Its almost comical that 8% was considered a good deal. Now at 20%. 20% for a mortage. It won’t end well.
“Russia Ends Housing Mortgage Subsidy That Stoked a Property Boom”
“Russia is winding down a costly program of mortgage subsidies that’s fueled a property boom in the face of the Covid-19 pandemic and the war in Ukraine.
The program provided mortgages at 8% interest even as the Bank of Russia has hiked the base rate to twice that level to battle accelerating inflation. It prompted criticism from Governor Elvira Nabiullina about the distorting effect of the subsidies for newly built properties that drove up prices, enriched developers and brought housing affordability to multi-year lows.
With state support ending for most eligible groups from Monday, the real estate market that’s been one of the key drivers of Russia’s wartime economy faces months of uncertainty. Banks offer unsubsidized mortgages at 17%-20% interest, more than doubling the monthly payments compared to the state program and making them too costly for most Russians.
“We can expect a stalemate in the next 6-8 months while the population gets used to the new market conditions,” said Pavel Shashkov, an analyst at Moscow-based consultant Yakov & Partners. New construction will slow amid low sales and a drop in flows to developers’ escrow accounts, though a decline in prices is unlikely, he said.”
This Zelensky Bugatti fake story was so poorly done.
Can’t the KGB do better?
This should free up a bunch of construction workers to be drafted (volunteered) for the 3 day war.
“Russia Ends Housing Mortgage Subsidy That Stoked a Property Boom”
That is going to let the air out of the artificially inflated GDP numbers over the next year, but they are much better off ending that distortion sooner, rather than later.
(Bottom Line Up Front: Nothing is getting better in Russia. They are continuing to print 20-25% more rubles every year. Dramatic inflation is already baked in, even if they stopped tomorrow, which they can’t.)
Russia struggles to control finances as Ukraine invasion spending soars (2 July 2024)
Kyiv Independent reports:
“As the war is the Kremlin’s number one priority, all tools at its disposal have been used: increased taxation, sovereign funds, domestic borrowing, and the printing of money.
So far, tax hikes (excluding the big ones on on the oil and gas industries) and money issuance have been relatively moderate...
...Two-and-a-half years in, this balancing act is becoming increasingly difficult...
...According to Russian political analyst Dmitry Oreshkin, Russia’s Central Bank Chief Elvira Nabiulina is trying to maintain a sound monetary policy but the war requires increasing expenses.
“Nabiulina faces a task that can’t be fulfilled,” Oreshkin told the Kyiv Independent.
Budget
As a result of the full-scale invasion, Russia’s spending on national defense rose from 3.6 trillion rubles ($51 billion) in 2021 to 6.4 trillion rubles ($75 billion) in 2023 and is expected to rise to 10.8 trillion rubles ($120 billion), or 29.4% of the budget, in 2024.
NATO countries have set a goal to spend 2 percent of the country’s GDP on defense in 2024. Russia is spending 6 percent. (Note: NATO’s collective GDP is more than 25 times that of Russia)
In contrast, social spending is expected to amount to 7.7 trillion rubles ($87 billion), or 21.1% of the Russian budget in 2024.
Due to the soaring expenditures on the military, Russia has had problems balancing its budget.
Before the invasion, Russia’s federal budget had a surplus of 524 billion rubles ($7 billion), or 0.4% of GDP, in 2021.
However, Russia’s budget deficit totaled 3.295 trillion rubles ($47 billion), or 2.1% of GDP, in 2022, and 3.24 trillion ($38 billion), or 1.9% of GDP, in 2023. The budget deficit is expected to amount to 120.1 billion rubles ($1.38 billion), or 1.1% of GDP, in 2024.
Taxes
From 2001 until 2021, Russia prided itself on having a flat income tax rate of 13%, which was a significant incentive for businesses.
In 2021, the Russian government introduced a 15% rate for income exceeding 5 million rubles ($57,000)...
...In May 2024, Russia’s Finance Ministry announced plans to impose income tax rates ranging from 15% to 22% for income exceeding 2.4 million rubles ($28,000) starting in 2025.
Meanwhile, the corporate tax will rise from 20% to 25%, and reduced rates for some businesses will be canceled.
