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Meeting with Chairman of the Federation of Independent Trade Unions Mikhail Shmakov

March 14, 2014, Sochi

Vladimir Putin met with Chairman of the Federation of Independent Trade Unions Mikhail Shmakov.

President of Russia Vladimir Putin: Mr Shmakov, we have a whole storm of events going on right now, especially in the international arena. But we have been planning to meet for some time now. For all the current turbulence in international relations, it is what is happening here at home that is more important, how people perceive their social situation, and what is being done to resolve socioeconomic issues. I know that the trade unions always have plenty of questions when it comes to these matters, have problems they want addressed, and demands for the Government. Let’s look at the various issues of concern to you and discuss them together.

chairman of the Federation of Independent Trade Unions Mikhail Shmakov: There are some problems that have built up. But I want to say first that it was the bad socioeconomic situation and lack of social dialogue in Ukraine that provided the fuel for the events that led to this turbulence in international relations. This was what lit the flames. Of course organisers played their part too and led things to the state in which they are today. 

As for here, Mr President, there are a number of issues that have built up and are in need of a political signal. 

First, we have these sector-based agreements that are signed as part of the industrial relations social partnership. The employers’ associations and trade unions in the relevant sectors negotiate these agreements, setting out the main benchmarks for wages, the wage payment system, additional social protection packages and so on. Unfortunately, what we are seeing increasingly frequently is that the big vertically integrated companies do not take part in these negotiations, do not join up with employers’ associations in the given sector. Often, it is fully or partially state-owned companies that are not taking part in this process. This is one problem we want to address. 

Vladimir Putin: But these are companies working in these same sectors too.

Mikhail Shmakov: Rosneft,Gazprom and a number of other companies are all rather unenthusiastic, to put it mildly, to the idea of taking part in the employers’ associations and, consequently, in the talks on the agreements in each sector. This ultimately creates distortions in the collective agreements and in the negotiations that we conduct.

Vladimir Putin: One can see why they’re doing it. On their own they already represent a large share of the sectors concerned.

Mikhail Shmakov: That’s exactly right. But the biggest problem is that they are giving a negative example to private companies or partially state-owned companies. If the big companies are not taking part in the process, others will follow suit, all the more so as this whole process does involve extra responsibilities for the employers.

Vladimir Putin: Yes, of course.

Mikhail Shmakov: So in this situation, we think that there needs to be some kind of signal sent, some kind of general impulse. We think that state-owned companies should be obliged to take part in this social partnership process, and perhaps incentives with regard to state procurement contracts could even be introduced for companies taking part in the partnership. Companies that are participating in the sector-based agreements and social partnership system could be eligible for preferences in getting state contracts, say, and if they don’t take part, they go to the end of the queue for getting state contracts. This issue needs to be addressed, but as I said, we think some kind of signal is needed to resolve this situation.

Vladimir Putin: Mr Shmakov, I do not know what final outcome these negotiations should produce, this is always the result of compromise, but I certainly do agree that these companies should take part in this process. 

Mikhail Shmakov: Absolutely, they should not ignore it.

Vladimir Putin: Yes, we will certainly send them this signal.

Mikhail Shmakov: There is another big issue that is not being resolved at Government level, not because it cannot be resolved, but because it always leads to debate between different points of view.

I am talking about the idea of a progressive personal income tax. This is something that people have been talking about for a long time now. The decision taken 14 or 15 years ago to introduce a flat-rate personal income tax was justified and gave an extra boost to business development. That said, the decision still did not fully live up to the hopes we had of it. Today, when we are seeing a bit of a slowdown in growth – and we are building a society based on social justice after all, and the public has increasing demand for social justice, a fair income system and so on – I think it would be worth taking an active look at this matter. Of course we should not take it as far as the kind of maximum personal income tax rates you see in France, but some kind of reasonable level would be possible.

At the same time, those who receive less than the subsistence minimum could be exempted from personal income tax altogether, as is the practice in some countries, or they could be taxed at a lower rate. This is also a big problem that we should come back to, and perhaps again a signal needs to be sent to the country in terms of building an economically fair society.

This brings me to another recurring issue. It is to my regret that I keep saying every time that some kind of principled economic decisions are needed on the minimum wage. What kind of decisions? We did succeed in ensuring that the terms of the general agreement we signed at the end of December contain provisions for raising the minimum wage to the subsistence minimum over the next three years, through to 2016. But the subsistence minimum is calculated using a very poorly designed method that has not changed since the mid-1950s. 

Economic developments are drawn up now for longer periods, and I think it would make sense for these plans to use a different figure. This is not just my opinion but that of the trade union community in general. We want a rational consumer basket to be used in the calculations. This produces a higher figure in monetary terms. According to the information from Rosstat [Federal State Statistics Service], the average wage for the country as a whole was 30,000 rubles [around $800] at the end of last year. But this average wage figure does not reflect the full picture. The median wage (when half of workers earn above this figure and half earn below this figure) is 22,000 rubles. But the economic development plans are calculated using the average wage figure. At the same time, if we calculate a rational consumer basket, we would get a figure of around 16,000–18,000 roubles in current prices.

Let me remind you that the minimum wage today is 5,554 rubles. Of course it would be impossible to raise it to the figure I mentioned overnight, but I think this should be included in the development plans for the future, so as to reduce friction when the time comes to conclude the next general agreement too.

Vladimir Putin: Let’s discuss these second and third issues in more detail. 


March 14, 2014, Sochi