The secret of stubbornness of the government
Although the government almost daily reiterates that it’s not going to stand back from its decision to implement the new pension reform, the protests and complaints just don’t stop. But these complaints and discontent have one interesting peculiarity.
The most discontent group of citizens is the one that makes the highest salary because their income will be decreased the most. The issue of the people who make less salary is sort of pushed in the second row. In a way, the government wins from this situation by claiming that any reform and notoriety causes a big way of discontent in the country. Then things get better. They claim that people want to have good roads and a strong army but they refuse to pay their taxes in order to have it. The ones, who support the pension reform, argue that the new system creates long money within the state. It means that the funds provided by the society can be circulated for 20-30 years in a row and can be invested in the economy.
This is beneficial to all the groups – pensioners, children. And this is why it was decided to impose the compulsory component for the ones with 40 and younger age.
If they had included older people then the time to pay back would come sooner. But in this case, they can circulate the funds of the people for the lofty idea of flourishing the country. The officials of the economic sector wish that everybody starts to believe in this lofty idea. But the average citizens don’t care about the economic benefits of the state. He should be persuaded that he also wins from this situation. The government is also trying to solve that matter by trying to convince that this is that special moment, during which both the citizen and the state win. One of the known arguments is that by investing the accrued funds in various sectors, the revenues grow faster than inflation and salaries. It means it will be possible to have higher pensions with the accumulated funds. Is such a thing possible in this case? Theoretically yes. But in practice there are various risks that put this theory into risk.
The main risk of the new reform is uncertainty. Ultimately, the economy has a cyclic character. As Prime Minister Tigran Sargsyan likes to say in this changing world there might be serious turbulence, crises and the invested stocks might just get devaluated. And in the case of Armenia it is hard to plan anything for the coming 30 years. That’s why it is no surprise that in developed countries this system has been amended various times.
For example, the compulsory component doesn’t exist by enabling the citizens to choose whether they wish to take the risk or not. Besides, in some countries the percentage of compulsory component has been lowered to 2%. In Russia, which we are going to join the same union, this process has been frozen for one year because in countries like Russia and Armenia where poverty level is 1/3 of the country, high level of corruption the compulsory component may increase the level of shade. It means that many people will prefer to hide their actual salary. But why doesn’t the Armenian government wish to give in and postpone the implementation of the law for at least one year?
What is the reason of this haste? First, let’s remember that next year the salaries of state employees will drastically increase. It means that the population will have more money, which will increase the risk of inflation. By doing so, they are oppressing the inflation level. They are proclaiming about the 5% mandatory payment but if we take the net income that the employees making up to 500,000 salary will face a reduction of 6,5-7%. The government will annually have 100-150 million USD from the salaries of its citizens. By having this money the state partially solves the issue of inflation.
But this is not the main reason. In the long run, the love of our government to the pension reform has a hidden and more important reason but the government prefers to be silent about that. Let’s say at once, that we are not trying to unveil any conspiracies behind these initiatives but if the government is so honest it its efforts why are they trying to push for this reform so bad? Surprisingly enough, the main reason is the concerns of the Armenian government to the future. The meaning of this system for them is to collect more money from taxpayers and pay social payments and accrue those in a single pot.
But this system has one flaw. It is not productive if the population is getting older and the number of pensioners doesn’t reduce. It turns out that the social burden falls on the shoulders of the working citizens, the number of which is dropping. Instead the number of pensioners is growing. Under these circumstances it becomes very difficult to increase pensions and social payments. In Armenia we have exactly this situation. The population is getting old. For example, according to the National Statistics Service at the end of 2012 the number of pensioners in Armenia amounted to 508,071. If in 2009 pensioners would make 16,2% of the population then in 2012 this index reached 16,7%. In 2001, this index was a little over 14%.
In the meantime, the number of the economically active population, according to official data, reduced from 1 million 418,8 thousand to 1 million 418,3 thousand compared to 2009. But these are only official data, according to which the population of Armenia is over three million. But even Vladimir Putin doesn’t believe in this figure. According to the data of the migration service during 2009-2012 over 158 thousand people migrated from Armenia. And this year this index will exceed 200 thousand. It is no secret and the migrants are mostly the young population and in the country we mostly have pensioners. And it means that the population of Armenia gets older much faster than what the official statistics shows. Moreover, various research studies on migration show no trends of reduction.
The RA government is the best aware of this sad situation. Our government perfectly knows what the actual number of our population is, how many people have migrated and how many more are going to migrate. And they know that it’s going to be very difficult to take care of the social needs of the population. This is a serious threat for the reproduction of the government. It would require serious reforms not only in the economic but also political and judicial sectors to resolve the problems. But our government either doesn’t wish to undertake serious reform or just doesn’t show enough will to do so. Instead they have found a different solution. Instead of ensuring that people don’t migrate they ensure that they have enough accumulated funds to take care of their needs.
Perhaps the slogan “to a safer Armenia” should have been construed literally. The citizens themselves have to take care of their needs without relying on the state. And the ones, who complain that the accumulated funds are not enough, the government will reply, “you should have accumulated more in the past.” It means that the government that has been bragging about solving the social issues of its population, has decided move the burden on the shoulders of future pensioners.
By Babken Tunyan