The mineral tax for iron production will rise, while the mineral tax for fertilizer production will be doubled.
“The increase in taxes is indeed linked to spending on the war,” Andrei Movchan, a Russian-born economist based in London, told the Kyiv Independent...
“It will trigger inflation because the production of consumer goods is falling, while the state-stimulated demand for them remains the same,” Movchan, the founder of investment company Movchan’s Group, said...
...the current tax hike is moderate, but it could be a “test before a more radical tax reform.”
“If taxes are increased now, there is a risk that it may happen again,” Oreshkin said. (Note: Other significant taxes have been reported to be in development/ nearing implementation, such as a tax on childlessness, and a special War tax)
Oil and gas
Historically, the Russian budget’s main source of revenue has been oil and gas...
...Following the full-scale invasion, the Russian government’s oil and gas revenues rose by 28% in 2022, according to Russian government data, as oil prices increased, while Western sanctions on the oil and gas industry were not in force during most of the year. According to Reuters, the Russian budget’s oil and gas revenues then fell by 24% to 8.822 trillion rubles ($103 billion) in 2023 amid lower prices and Western sanctions.
However, this year, Russia’s oil and gas revenues are increasing as the Kremlin re-oriented supplies to China and India, and prices are rising again.
The Russian government’s oil and gas revenue in June is set to rise by more than 50% year-on-year to $9.4 billion, according to Reuters. The Russian government expects oil and gas revenues to rise by 21% year-on-year to 10.7 trillion rubles ($120 billion) in 2024. (Note that these reported Russian Government oil revenues include the effects of major tax hikes on the oil industry, and the cessation of former large subsidies for refineries. Also, these revenues are reported in rubles, which have lost significant value in 2022-2024)...
...Other methods
Russia has also used its National Wealth Fund to balance the budget and finance military spending...
...The State Duma, the Russian parliament’s lower house, said in 2023 that 1.3 trillion rubles ($15 billion) from the National Wealth Fund would be used to balance the budget in 2024...
...”Russia finances spending through internal borrowing and sovereign funds,” he said. “It increases the velocity of money and leads to inflation but does not lead to an increase in the money supply.”...
Russia’s increasing domestic debt also reflects growing military expenditures.
The Russian government’s domestic debt rose from 16.5 trillion rubles ($220 billion) in early 2022... to 20.99 trillion rubles ($240 billion) in March 2024.
Printing money
Another way to finance the war is for the country’s Central Bank to print additional money.
Russia’s money supply rose by 13% in 2021, but the growth rate was much higher after the full-scale invasion began – 24.4% in 2022. In 2023, it grew slower but still more than in the pre-war period – by 19.4%.
(NOTE: 20% and 25% annual growth rates in money supply are very large, and quite inflationary. That is on top of the inflationary ruble expansion of the COVID years. During COVID the US had a very unusual one year (2020) of 25% and another year (2021) of 12% growth in money supply, that induced the inflation which we saw. In the 2 1/2 years since then (from Jan 2022 to now) US money supply has contracted more than 3%, while the ruble supply kept exploding even faster than dollar supply did during COVID.)
The increase in the money supply has fueled inflation... Consumer price inflation amounted to 8.39% in 2021, 11.94% in 2022, and 7.42% in 2023.
Russian economist Igor Lipsits believes that real inflation figures are higher than the official ones. Movchan shares the same belief... (Note: No doubt that the Russians are fueling an inflation powder keg, and that official figures are deliberate lies to manage some effects of that problem (PR). That many new rubles has to stoke high inflation)
Lipsits and Oreshkin said that Russia’s Central Bank resorts to printing money more and more because of the war, fueling inflation.
“Any country succumbs to the issuance of more money and (boosting) inflation during war,” Oreshkin said...
...Elvira Nabiullina, head of Russia’s Central Bank... wants to minimize credit expansion and the issuance of new money but the needs of the war require a more lax monetary policy, according to Oreshkin.
He said that, as a result, Nabiullina could be dismissed.
“They might fire Nabiullina and appoint someone who’ll simply print (more) money,” he added.”
(Speculation, but getting rid of Nabiullina would likely indicate a financial crisis)