The proposal to introduce a stricter progressive personal income tax scale is seen by researchers as a tool to rebalance finances from higher earners to lower-income groups and to dampen inequality. However, analysts warn that such a reform could dampen household consumption and slow overall GDP growth in the country. This conclusion comes from research conducted by experts at the Russian Academy of National Economy and Public Administration, known as RANEPA, a prominent institution in Russian economic policy analysis. — attribution: RANEPA
A study published in a journal affiliated with the Finance Research Institute of the Ministry of Finance examined multiple reform scenarios. The authors, Elizaveta Martyanova and Andrey Polbin, built a general equilibrium model to compare outcomes under various tax rules, using the 2019-2020 environment with a flat 13 percent personal income tax rate as the baseline. — attribution: RANEPA
Modeling results indicate that shifting to higher personal income tax collections while maintaining tiers at 20-25 percent for income above 30, 50, or 70 thousand rubles per month, and keeping 13 percent for lower incomes, would likely lower GDP over the long run by a small but persistent margin relative to the baseline option, which shows a GDP growth of 0.3-1.3 percent annually. The reduction in incentives to work among high-wage earners is cited as a key driver of this effect. — attribution: RANEPA
Even when higher tax rates do not boost budget revenues because of accompanying reductions in wage levels, GDP could still fall by about 0.2-0.6 percent per year due to broader changes in labor supply and work motivation across different population groups. These dynamics are essential to understand when projecting macroeconomic performance under reform. — attribution: RANEPA
Researchers note that the numerical outcomes are highly sensitive to several assumptions, with labor supply elasticity playing a crucial role. If people choose to work fewer hours in response to higher taxes, but hours do not rise to compensate, the drag on GDP may be smaller than anticipated. — attribution: RANEPA
Beyond the direct production effects, experts suggest that advancing a personal income tax could bolster societal trust, reduce inequality, and help curb certain costs. In this view, wealthy individuals might shift away from conspicuous consumption and imports, narrowing the domestic demand gap. — attribution: RANEPA
An increase in the top tax rate from 13 percent to 15 percent for annual incomes above 5 million rubles is also examined, with estimates drawing on data from the Federal Tax Service. The analysis discusses a period marked by a broad fiscal measure enacted in 2021 during an epidemic, which affected roughly 1 percent of the workforce. In early 2024, a presidential push called for further modernization of the tax system to promote a fairer distribution of the tax burden. — attribution: RANEPA
Earlier government communications suggested that a sharp wage rise may follow as a response to tax changes targeting the wealthy. These projections inform ongoing policy discussions about how best to align revenue considerations with broader economic and social goals. — attribution: RANEPA
In parallel, discussions around long-term savings and tax deductions have been part of the policy dialogue. The focus remains on how tax reform might shape saving behavior and the resilience of households to future shocks, as well as how it could influence overall fiscal stability. — attribution: RANEPA