Government disregards social partner proposal on unemployment insurance contributions

In late 2004, the Estonian government decided not to change unemployment insurance contribution rates in 2005, although the social partners had asked for them to be cut. Trade unions and employers have criticised this decision, claiming that it undermines the principles of social partnership.

The Estonian Unemployment Insurance Fund (Eesti Töötukassa) is governed by a tripartite council. The council consists of six members, of whom: two represent the Estonian Employers’ Confederation (Eesti Tööandjate Keskliit, ETTK) (EE0310102F); one represents the Confederation of Estonian Trade Unions (Eesti Ametiühingute Keskliit, EAKL) (EE0308101F); one represents the Estonian Employees’ Unions’ Confederation (Eesti Teenistujate Ametiühingute Keskorganisatsioon, TALO); and two represent the government. In October 2004, the central social partner organisations called for unemployment insurance contributions to be cut in 2005, whereafter the Unemployment Insurance Fund made a proposal to the government to decrease the employers’ contribution from 0.5% of gross payroll to 0.35% and the employees’ contribution from 1% of pay to 0.7% (EE0411101N). However, the government refused to cut the amount of the unemployment insurance contribution.

Justifying the decisions, Ülo Kaasik, the Prime Minister's counsellor for economic affairs, said that by March 2005 the council of the Unemployment Insurance Fund should decide about the Fund's future. At present, there are no clear conceptions about the Fund’s functions in the long-term perspective, he stated, and until now the Fund has been acting in a very favourable macroeconomic environment (with annual GDP growth of averaging 5% in recent years). The Fund has thus accumulated a considerable reserve. Mr Kaasik also said that the government has already approved the national budget for 2005 and that it is very complicated to make changes now. However, according to the relevant legislation, the council of the Fund should make its proposals concerning the unemployment insurance contribution rate for the next year by 1 November and government should make its decision by 1 December. The representatives of the government do not exclude the possibility that the contribution rate may decrease or increase in the future, depending on the Fund’s financial situation or the labour market situation.

The social partners criticised the government's decision and claimed that this kind of behaviour interferes with the principles of social dialogue. The chair of ETTK, Tarmo Kriis, said that in Europe there is a movement towards more autonomous social dialogue and towards the decisions of social partners replacing legislative acts, but in Estonia the decisions of the state and government take precedence over the decisions of the social partners. Mr Kriis also stated that the government's decision not to cut contributions is very unwelcome to employers and that it is regrettable that the government is trying to balance the state budget deficit using very high labour taxes. However, the social partners hope that the government will take their proposals into consideration for 2006.