Reforming energy subsidies for the population of Russia

Abstract

This paper for the first time estimates the scale of subsidizing the Russian population through low prices for the energy sector products (1.76 trillion rubles, or 1.3% of Russian GDP in 2021). The need to reform the existing subsidy system is justified due to a number of its defects (appropriation of most of the subsidies by the wealthiest population, significant costs of business to maintain low prices for energy products, reduction of incentives for energy saving and transition to green technologies among consumers of the energy sector products). The phenomenon of an implicit “social contract”, in which the state maintains prices for socially important goods and services at a level acceptable for the population in exchange for the loyalty of citizens, is discussed in detail. The paper analyzes alternative options for reforming energy subsidies for the population. The conclusion is made that the most reasonable reform would be one providing for zeroing of subsidies with the use of part of the released budget resources to increase socially oriented government spending (targeted social payments are considered to be the basiс form of such spending). The proposed subsidy reform scheme is interpreted as a change in the social contract model that is acceptable to the public, namely, a shift from the “low prices of socially important goods — low socially important state expenditure” model to the “high prices of socially important goods — high socially important state expenditure” model.