9%) not insurance in character

“Business Russia” suggests lowering the “insurance tariff” (as it calls it) by 8 percentage points — so that the total falls from 34% to 26%.

It also has produced calculations on increasing the 463,000 ruble wage threshold (the “insurance contribution” is not paid on wages above this) and increasing excise on alcohol and tobacco to help compensate the budget for this.

Calculations on fall in income when insurance contribution lowered to 26% and threshold increased (all numbers are billions of rubles):

A.   Fall in income from lowering the rate to 26%

B.   Savings on budget spending by wider government on payment of contribution for government employees 

C.   Additional (in comparison with 26% on 463,000 rubles) incomes from increased threshold (taking into account annual indexation of threshold for nominal wage growth)

D.   Growth in tax on profits (Lower tax burden will increase profits of employers and increase wages (or business activity))

E.    Resulting net losses to budget

Calculations on fall in income when insurance contribution lowered to 26%, and threshold increased, and excise increased (all numbers in billions of rubles):

A.   Net loss to budget with increased threshold. 

B.   Income from increasing excise on tobacco 

C.   Income from increasing excise on strong alcohol and beer 

D.   Resulting surplus (- deficit)

“Business Russia” says that World Bank data (published in 2010) indicates that the rate of “insurance contribution” in other countries is much lower than Russia’s 34%. For Germany it is 22%, Switzerland 17.6%, Japan 14.7%, England 10.8%, USA 10%

“Business Russia” also provides a chart on “property tax as a % of GDP” in a number of countries. The numbers are USA 9%, UK 8%, Canada 8%, Japan 8%, Australia 4%, France 4%, Sweden 2%, Netherlands 2%, Germany 1%, Finland 1%, Russia 1%.