Buoy burglary
Estonia accuses Russia of stealing navigation buoys from the Narva River
Hello from the Bear Market Brief.
This week in the news:
Border disputes are causing tension between Russia and its Baltic neighbors.
The Russian government announced tax hikes in order to maintain spending on the war in Ukraine.
Russia intensified missile strikes on Kharkiv as part of its renewed offensive in the region.
President Putin’s aide and former bodyguard, Alexei Dyumin, was appointed Secretary of the State Council.
Personnel changes in the regions continued with the resignation of two governors: Natalya Komarova of the Khanty-Mansi Autonomous District and Dmitry Azarov of the Samara Region.
A new Ukrainian law will allow convicts to apply for military service in exchange for the possibility of parole.
— Sara Ashbaugh, Editor-in-Chief
Baltic border disputes
A draft resolution by the Russian Defense Ministry to re-draw Russia’s maritime borders in the Baltic Sea created confusion and alarm last week.
On May 21, a resolution appeared on the Defense Ministry website proposing changes to the coordinates of the Russian border. This included expanding Russian control in the eastern part of the Gulf of Finland, as well as parts of the Baltic Sea off of Kaliningrad. The exact coordinates for the proposed border were not published. The Defense Ministry justified the potential change by claiming that the existing border lines are outdated. According to the draft resolution, the current borders were “determined from small-scale nautical charts compiled from materials of works of the mid-20th century, and do not fully correspond to the modern geographical situation.” Kremlin spokesperson Dmitry Peskov said that there was “nothing political” about the proposed changes.
Russia’s Baltic neighbors, on the other hand, viewed the proposal as a clear provocation. “Another Russian hybrid operation is underway, this time attempting to spread fear, uncertainty and doubt about their intentions in the Baltic Sea. This is an obvious escalation against NATO and the EU, and must be met with an appropriately firm response,” Lithuanian Foreign Minister Gabrielius Landsbergis posted on X. “Creating distraction is also a form of hybrid influencing. We will not get distracted,” Finland’s Foreign Ministry said. Later the following day, the draft resolution was deleted from the Russian Defense Ministry website, and Russian officials denied that any changes were underway. “There were and are no intentions to revise…the state border line of the Russian Federation in the Baltic,” Russian state media agency TASS reported, citing an anonymous source.
However, the controversy surrounding Russia’s Baltic border did not end there. Last Thursday, Estonian authorities reported that Russian border guards removed navigation buoys from the Estonian side of the Narva River. The buoys demarcate a shipping route in the Narva, and, in the past, their placements were annually revised and mutually agreed upon by the two countries. Since the invasion of Ukraine, however, Russia has regularly contested the location of the shipping route. This year, Russia is contesting the location of about half of the planned 250 buoys, according to Estonia’s border guard service. On May 13, the first 50 buoys were installed according to the shipping route established in a 2022 agreement. On May 23, 24 of them were unilaterally removed by Russia.
Estonia and the EU demanded the immediate return of the buoys. “This step, taken by Russia under the cover of darkness, fits into a broader picture of Russia’s provocative behavior, including on the borders with neighboring countries,” the Estonian Foreign Ministry said in a statement. “We consider this an inciting incident at the border…Estonia demands an explanation for the removal of border buoys, and also demands their immediate return,” the statement continues. EU High Representative Josep Borrell also called Russia’s behavior “unacceptable,” and “part of a broader pattern of hybrid actions by Russia.” The Kremlin has not yet commented on the incident.
— Sara Ashbaugh
Authorities are investigating a street brawl that resulted in a shootout in Chelyabinsk on Saturday. According to local media, the fight broke out after a former Wagner fighter and his girlfriend were attacked by a group of men, although the exact circumstances are unclear. A video of the event was captured and shared on social media. The Main Directorate of the Ministry of Internal Affairs in the Chelyabinsk Region reported that all participants in the “situational conflict” were identified and detained. Violent crimes involving former war participants—many of them convicted felons—have become a growing problem in Russia over the past year. (photo: Chelyabinsk of the Future)
Tax hikes announced
The Russian government adopted proposals for tax hikes that will be used to stabilize public finances while maintaining (or increasing) spending on the war in Ukraine. The tax reform, which will likely be adopted in the near future, will enter into force next year. However, according to the Finance Ministry, there is room even in this year’s budget to increase expenditures due to higher-than-expected revenues from the non-energy sectors of the economy.
