At the Russia Calling! Investment conference on December 8, Russian President Vladimir Putin was upbeat on the economy and reported that real wages were up by 7% in 2023 and real income higher by 4.4% after almost a decade of stagnation and decline.

According to fresh data from RosStat, published on December 6, the figures are even better, with real wages in the third quarter of 2023 growing by 8.7% year on year, and incomes by 4.9%, reports The Bell. Wage growth outpaces both economic growth and labour productivity, which is officially forecast to grow by 1.7% this year – half the rate of GDP growth and one-fourth the rate of wage growth.

But there is a catch. Aggregate real incomes are up, but not everyone is seeing the benefit. In reality these gains are being made by the middle and upper classes, whereas the poor are getting poorer.

The growth in real incomes is reducing the proportion of the population with incomes below RUB14,000 ($150) per month, which fell from 12.9% to 10.7% by October 2023. The government may take credit for this reduction and promote it for propaganda purposes ahead of the 2024 presidential elections.

However, it is unlikely that they will highlight that the share of Russians earning more than RUB75,000 per month ($815) increased by 3.3 percentage points during the same period, rising from 12.5% to 15.8%.

The trend of narrowing the gap between the rich and the poor, measured by the Gini coefficient, has been disrupted. The index, which remained below 0.4 for a couple of years, has now risen to 0.404 from 0.398. One reason may be a shortage of skilled labour, leading to faster growth in high and middle incomes.

Inequality is also growing due to inflation, which has been growing in the last six months after falling to historical lows in recent years. Rising and persistent inflation has become the Central Bank of Russia (CBR)’s main headache.

The poor are spending a larger portion of their income on essentials, as food inflation is the main drive of the rising prices, while the wealthy profit from higher deposit interest rates and food is a much smaller part, and reducing, share of their shopping basket.

Subsidised loans, such as subsidised mortgages, are another factor contributing to inequality, as it is the middle class that are taking advantage of them, not the poor. These programmes are essentially becoming a regressive tax, a kind of tax on poverty, where wealthier individuals benefit at the expense of the less fortunate.

At the "Russia Calling" forum, Elvira Nabiullina, head of the CBR, once again spoke out against preferential programmes, stating that "everyone else pays for the loans of the chosen few," and warned that the more the government subsidises loans, the longer the CBR will have to maintain a high interest rate.

Finance Minister Anton Siluanov elegantly signalled his support for Nabiullina and officially announced the government's proposal to increase the down payment threshold for subsidised mortgages to 30%.

However, this measure does not solve the problem of unequal access. Now, lucky individuals with subsidised mortgages will be subsidised through taxes not only by those who are ineligible due to family composition or occupation but also by those theoretically eligible but lacking the funds for a down payment.

The Kremlin remains keen on the subsidised mortgage programme as it is an indirect means of stimulating the economy; money going into construction is a major growth driver providing work for many lower-class citizens and also bolstering the banking sector which benefits from the increased loans volumes. Mortgage lending is booming. (chart)