Russian President Vladimir Putin gave his annual State of the Nation address to the Federal Assembly on April 21 that was peppered with promises of heavy social spending and a better quality of life, but spiked with threats to Russia’s opponents, who he said would “suffer like they have never suffered before,” if they crossed Russia’s interests.

This was the 27^th State of the Nation speech since the end of the Soviet Union but the first in 15 months, due to delays caused by the coronavirus (COVID-19) pandemic.

Due to the coronacrisis, the number of guests was less than the usual 1,000 people and the chairs were set further apart, but more than half the audience were not wearing masks, despite the fact the virus is still ravishing Russia.

Social

Putin put aside his traditional rundown of macro-economic progress and predictably enough began by thanking health and emergency services workers for their Herculean efforts to combat the pandemic.

To a large extent Putin’s speech can be seen through the prism of his need to play to the domestic gallery in the run-up to the September parliamentary elections and he spent three quarters of his time talking about issues that are central to the lives of ordinary Russians.

Notably he made no mention of jailed anti-corruption activist and opposition politician Alexei Navalny and the social unrest of the protests that had already begun on the same day in Russia’s Far East as the sun went down over Vladivostok. The Kremlin has studiously been ignoring the “Berlin Patient”, and with some justification, as Navalny’s popularity in the polls has fallen by one percentage point to 4% and the majority of Russians are simply not interested in him or his cause.

The pandemic has been a PR gift for the Kremlin after Russia surprised the world with rapidly producing what appears to be the most effective and the cheapest of the vaccines. The most recent tests on Sputnik V report that its efficacy is 97% and it also seems to work well against the more virulent strains that have appeared in recent months. Putin warned “the virus is still among us.” He exhorted all Russians to get inoculated, as they have shown themselves to be unwilling to take the jab. “This is the only way we can block a deadly epidemic,” he said.

“The opportunity to get vaccinated should be ubiquitous in order to form herd immunity by the autumn,” Putin said calling on all Russians to get vaccinated.

More spending on health was promised to both improve the quality and quality of the service. Amongst other things, Putin promised that if there were a new virus Russia should be able to develop and start distributing testing kits within four days.

Spending was also promised on more general health issues. In 2020, a social support programme was rolled out for more than 1.2mn Russian families where low-income families with children aged three to seven are now entitled to monthly grants. These are available to families whose per capita income does not exceed the subsistence level. Last year children in such families totalled 4.75mn. In 2021 the mechanism was improved: depending on the family’s income, the grants will range 50%-100% of the subsistence level in the given region, which will help 30%-50% of families rise above the poverty line.

Putin instructed the government to prepare a comprehensive family support programme by July 1, as well as the following measures:

• Children from single-parent families aged 8 to 16 inclusive will receive payments in the amount of RUB5,650.
• Families will be paid RUB10,000 ($130) at a time for all schoolchildren.
• Pregnant women will be paid RUB6,350 a month.
• Sick leave for the care of children under seven years old will be paid at the rate of 100% of earnings.

Education was another focus, with free higher education for all and more schools and kindergartens for children. Putin said that in 2020 the availability of school education had risen to 92% and by the end of 2021 it will increase further to 98%, although considerable funds have had to be used for the struggle against the pandemic. New measures to support and develop education include:

• 1,300 schools will be built by 2024
• RUB5,000 will be received by the curators of educational groups of technical schools and colleges
• RUB10bn will be allocated in the next two years for the overhaul of pedagogical universities
• In the next three years RUB24bn will be allocated to renovate houses of culture, libraries and museums in rural areas
• 45,000 state-funded places will open in universities

Climate

The climate crisis has moved rapidly up the Kremlin’s priority list after 2020 saw several very large ecological disasters, and it is becoming increasingly clear Russia’s permafrost is melting.

As bne IntelliNews reported in the “Cost of carbon in Russia”, the country has already made progress in reducing emissions simply by modernising its outdated Soviet-era equipment, but Putin called for the emissions to be reduced to less than those in EU in next 30 years, “so that will create thousands of new jobs,” the president said. He said that by 2024 pollution should be reduced by 20%.