According to the proposed changes, the corporate income tax rate will be raised from 20% to 25%—this should provide the lion’s share of expected extra revenues, 1.6 trillion of 2.6 trillion rubles ($17.7 billion of $28.8 billion)—while a progressive scale will be reintroduced for personal incomes over 2.4 million rubles per year ($26,568), with exceptions for self-employed individuals, entrepreneurs, and war participants. The government will restore corporate income tax for IT companies, partially scrapping a pandemic-era tax break, albeit these companies will only be taxed at 5% of their profits. Similarly, mineral extraction taxes will rise significantly for a number of sectors, but in both cases there are exceptions for companies investing above a fixed threshold. Furthermore, the income threshold to use simplified taxation for companies will rise from 268 million to 450 million rubles ($3 million to $5 million), together with a higher expected residual value of fixed assets.
The direction of the proposed hikes roughly corresponds to leaked plans reported by the investigative outlet iStories in March, but there are notable differences. The leaked plans suggested progressive personal income tax rates above yearly incomes of more than 1 million ($11,065), rather than 2.4 million rubles. The progressive rates would have been lower than in the final version of the reform, which will introduce four different rates ranging from 15% to 22% in addition to the base rate of 13%, with a 15% rate for incomes between 2.4 and 5 million ($26,568 - 55,325) and a 18% rate for incomes between 5 and 20 million rubles per year ($55,325 - 221,300). This means that the tax reform, at least for now, will affect a significantly lower number of people directly than originally expected (according to Finance Minister Anton Siluanov, only 3.2% of the working-age population). This is perhaps to avoid popular backlash as inflation remains relatively high. For a detailed analysis of the tax changes affecting businesses, it is worth reading The Bell’s article.
It remains unclear how the federal government will share the extra income with regional and municipal budgets. Last week, Duma Speaker Vyacheslav Volodin suggested leaving more money with municipal budgets, but this could be a suggestion to regions—which have their own arrangements with municipalities on sharing fiscal income—rather than the federal government. Over the past two years, the federal government has increasingly realized that many municipalities, which rely heavily on transfers from regional budgets, are struggling financially. However, it is most likely that the extra fiscal income from the tax hikes will be collected at the level of the federal government and later partially redistributed.
— Andras Toth-Czifra
Russia continues to terrorize Kharkiv
In recent weeks, amid its new offensive in the Kharkiv region, Russia intensified missile attacks on the region’s capital. On Saturday alone, it struck Ukraine’s second-largest city several times. During one of the attacks, Russia hit a large home improvement store, Epicenter, with two guided aerial bombs, killing at least 19 people, including a 12-year old child, and injuring 54. As of May 29, the search operation following the attack is ongoing, as several people remain missing. On Monday, Russia struck the city again, killing one person and injuring at least 11 more. According to local authorities, two enterprises were hit—one specializing in agricultural equipment and another in manufacturing confectionery products. “There was not a single military object at these enterprises. This is another war crime,” commented Serhii Bolvinov, the head of the police’s investigative department in the Kharkiv oblast.
On May 23, Russia attacked Ukraine’s third-largest printing house, Faktor Druk, located in Kharkiv. As a result, seven people were killed and 22 injured. The strike destroyed printing equipment and over 50,000 books. The total damages from the attack amounted to nearly $5.4 million. Faktor Druk was not the first Kharkiv printing house attacked by Russia. Merely two months ago, Russia destroyed the Hurov&K printing facility during another missile strike on the city.
— Lisa Noskova
On the afternoon of May 25, a Russian missile hit the Epicenter market in Kharkiv. According to Ukrainian authorities, there were more than 200 people in the building at the time, and at least 19 were killed. Large areas of the market were set ablaze, including the Garden Center, pictured here. At the beginning of May, Russia launched a renewed offensive in the Kharkiv region, including regular shelling of the capital city. Ukrainian President Zelenskyy called the airstrike “a manifestation of Russian madness” in a video statement. “Only crazy people like Putin are capable of killing and terrorizing people so vilely,” he said. (photo: Sergey Kozlov / EPA / Scanpix / LETA)
Dyumin appointed to the State Council
Vladimir Putin appointed his aide and former bodyguard, Alexei Dyumin—until recently the governor of the Tula Region—to the position of State Council Secretariat. Dyumin takes over the position from Igor Levitin, who had been State Council Secretary since 2012.
The State Council, in its current incarnation, was created in 2000 as an advisory body chaired by the President and consisting of, among others, regional leaders, the Prime Minister, presidential plenipotentiaries, the deputy head of the Presidential Administration Sergei Kirienko, and a range of other officials. Its Secretariat, in general, has been closely associated with the Presidential Administration. The 2020 constitutional reform strengthened the State Council’s position in Russia’s constitutional system, albeit in an ambiguous way. Over the past years, it has gradually become an important discussion forum in the policymaking process in the phase before legislative initiatives are submitted to the State Duma and a channel of communication between the federal government and regional leaders.
