Slovakia: Increase in subsistence minimum allowance after four-year freeze

The Slovakian government has increased the monthly subsistence minimum amount for an adult by 0.7%. The rise, effective from 1 July 2017, is the first in four years. Although a significant step for state finances, it is nevertheless a very cautious move and has been criticised by the unions who want a higher rate.

Background

The subsistence minimum category is perceived as a socially recognised minimum income threshold for an adult. A person earning under this is seen as being in material need. This category applies especially to people who are applying for social benefits: since 1 May 2017, long-term unemployed people who are in this category are allowed to perform work activities (to a limited extent). The subsistence level is also the basis for setting tax levies and for the payment of social benefits. An increase in the subsistence amount therefore entails significant costs for state finances, hence a cautious approach by the government. Since the global financial crisis, there has been limited growth in the amount of the subsistence minimum level, with no increase over the last four years and a very small increase since 1 July 2017. This has been criticised by the trade unions, particularly in relation to their demand for a higher minimum wage.

In Slovakia, the subsistence minimum category was introduced with the development of the ‘social safety net’ during the transition period in 1990 from the socialist economy to the market economy and is defined by a 2003 act (No. 601/2003 Coll.

How the subsistence minimum is calculated

A previous definition of the subsistence minimum was based on the price for one hot meal per day, necessary clothing and shelter. The calculation now is based on data on the consumption of low-cost households (a valuation of goods and services in the framework of the ‘minimum consumption basket’). Primarily, the subsistence minimum is used for setting poverty thresholds and in providing benefits to people at risk of poverty and of being excluded from society.

However, the category of the subsistence minimum is used also in the tax system to calculate:

  • the amount of the non-taxable part of the taxpayer’s income
  • the minimum tax level
  • the tax bonus amount
  • the threshold for the declaration of taxes

The subsistence minimum also affects a person’s retirement pension, the entitlement to early retirement pension, and the setting of the minimum allowance for people living in long-term care facilities.

The Slovak economy is among the least efficient in the European Union and, with its low GDP, thus provides a relatively low share of social protection. Since the amount of the set subsistence minimum has quite a broad impact on both the revenue and expenses of the state budget, the government has to carefully consider any change in the amount in the context of the country’s economic development.

First increase in four years

Since the global financial crisis, the monthly subsistence minimum amount for an individual rose from €185.19 to €198.09 from 2009 to 2013, a 7% increase over four years. However, from 2014 to 2017, there was no increase.

The new rate, which came into force in 1 July 2017, set by the Ministry of Labour, Social Affairs and Family (MPSVR SR) in Act No. 173/2017 Coll., increased the monthly amount of the subsistence minimum for an individual (or first adult) to €199.48, an increase of 0.7% on the previous year. The amount for the second (and every other) adult is €139.16, and €91.06 for each child.

Table 1 compares the subsistence minimum with the minimum wage, the average gross wage and the poverty threshold, since 2009.

Table 1: Monthly subsistence minimum amounts, minimum wage, average gross wage and poverty threshold (€)

Year

2009

2010

2011

2012

2013

2014

2015

2016

2017

Amount of subsistence minimum

185.19

185.38

189.83

194.58

198.09

198.09

198.09

198.09

199.48

Poverty threshold

(60% of median equalised income)

283.60

305.80

315.30

346.30

336.80

340.50

346.50

347.60

x

Minimum wage

296

308

317

327

338

352

380

405

435

Average gross wage

745

769

786

805

824

858

883

912

x

Note: x = data unavailable

Source: Statistical Office of the Slovak Republic

The comparison with the poverty line shows that, while the subsistence minimum was 65% of the threshold in 2009, this share had fallen in 2016 by 8 percentage points, to 57%. There is also a decrease in the share of the subsistence minimum in the minimum wage. While in 2009 this share was 62.6%, in 2016 it decreased to 48.9% and, in 2017, to 45.9%. From 2009 to 2016 the decrease was nearly 14 percentage points.

A decrease in the share of the subsistence minimum in the average wage can also be observed. In 2009, this share was at 24.9%; in 2016 it decreased to 21.7%. The decrease in the value of the subsistence minimum, compared with other important indicators of the country’s economic situation, was criticised by trade unions in the interministerial commentary procedure when the MPSVR SR proposed the July increase.

Union displeasure

A statement by the Confederation of Trade Unions of the Slovak Republic (KOZ SR) said:

Due to the very low level of the subsistence minimum amounts, which is the basis for the calculation of benefits in material need, which are even lower, the citizens living in the 20% of households with low incomes are getting into the trap of poverty and social exclusion. This is evidenced by the fact that, since 2003, the amount of the subsistence minimum has been growing significantly slower than the average wage in the national economy, as well as the minimum wage. While, in 2003, the subsistence minimum was about 76% of the minimum wage and nearly 30% of the average wage in the national economy, in 2017 it is less than 46% of the minimum wage and only at about 21% of the average wage. The increase in the subsistence minimum is very low. KOZ SR have pointed out several times that any assessment of inflation-based valorisation does not reflect the real household costs, because the development of a subjective inflation is not the same as the national inflation, which is defined generally and mainly for international comparison.

Daily newspaper Pravda reported KOZ SR’s views, saying that the union felt the subsistence minimum is not enough to survive on. At a press briefing on 14 July 2017, Monika Uhlerová, Vice President of KOZ SR, stated:

During the past 15 years we have been watching an extremely negative development of the subsistence minimum amounts as the increase of wages is mainly driven by an increase in prices and consequently by the increase in living costs that are not reflected enough in the subsistence minimum amounts.

The representatives of the employers’ organisations made no comments on the increase.

The NGOs also criticised the insufficient level of the subsistence minimum. In another article in Pravda, Mária Orgonášová, President of the Association of Organisation of Disabled People in Slovakia (AOZPO), welcomed the increase but said that it was not enough, adding ‘It is such a low amount that it will not change the standard of living of social benefit recipients; there is a need for systemic change’.

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