Latvia: Latest working life developments – Q1 2017

The debate on proposed tax reforms, healthcare workers’ continuing fight for better working conditions, and special tax relief for employees of enterprises that have concluded collective agreements 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 2017.

Tax reform under debate, including social partners

The Ministry of Finance has initiated a reform of Latvia’s tax system. The ministry wants the reform to improve the business environment by reducing income tax. This would be financed mainly by moving the tax burden from wages to other taxes. No decision has been taken on which taxes would rise, but there have been proposals to increase the excise tax on fuel and tobacco or that particular benefits (such as subsidies for certain medicines) could be lowered.

The ministry has asked the World Bank for a review of the current system which could be used as a basis for a medium-term tax strategy and substantial tax reform. The first results of the review were presented at the end of December 2016 and the reform is expected to be introduced on 1 January 2018.

The social partners are deeply involved in the process. All proposals regarding the reform are discussed with them at the initial stage – either in the Budget and Finances Subcouncil of the National Tripartite Cooperation Council, or in direct meetings with the Minister of Finance, or in the working groups. For instance, on 22 March, the Minister of Finance Dana Reizniece-Ozola participated in a meeting of the Council of the Free Trade Union Confederation of Latvia (LBAS) to explain elements and impacts of the tax reform.

LBAS and the Latvian Employers’ Confederation (LDDK) have, in principle, supported the ministry’s proposals; however, many aspects are still unclear. LBAS has set out its ‘red lines’, saying that:

  • wage taxes should not be increased;
  • tax reliefs should not be reduced;
  • pay in education and healthcare should be increased.

The next stage is the adoption of the main planks of the tax reform by the Cabinet of Ministers and the Latvian Parliament (Saeima), planned for the end of April, and the drawing up of the necessary legislation.

Turmoil in the healthcare sector

Healthcare workers continued to fight for better working conditions. At the beginning of 2017, it became apparent that there was a €350 million shortfall in the healthcare sector, just to cover basic needs. Health insurance is seen as a source of sufficient financing for the healthcare system.

The biggest discussion in the sector is about pay (especially overtime pay). The Medical Treatment Law (Section 53.1) states that:

an extension to the normal working hours of a medical practitioner may be applied, which exceeds the normal working hours specified in the Labour Law, but does not exceed 60 hours per week and 240 hours per month. This extension (otherwise understood as overtime work and paid in double amount) is paid as a normal working time

This rule was introduced in 2009 as part of the austerity measures introduced to save budget resources. As with other austerity measures, this rule was not publicly discussed and was not contested by the unions. It has still not been abolished and represents legally reduced pay for overtime work.

Medical personnel at Riga Maternity Hospital (RMH) were the first to protest about unpaid overtime work, threatening they would shorten their hours or stop working altogether at the hospital if their pay was not improved. The protesters were supported by medical staff in other hospitals and the government agreed to increase the midwives’ pay from €3.5 per hour to €5.05 per hour. However, protests began again at the beginning of April, when health workers realised that only the RMH midwives would get the pay increase, and that the longer days still did not qualify as overtime work.

Support measures for enterprises with collective agreements

From 1 January, tax relief on the cost of meals provided by employers in the workplace is available to employees at all enterprises that have concluded collective agreements. This follows amendments to the personal income tax law which were adopted on 23 November 2016.

These changes are linked to a proposal suggested by LBAS, which wanted to promote the establishment of trade unions and collective bargaining at company level. It was implemented after discussions with employer representatives, the Ministry of Finance and the Ministry of Economics.

Relief from personal income tax of not more than €40 per month (€480 per year) is available to employees for meals provided by their employers. Enterprises can also pay tax-free monthly expenses of €280 to their employees. There is also a new support system for business start-ups. These arrangements were achieved through close cooperation by LBAS, LDDK, the Latvian Chamber of Commerce and Industry (LTRK) and the government.

Increase in minimum wage and debate on cutting overtime payments

From 1 January, the national statutory minimum wage became €380 per month, an increase of €10 from 2016.

At the end of the first quarter of 2017, social partners began discussing amendments to the Labour Law aimed at reduce overtime payments. Currently, the rate for overtime is 100% of normal pay, but the government wants to cut this cut to 50%. LBAS has submitted objections to the Ministry of Welfare.

Commentary

The tax reform will also be the most important development in the next quarter. The government needs to find resources to cover growing demands from the health sector and to compensate for the loss of local government income due to the cut in the rates of personal income tax. New proposals appear almost every day, which are discussed with the social partners.

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