Social partners criticise new law on social insurance debts

A new insurance law contains more favourable terms for the settlement of debts to the Social Insurance Foundation (IKA), allowing for an increased number of instalments as well as discounts on additional taxes and charges. However, both the Greek General Confederation of Labour (GSEE) and the Economic and Social Council (OKE) are opposed to this easing of the legislation.

Terms of new legislation

A new regulation on payment of insurance contributions owed to the Social Insurance Foundation-Unified Insurance Fund for Employees (IKA-ETAM) and supplementary insurance funds provides for capitalisation of overdue insurance contributions. In accordance with the new legislation, the amounts due may be paid either as a lump sum, in which case an 80% discount on additional taxes and other charges applies, or in a maximum of 96 monthly instalments, with a 50% discount on the additional fees and surcharges.

Debtors who owe over €1 million are allowed the option of settling their debt up to the threshold of €1 million in the above manner. For amounts exceeding €1 million, all payments will be suspended for 18 months, provided that 8% of the amount above €1 million has been paid. Insurance clearance is granted during the 18-month suspension period and, after the end of that time, the amount due is to be paid in 78 monthly instalments.

In the preamble to the bill, the argument in favour of such a regulation is attributed to the need to boost the competitiveness of Greek companies. This competitiveness is undermined by the adverse situation in which the international price of oil is constantly increasing, preventing companies from being able to meet their contractual obligations.

Social partners critical of regulation

In the opinion of the Greek General Confederation of Labour (GSEE), the new regulation creates serious problems for the social insurance system. Representatives of the employer organisations in the Economic and Social Council (OKE) have also come out against the legislation. According to GSEE, the regulation invalidates the previous fixed system of settling overdue insurance contributions; in effect, employers are encouraged to avoid making use of the standard payment facilities, since they can expect even more favourable regulations in the future.

The benefits of the new law accrue mainly to the state itself, as ministries and public organisations top the list of debtors to IKA-ETAM. Furthermore, the argument about reduced competitiveness due to an increase in the international price of oil does not appear to be valid, as oil prices have recently been on a downward spiral.

Moreover, the experience from the previous regulation regarding debts, just 22 months ago, is a negative one since, out of the €3.6 billion owed to IKA-ETAM, only 2% – corresponding to €68.5 million – was paid as a lump sum, and 16% (€502 million) as a gradual payment over several months. Indeed, it was found that those who opted for gradual repayment only paid the first few instalments, in order to obtain tax clearance, and then stopped making further payments in anticipation of a more favourable regime to come. Thus, the new regulation rewards those who refuse or avoid paying their employer contributions, leading to a distortion of the rules of competition, as reliable businesspeople are placed in a more adverse position than their unreliable colleagues in this regard.

At the same time, the regulation offers the government legislative loopholes enabling it to avoid full payment of its overdue debts. Furthermore, encouraging capital payments would also give IKA’s finances a significant boost, and allow the state’s obligations to be pushed into the future, giving a false picture of the public deficit. However, this will upset the actuarial balance and undermine the financial viability of IKA-ETAM in the longer term.

Changes to pension fund

The new insurance law also restructures the insurance departments of the Pension Fund for Engineers and Public Works Contractors (TSMEDE) – a move which will lead to higher pensions. GSEE sees this step as a positive development although it has also expressed some reservations, as the regulation has not been accompanied by a financial study, that is, an assessment of its cost and impact on the fund’s viability. This would be a valuable exercise, particularly since the changes envisaged are so extensive.

Stathis Tikos, Labour Institute of Greek General Confederation of Labour (INE/GSEE)