“In many cities there is a problem with air quality. We have state guarantees and will give them to a number [of] cities with metallurgical plants. And not limit ourselves to these cities,” Putin said. The island of Sakhalin has been the first to introduce a carbon tax on emitters of greenhouse gases (GHGs) and new rules on emissions are in the works. Putin proposed:

• Reduce greenhouse gas (GHG) emissions to lower than those in the EU. The 12 largest industrial centres need to reduce air emissions by 20%. As examples, the president cited the refurbishment of aluminium smelters in Bratsk and Novokuznetsk
• Accelerate the establishment of financial responsibility of enterprises for environmental damage. The basic principle is that the polluter pays: “If you make a profit, clean up after yourself.”
• Provide expanded responsibility for waste and packaging disposal
• "Colour" environmental payments for targeted use, direct them to environmental restoration
• To extend the system of quotas for harmful emissions into the atmosphere to all cities of Russia where this is not satisfactory.

Regional debt

As bne IntelliNews reported, the region of Ingushetia was close to going bankrupt in November and some of Russia’s regions are struggling under their debt burden. About two years ago the MinFin introduced a “traffic light” system where it simply took over the funding operations of the six “red” regions and put them under “manual control.”

Things got worse last year as regions spent heavily on boosting public health services and threw up new hospitals to prevent the system from collapsing.

Borrowed heavily from the centre, many of these loans are coming due in July. Putin ordered a restructuring of these loans, delaying repayment by 13 years at a nominal 3% interest rate to ease the burden and aid the country’s recovery. He added an incentive by saying: "The less debts the region had, the more it will be able to get infrastructure loans" and promised RUB500bn of federal funds that will be dedicated to help the indebted regions.

“The volume of commercial debt of the regions above 25% of their own revenues will be repaid through federal loans with repayment until 2029,” Putin said.

Business

A new investment cycle was one of the key ideas of the president’s message last year, including stable taxes for businesses, the adoption of laws for protecting and encouraging capital investment, completion of the reform of control and supervision and fine-tuning of criminal legislation regarding economic crimes.

And real progress was made despite the coronacrisis and its recession. Investment growth rates climbed into the green in the fourth quarter of 2020, and in 2021 they will grow by 3.1% (in contrast to last year’s 1.4% fall). A target of 5%-6% is to be achieved in 2022.

But there is no chance of achieving a GDP growth rate above the world’s average, which is another of Putin’s goals. The Economic Development Ministry’s latest forecast, presented last September, mentions a 3.3% increase in 2021, while the World Bank and the IMF estimate the world's GDP growth at 4%-6%.

This year Putin called for less specific measures to improve the business climate and he mentioned “create jobs” several times during the speech.

Unemployment rose dramatically in the last year, rising from a post-Soviet low of 4.3% in August 2019 to a recent peak of 6.3% in October 2020, but the rate has started to fall further.

“The government spent heavily last year and saved 5mn jobs but unfortunately some still lost their jobs,” says Putin. “Our goal now is to bring the labour market back and we need to do that fast to get people salaries back.”

Putin called for more support for SMEs in a month to stimulate the economy, including through state procurement. He also called for cutting red tape and “improv[ing] the investment environment.”

“The profit of the corporate sector promises to be record, despite the pandemic,” the president noted. “Let's see how it will be used. Based on the results, we will think about adjusting tax legislation,” Putin said, suggesting there would be a preferential tax regime for companies that direct profits to development and investment, rather than withdraw them as dividends. Russian companies currently pay some of the highest dividends in the world.

Specifically Putin highlights investment into the tourism sector, where he promised to launch a programme of concessional loans for the construction and reconstruction of hotels with a rate of 3-5% for 15 years.

He also named several large investments into infrastructure projects and promised more state aid and loans here. A full third of the RUB27 trillion ($340bn) that is planned for the 12 national projects will be spent on infrastructure.

Foreign policy

The foreign policy section in his speech was shorter than usual and mainly consisted of threats.

"We want to have good relations with all international actors, even with those with whom we do not now. But they need to know, if they try to burn bridges or blow them up, our answer will be devastating. They will suffer; and suffer like they have never suffered before,” Putin said.

“Shouting about Russia has become a sport. We behave with restraint, modesty and don’t even respond to outright rudeness. We want to have good relations. But our good intentions should not be seen as weakness,” Putin said. “Russia's response will always be swift, asymmetrical and tough.”

Relations with the West have fallen to a new low as Russia moves an estimated 40,000 troops up to the Ukrainian border and has a total of some 100,000 forces in the area if the military personel permanently stationed in Crimea and the Moscow-backed rebel forces in the Donbas are included in the count.

