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Payments for soldiers killed in Ukraine lead to poverty reduction in Russia, Bloomberg reports

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The deaths of family members and subsequent compensation payments from the government have become the main driver of income growth among the poorest Russians, according to a Bloomberg report. Compensation for deaths and one-time payments to combatants have helped reduce poverty in Russia, the publication noted.

As an example, Bloomberg cited the story of Alexei Malov, who “dreamed of having a white Lada” and was finally able to afford it through the compensation he received for his dead son, who was killed in the war with Ukraine.
Russian budget expenditures on military personnel have ballooned to the point that they've led to a record budget deficit. Vladimir Putin is willing to sacrifice the Russian economy for military success, Bloomberg wrote.

“The state is targeting the poor and the near-poor,” Natalya Zubarevich, a specialist on the economy of Russian regions at Moscow State University, told the publication. “For the middle class, the message is, ‘goodbye guys, you are on your own.”’

The publication estimated that the cumulative increase in social spending by the state has sharply increased the income of the poorest 10% of Russia’s population. According to estimates by Bloomberg, the increase in government spending has allowed the income of poor Russians to outpace inflation, which came in at 11.9% 2022, by a factor of two. Military social payments eventually led to a much smaller number of Russians living below the official poverty line. According to national statistics agency Rosstat, the number of people living under the official subsistence level — defined as an income below about $186 a month — has decreased by 700,000 in the third quarter of 2022, compared to the same period last year. When compared to the second quarter of 2022, the number has gone down by 2.3 million.

The Russian government does not plan on decreasing its social spending this year. The head of the Ministry of Finance, Anton Siluanov, previously claimed that he would rather reduce infrastructure investments than take measures to reduce the number of poor people. The approach, however, could create serious risks for the Russian budget – especially if oil-related sanctions have an effect.

“A burst in social and military spending, combined with a shortfall in oil gas revenue, will make Russia’s budget balance unusually fragile this year. Facing the risk of a revenue shortfall, the government may opt for fiscal consolidation by letting inflation erode some of the real value of the social benefits.”, noted Alexander Isakov, Russia economist at Bloomberg Economics.

In addition to spending on social military benefits, Russia spent over 1 trillion roubles in 2022 ($15 billion) on assistance to families with children and about 400 billion roubles on pensions. The Finance Ministry claims that these expenditures will double in 2023. The agency estimated that spending on mobilization and volunteer recruitment costs the budget about 1.1 trillion rubles a year. However, even such a drastic increase in spending has not created any critical problems for the Russian state budget so far.

Economist Yevgeny Gontmakher noted that on the whole, people in Russia are getting poorer, but the poorest in society are getting slightly richer, thanks to lump-sum payments and social allowances. According to the economist, the size of the middle class in Russia has shrunk to a record low due to the war – it is now below 10% of the population. As proof of these figures, he recalls that hundreds of thousands of Russians have left the country, often giving up their jobs and leaving behind their real estate.

“The people as a whole are getting poorer, but the poor are becoming fewer in number,” he concluded.

Gontmakher’s conclusion is backed by opinion poll data on Russians’ consumption patterns. More than a third of the population began saving more on food in 2022, which goes hand in hand with data on the decline in real incomes, which have fallen for three quarters in a row. Such conditions often leave no choice for Russians, for whom going to war is often the last way to increase their own income or pay off loans.

“People often go to war because of poverty. It's a way to break free,” explained Natalya Zubarevich.

In late December 2022, Vladimir Putin ordered the payment of 5 million roubles (approximately $73,000) to the families of soldiers killed in Ukraine – enough to buy an apartment in many parts of Russia. Veterans who suffered an injury or trauma will get 3 million roubles ($44000). Families can often claim additional federal and regional payments, which only increases Russians' dependence on the state and cultivates their loyalty to it, noted Bloomberg.

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