Government refuses to reduce unemployment insurance premiums

The Estonian government has refused to reduce unemployment insurance tax from 4.2% to 3% for 2012 as proposed by the tripartite supervisory board of the Unemployment Insurance Fund. During heated negotiations, the government argued it was unwise to reduce the tax in uncertain economic circumstances. Trade unions and employers disagreed with the government’s position, and the Estonian Employers’ Confederation called its representatives back from the fund’s supervisory board.

Background

Unemployment insurance premiums are paid by employers and employees to cover the risks of unemployment. These premiums can vary from 0.5% to 2.8% of wages for employees and from 0.25% to 1.4% for employers, as set out in the Unemployment Insurance Act. The government sets the premiums annually, on the basis of proposals made by the tripartite supervisory board of the Estonian Unemployment Insurance Fund (EUIF). Since August 2009, the premium has been set at the maximum possible rate of 2.8% of wages for employees and 1.4% for employers (EE0812019I).

Heated negotiations

In October 2011, the EUIF’s supervisory body proposed decreasing the total unemployment insurance tax for 2012 from 4.2% to 3% by cutting employers’ contributions to 1%, and employees’ contributions to 2%. The supervisory board’s trade union and employer representatives made the proposal, arguing that the EUIF would have sufficient reserves even if premiums were decreased. They claimed that the reduction in contributions would boost the economy and give employers the opportunity to raise wages. It was also claimed that even if contributions were reduced by 1.2% overall, the EUIF reserves would still increase by up to €400 million and this would be sufficient during an economic crisis.

However, government representatives voted against the proposal, saying it was not wise to reduce the premiums in uncertain economic circumstances. The government announced that contributions would remain unchanged in 2012, but would be decreased in 2013.

Debate over the reserves

There were also discussions over the government’s plan to consolidate the EUIF’s reserves and the Estonian Health Insurance Fund (EHIF) under the control of the state treasury, with the aim of improving financial investments and cash flow management. The government said consolidation would decrease the national debt from 11.8% to 5.3% of gross domestic product (GDP) by 2015, without the need for a loan.

Opposition came from employers, trade unions, the chairs of EUIF and EHIF as well as the Estonian Social Democratic Party (SDE) and Estonian Centre Party (KE), the two biggest parliamentary opposition parties, arguing that the government might use the consolidated funds for other state expenditures, which would jeopardise the functioning of the EUIF. The EUIF Chair, Harri Taliga, said it would be illegal to use EUIF resources for anything except specific purposes. The Estonian Employers’ Confederation (ETTK) said government use of EHIF reserves would require an amendment to the Unemployment Insurance Act and would need a loan agreement with the EUIF. The Estonian Trade Union Confederation (EAKL) collected 13,000 signatures against the government’s plan.

However, the government overruled these arguments, saying that concerns over the misuse of the EUIF reserves were unreasonable.

Unresolved situation

Parliament approved the 2012 state budget and the consolidation of EUIF and EHIF reserves into the state treasury in early December 2011. As a result, the ETTK recalled its representatives from the supervisory bodies of both the EUIF and EHIF. The confederation’s Chair Tarmo Kriis explained that since the representatives clearly had no decision-making power, there was no point in them being part of either body. The EAKL has not ruled out the possibility of suing the government. Meanwhile, the situation with the supervisory bodies remains unresolved.

Liina Osila, PRAXIS Centre for Policy Studies