Dyumin’s appointment is clearly a further promotion for the man whom many regard as one of Putin’s most trusted associates. Some even consider him a candidate for Putin’s successor. It should be noted, however, that the exact powers and duties of the State Council Secretary are only vaguely described. It is likely that Dyumin’s personal weight and closeness to Putin will lend influence to the position and allow him to shape it in a way that he prefers, rather than the other way around—similarly to how Nikolay Patrushev, who was recently dismissed as the Secretary of the Security Council, made his former position important due to his personal clout.
Two weeks prior to his appointment to the Secretariat of the State Council, Putin also appointed Dyumin to the supervisory board of Rostec, Russia’s state-owned technology giant and most important military supplier. This appointment is also significant at a time when ramping up military production has been elevated to the single most important short-term policy goal of the Kremlin.
— Andras Toth-Czifra
Personnel changes in the regions
Two governors resigned on May 30 and 31, continuing a wave of personnel changes in the regions. Natalya Komarova, the head of the Khanty-Mansi Autonomous District, one of Russia’s main oil-producing regions, left her post after 12 years. Komarova has been known for, among other things, her communications gaffes, including one in October last year where she told citizens at a public forum that “we don’t need [this war].” The Telegram channel “Baza” speculated that her dismissal may have to do with this and an alleged “discreditation of the army” case opened against her, although this is not confirmed. Her successor is Ruslan Kukharuk, the mayor of Tyumen. Both the Khanty-Mansi and Yamal-Nenets districts have a fiscal sharing agreement with the Tyumen oblast, and thus Kukharuk can be considered a local cadre. He is the fourth local to be made head of a region this year, breaking somewhat with the Kremlin’s earlier preference for “outsider” governors.
On Friday, Dmitry Azarov, the head of the Samara Region, resigned, which was somewhat surprising given that he was reelected for a second term only last year. Azarov’s term, however, has been riddled with corruption investigations into his government and a conflict with the region’s powerful Duma deputy, Alexander Khinshtein. As in the case of Komarova, there are rumors about potential prosecution. His successor will be Vyacheslav Fedorishchev, until now the head of the government of the Tula Region—the region whose former governor, Alexey Dyumin, has just been promoted to Secretary of the State Council.
In spite of the resignations, the Kremlin’s personnel policy regarding governors has so far remained rather conservative. Vladimir Putin has endorsed the candidacies of most sitting governors who are up for reelection in September, including officials like Orenburg Governor Denis Pasler, who was criticized for the region’s mismanagement of floods, and Ingushetia Governor Makhmud-Ali Kalimatov, whose brother was arrested last week on corruption charges. Therefore, the two resignations appear to be individual cases, potentially linked to changes in the federal government. However, the past weeks also saw a new wave of arrests of regional officials, which began following the March presidential election. High officials, including deputy governors, sitting or former members of regional governments, and law enforcement personnel, were arrested under suspicion of corruption in the Altai Territory, Bashkortostan, Dagestan, the Krasnodar Territory, the Moscow Region, the Oryol Region, the Rostov Region and Tatarstan.
In Chechnya, meanwhile, Magomed Daudov was appointed to head the government of the region. Daudov had been recently dismissed as the Speaker of the region’s parliament and many have considered him a candidate for a higher position in the federal government. In the end, this went to Muslim Khuchiev, Daudov’s predecessor in his new position, who was appointed as an aide to federal Prime Minister Mikhail Mishustin, strengthening the federal positions of Chechnya’s head, Ramzan Kadyrov.
— Andras Toth-Czifra
On the podcast
Russia has taken an increasingly authoritarian turn over the last decade, but is its political system fascist? Marlene Laruelle and Julian Waller join to discuss the blurry lines between politics, ideology, and terminology.
Convicts to serve in the Ukrainian military
On May 8, the Ukrainian Parliament passed a bill allowing military service for certain categories of convicts in exchange for the possibility of parole at the end of their service. President Zelenskyy signed the law on May 17. According to the new policy, those convicted of sexual violence, drug trafficking and production, or crimes against national security will not be eligible to join the armed forces. In addition, the legislation excludes lawmakers and officials imprisoned for corruption. Some prisoners convicted of a single murder, however, can be released, unless the crime was committed with aggravating circumstances.
Ukraine’s Minister of Justice Denys Maliuska commented that this policy has the potential to increase the number of military personnel by as many as 20,000 new recruits, as well as reduce the burden on prisons—correctional facilities in the country may at some point exceed capacity. The Minister said that convicts released under the new law will serve in separate military units and participate primarily in assault operations. As of Tuesday, over 600 prisoners have already been freed under the new law and are currently undergoing training. The Ukrainian judiciary has received 4,300 applications from current convicts to enlist, and each bid must be reviewed and approved through the courts.
This measure somewhat replicates that used by Moscow to boost its troops. However, Russia recruits prisoners convicted of violents crimes, while Ukraine does not. Additionally, while Ukraine developed and adopted a separate piece of legislation to recruit convicts, Russia’s efforts have been highly secretive.
— Lisa Noskova