Social partners oppose plan to fix insurance contribution threshold

The majority of the social partners in Lithuania have opposed the Investors’ Forum initiative to set an upper limit or ‘ceiling’ for social insurance contributions in Lithuania. The Tripartite Council has asked the Ministry of Social Security and Labour to assess to what extent the social insurance fund depends on such contributions for its pension budget. At the same time, the social partners plan to explore the possibility of setting a minimum level of income, or ‘floor’, below which a worker would not be obliged to pay any social insurance.

The Investors’ Forum (Investuotoju forumas, IF) – an association representing the largest and most active investors in the Lithuanian economy with a mission to improve the country’s business environment – initiated a discussion on setting an upper limit or ‘ceiling’ for social insurance contributions in Lithuania. According to the IF, high taxation of the labour force reduces the competitiveness of the national economy. In the IF’s opinion, this is the reason why Lithuania is at a disadvantage both in the global labour market and at regional competitive level. In addition, high taxation of the labour force is one of the preconditions restricting direct foreign investment.

According to the IF, Lithuania should set a ceiling for social insurance contributions that would not be higher than in neighbouring Latvia. The IF suggested that social insurance contributions should not be withheld from wages exceeding five times the average wage, amounting to approximately €2,000. Other bodies exerting pressure on the Government of the Republic of Lithuania (Lietuvos Respublikos Vyriausybe, LRV) to introduce a ceiling for social insurance contributions include the Lithuanian Confederation of Industrialists (Lietuvos pramonininku konfederacija, LPK) and the Association of Lithuanian Chambers of Commerce, Industry and Crafts (Lietuvos prekybos, pramones ir amatu rumu asociacija, LPPARA).

Reaction of social partners

However, most of the social partners in Lithuania disagree with the IF’s recommendation to introduce a ceiling for social insurance contributions. In particular, the proposal was opposed by small and medium-sized enterprises (SMEs) in Lithuania, represented by the Lithuanian Business Employers’ Confederation (Lietuvos verslo darbdaviu konfederacija, LVDK), as well as by the national level trade union confederations – the Lithuanian Trade Union Confederation (Lietuvos profesiniu sajungu konfederacija, LPSK), the Lithuanian Labour Federation (Lietuvos darbo federacija, LDF) and the Lithuanian Trade Union ‘Solidarity’ (Lietuvos profesine sajunga ‘Solidarumas’, LPS ‘Solidarumas’).

LVDK circulated an address to its members and other social partners encouraging them to reject the IF proposal, arguing that:

Rushed efforts to increase flows of direct foreign investment using measures inadequate to the existing situation will make the competitiveness of SMEs considerably worse in Lithuania.

Both opponents of the IF – LVDK and the Lithuanian trade unions – believe that introducing a ceiling for social insurance contributions would increase economic inequality within the Lithuanian population. They are urging the LRV to reject the IF proposals and follow the measures already defined in the programme for government, namely, increasing the tax-free allowance on income and reducing individual income tax (LT0608029I).

Discussion at Tripartite Forum

At the initiative of LVDK, the question of setting a social insurance contribution ceiling was discussed on 5 December 2006 at the Tripartite Council of the Republic of Lithuania (Lietuvos Respublikos Trišale taryba, LRTT). Representatives from national level employer and trade unions confederations, the LRV and the State Social Insurance Fund Board (Valstybinio socialinio draudimo fondo valdyba, Sodra) were present at the meeting. After extensive discussions, the social partners opposed the idea of placing a ceiling on social insurance contributions to the national social insurance fund. Moreover, they requested the Ministry of Social Security and Labour (Socialines apsaugos ir darbo ministerija, SADM) to prepare material for the LRTT, aimed at establishing the extent to which SODRA depended on the social contributions to meet its minimum and maximum payments – that is, pensions.

The social partners plan to initiate a discussion on setting a minimum threshold or ‘floor’ for social insurance contributions, below which income a worker would not have to pay any social insurance. At present, the burden of social insurance contributions applied to even the minimum wage is relatively very high.

Inga Blažiene, Institute of Labour and Social Research