Russian Foreign Minister Sergei Lavrov got the ball rolling in early February with his new rules of the game speech and followed up a week later with a threat to break off diplomatic relations if Russia was hit with more “economically damaging” sanctions.

The Biden administration answered with targeted and largely symbolic sanctions on April 15 that the Kremlin seems to have deemed as acceptable, as following the announcement Russian presidential spokesman Dmitry Peskov made it clear a possible summit between US President Joe Biden and Putin was still on the table, but the posturing continues.

After 75 minutes Putin came to the military power part of his speech which has become a new feature in recent years, where he listed the new hypersonic missiles that Russia has developed and is now deploying. He also talked about investment into both “defensive and offensive” nuclear weapons and other weaponry.

“Russia is a leader in building state-of-the-art weapons and modern nuke weapons. We are suggesting [to our] counterpart to talk [about] strategic stability for co-existence,” Putin said in remarks that were clearly directed at the White House. He added that Russia’s military will be 76% modernised by 2024.

Biden has offered a summit but the Kremlin’s response so far has been lukewarm. Putin returned to his favoured theme of sorting out the world’s problems in the UN and proposed a meeting of the five permanent members of the UN Security Council to talk about several thorny issues, including Syria and Libya.

These comments are designed to keep the pressure on the White House to remain at the negotiating table as Biden has mentioned several times that he wants to open arm controls talks with Russia and the very first thing he did on taking office in January was sign off on a new START III missile deal.

Putin did not specifically talk about the current military manoeuvers near Ukraine, but did go out of his way to link the events in Belarus with those in Ukraine.

On the same day as Putin was giving his speech Ukrainian President Volodymyr Zelenskiy was preparing to call up military reservists to counter the Russian build-up on the border.

Zelenskiy has signed a law allowing reservists to be called up for military service without announcing mobilisation, his office stated as Putin was speaking.

"This will make it possible to quickly equip the military units of all defence forces with reservists, thereby significantly increasing their combat effectiveness during military aggression," the Ukrainian president’s office said.

A day earlier Zelenskiy challenged his Russian counterpart to meet him in the Donbas region for talks to end the conflict there and ease tension between the neighbours.

Putin compared Ukraine’s two uprisings against their presidents to the attempted “coup d'état” in Minsk following the disputed August 9 elections last year and then went on to condemn the assignation attempt that Russia “help thwart” last week by arresting two of the Belarusian plotters in Moscow.

This story barely caught the headlines in the Western press and Russian Foreign Ministry spokeswoman Maria Zakharova complained last week that the news was being buried by the hype surrounding Russia troop movements on purpose.

"You may think what you like about Lukashenko's policies, but planning to organise the killings of top officials... is just too much,” Putin said.

Putin continued by describing the alleged plot in some detail that, in addition to murdering Lukashenko and his teenage son, included cutting off power to the capital and launching a “massive cyber-attack” on the government.

The whole story looks suspiciously like a fabrication designed for consumption by the Russian public to justify Russia’s role in Belarus. Putin has been caught out blatantly lying in his public addresses before in a transparent effort to manipulate public opinion. In 2016 he was forced to issue a quiet apology after he claimed the German newspaper Sueddeutsche Zeitung newspaper was owned by US investment bank Goldman Sachs, after it was one of the first publication to print embarrassing details about Putin’s close associates’ wealth as part of the Panama Papers leak.

"First article about it appeared in the Sueddeutsche Zeitung, the media outlet that is part of a media holding owned by the US financial corporation Goldman Sachs," Putin said. Peskov later said that apologies had been offered both to the bank and to the newspaper, but the suspicions had already been sown in the Russian public’s mind.

Social media has been buzzing in the run-up to the speech that Putin could make a big announcement about bringing the Russian and Belarusian economies closer together. As bne IntelliNews has reported, the two countries seem to be preparing to create a rublezone as one of several options. Adding to the excitement was the fact that Belarus' President Alexander Lukashenko deployed a large number of security forces in Minsk on the morning of the speech, despite the fact that no demonstration was planned in Minsk on April 21. But in the end nothing out of the ordinary was said. However, Putin and Lukashenko are due to meet again tomorrow and the Federation Council will meet in a special session on Friday.

“Noteworthy that the main focus of the foreign policy part of Putin's speech was on Belarus and an alleged coup attempt there. Tomorrow Putin meets with Lukashenko. There's already an increased police presence in Minsk today. Watch this space,” said PhD candidate and respected Russia watcher Olga Tokariuk on Twitter.