Unions propose progressive income tax and higher social security benefits

Proposals for five-year policies on employment, employment relations, wages, social security, tax and the economy were put to the Estonian parliament in November 2010 by trade unions. Employers strongly opposed a suggestion for progressive income tax but are ready to negotiate on most of the other ideas, which included a rise in the minimum wage (up to 60% of the average wage), insurance for work accidents and occupational illness, and an increase in social security benefits.

Background

In August 2010, the Estonian Employers’ Confederation (ETTK) published its manifesto on key policy aims for 2011–2015 (EE1009019I). The manifesto sparked heated discussions and received a negative response from trade unions. In September, the so-called employees’ manifesto was published in response by the leaders of the Estonian Social Democratic Party (SDE) together with the Estonian Transport and Road Workers’ Trade Union (ETTA), the Federation of Estonian Healthcare Professionals’ Unions (ETTAL), the Estonian Cultural Professionals Unions Association and the Trade Union of Estonian Railway Workers (ERAÜ). They demanded more rights and training for employees, higher social security benefits for unemployed people and abolition of the mandatory retirement age. However, the document received little support and the Estonian Trade Union Confederation (EAKL), which had supported the employees’ manifesto, decided nonetheless to launch its own proposals for policy formulation in 2011–2015 (110Kb PDF).

Proposals for policy formulation

EAKL said the main goal of an employment policy must be the creation of good quality jobs. To do this EAKL proposed increasing spending on government programmes that intervene in the labour market to help unemployed people find work. Current spending on these active labour market policies (ALMP) in Estonia is well below the EU average (0.27% of gross domestic product (GDP) in Estonia compared with 1.7% in the EU27 in 2008). EAKL also insists that employers’ contributions to work-related training must be improved. Furthermore, much like the employers did in their manifesto, EAKL also demanded abolition of the fringe benefit tax on expenses on human capital.

EAKL warned that Estonian wage policy should focus on preventing the qualified labour force from leaving Estonia, as well as avoiding the need for migrant workers. The confederation proposed an increase in the minimum wage, to 60% of the average wage (average gross wage in 2009 was EEK 12,264 (about €784)). The unions also suggest a separate national minimum wage level for those occupations that require higher education. EAKL wants a more transparent wage system, and proposed that wages should be related to the level of qualification and training.

EAKL emphasised the importance of increasing the social security of employees and reducing the risk of poverty among unemployed persons. The proposals thus included a number of ideas the confederation has pursued before, for example the demand to implement social insurance for work accidents and occupational illness by 2012 (EE0903019I). It also insists that unemployment insurance benefits should be raised as agreed in a 2008 tripartite agreement (EE0901019I, EE0907029I) and that the unemployment assistance benefit should increase up to 50% of the national minimum wage in 2011. EAKL also suggested extending unemployment insurance protection and making it more flexible in order to motivate unemployed persons to return to work.

EAKL also demanded the abolition of the strike prohibition for civil servants and called for tripartite negotiations in January 2011 to revise and complement employment contract law, which was implemented without EAKL’s approval.

The trade unions are also suggesting that, in the event of another recession, a package of crisis measures should be developed to help employers in difficulties to preserve jobs. They emphasised that a progressive income tax would reduce the tax burden for low-earners and consequently increase employment. Currently, income tax is 21% for all employees. EAKL also wants to restore corporate income tax and extend taxes on capital and property, with an exemption on homes.

Commentary

Both ETTK and EAKL have made their proposals in anticipation of the general elections in March 2011. The opposition parties in parliament supported EAKL’s ideas, especially that of progressive income tax – which the ruling coalition parties oppose.

For its part, ETTK said EAKL’s ideas were more reasonable than those expressed in the employees’ manifesto, but emphasised that some compromises will be needed to reach an agreement between both sides. ETTK also said that while its members are ready to negotiate on other proposals, they are strongly opposed to the idea of a progressive income tax.

Liina Osila and Pirjo Turk, PRAXIS Centre for Policy Studies

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