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. Last Updated: 07/27/2016

Housing Reform: What For?

What does the government need housing reform for? Sure, we've heard the line about increasing efficiency and all that. But what's the real reason? The more I watch the weary faces of bureaucrats as they explain to the populace that everything will work out in the end, the more I lose heart. The worst part is that they show no enthusiasm. How different things were when the oil industry was privatized. Back then the suits at the State Property Committee had a gleam in their eyes. Svyazinvest provoked an information war and people were killed in the fight for the aluminum industry. But who needs the housing sector?

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No one, when you get right down to it. The sector is deeply in the red, and only a fool would dream of making any money there in the next 20 years. Yet the government's stubborn desire to carry out reforms does not derive from the sorry state of the housing sector, or even from ideological considerations. The real problem lies elsewhere. During the years of high oil prices the government handed out tax indulgences right and left. For two years now, public service announcements have reminded us that we have the lowest income tax rate in Europe. But people are not any more conscientious about paying their taxes.

For 10 years, Russian business complained constantly that its taxes were too high. In northern Europe, on the other hand, taxes are significantly higher, yet companies manage to meet their obligations to the government and still turn a profit. This does not mean these corporations like high taxes. Nokia, for example, is currently trying to blackmail the Finnish government into changing its tax laws. But it never occurs to the Finns to cook the books and stop paying taxes altogether. Some companies in Russia -- often foreign ones -- that operate above board, without double-entry bookkeeping, have proven that this approach can work here, too. It should be noted that these companies are usually among the most efficient.

Widespread tax evasion would be impossible if the government were not itself complicit -- that is, if the government were not deeply convinced of the injustice of forcing business to give something back to pay for social programs. The possibility of tax evasion constitutes an illegal subsidy which the government extends to Russian business at the expense of the public. This subsidy can also be taken away for bad behavior, i.e. political disloyalty.

Back in the days when petrodollars were gushing in, the government tried to legalize a part of this unofficial subsidy. Tax rates were cut to the bone, after which the bureaucrats reported higher rates of tax collection. Budget revenues did in fact rise, but for another reason entirely: The economy was growing and export earnings, which are hard to hide, were up. But all good things must end. By early 2002, the government revealed that its fiscal policies had created a sizable hole in the federal budget.

The budget gap has to be closed, and fast -- without raising taxes, of course. And the billions of rubles currently spent on housing would really do the trick. But in that case the populace would suffer --the same populace that received little or no benefit from earlier budget experiments. The propagandists' argument about the people receiving "assistance" from the government does not stand up to scrutiny. If water and gas are flowing through the pipes, and the heat comes on from time to time in the winter, then someone has already paid the bill. That "someone" is the taxpayer. No one is planning to give the people a tax rebate.

As for competition, cooperatives and condominiums can already hire private firms to service their buildings, but this is not cost-effective because they gain access to housing subsidies when they go through the public sector. Hence the repeal of subsidies is essential to promoting competition. Judging by the polls, however, the population still prefers low housing costs and no competition to competition but paying through the nose.

The main problem affecting the state of the country's housing is not the lack of competition, but the lack of investment. By regularly putting its revenue sources in private hands, the government has lost the wherewithal to invest in housing. We are promised that after reforms are completed, revenue will start flowing in from the private sector. That is, if renovating entryways and replacing broken lightbulbs becomes more profitable than oil fields and contraband weapons, for example.

As they say in Odessa: Don't make me laugh!

Boris Kagarlitsky is a Moscow-based sociologist.