Latvia: Developments in working life - Q1 2016

Changes in labour and tax legislation, preparations for Latvia’s accession to the OECD and, connected with this, increased political focus on corruption and the shadow economy are the main topics of interest in this article. This country update reports on the latest developments in working life in Latvia in the first quarter of 2016. More in-depth information can be retrieved from EurWORK's articles and other products.

New cabinet and preparation for accession to the OECD

A new Cabinet of Ministers, led by Maris Kučinskis of the Union of Greens and Farmers alliance (ZZS), was approved in the Saeima (the Latvian parliament) on 11 February 2016. The leading party coalition was not changed.

The most important political issue this quarter has been the preparation for Latvia to join the Organisation for Economic Co-operation and Development (OECD). Latvia has received an assessment of readiness for OECD membership and is expected to become a member this year. The Latvian government has been working to meet the requirements for OECD accession, for example by re-establishing supervisory councils in large state-owned companies to improve governance, and increasing activities to tackle corruption and the shadow economy. Illegal activities were discovered in the state police and the State Revenue Service (VID). The security industry and taxi industry have also been under scrutiny. Both sectors are strongly involved in the shadow economy, mainly due to undeclared wage payments. The government has adopted or prepared changes to both criminal and labour laws.

On 31 March 2016, experts from the OECD’s Employment, Labour and Social Affairs Committee presented OECD Reviews of Labour Market and Social Policies: Latvia 2016. The report recognises that Latvia has undergone major economic and social change since the early 1990s but notes that Latvians report low levels of life satisfaction, that large numbers of Latvians have left the country, and that growth has not been inclusive. The report states that more effective social and labour market policies are required to address the country’s volatile economy and large income disparities.

Changes to tax system and new guidelines for labour protection

The year started with the following changes to the tax system, mostly related to personal income:

  • the minimum wage was increased to €370 per month;
  • the non-taxable minimum for each dependent person was increased to €175 per month;
  • people of  working age are not considered as dependents, with the exception of  pupils and students up to the age of 24 who do not receive income that is taxed by personal income tax;
  • several changes were introduced to the naming of approved expenditures and taxable income, including the introduction of a differentiated non-taxable income related to total income and a new ‘solidarity tax’;
  • the rate of personal income tax remained unchanged at 23%, rather than the 22% that was promised in the social dialogue negotiations between government, employers and trade unions.

In January 2016, the Cabinet of Ministers approved guidelines for labour protection for 2016–2020. Since the guidelines for 2008–2013 expired, there have been no valid guidelines in place. In addition to the new guidelines, the Ministry of Welfare has developed an action plan for 2016–2018 to develop the labour protection field.

Social dialogue 

In the education sector, the Latvian Trade Union of Education and Science Employees (LIZDA) continued negotiations with the government about increasing wages in general education and pre-school education. Important changes in the financing of higher education and science have been implemented since the beginning of the year. Several significant developments occurred in the healthcare sector. Minister for Health Guntis Belēvičs proposed socially sensitive changes in healthcare provision in order to solve the problem of poor financing of the sector. Medical workers have held protests over pay, working conditions and low levels of health funding.

Since 2015, an important issue in employment relations has been the status of insolvency administrators. The Ministry of Justice changed the regulations to state that insolvency administrators are state officials and, as such, should declare their income. However, practical implementation of this new rule was complicated, and the government was forced to reduce the requirements for information included in the declarations of insolvency agents who are sworn advocates. Their status as state officials has not been changed.

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