No cuts in unemployment insurance premiums

A reduction in unemployment insurance premiums from 3% to 2.1% was proposed by the tripartite supervisory board of the Estonian Unemployment Insurance Fund on 17 September 2013, on the grounds that its reserves were large enough to survive another crisis. However, the government refused, arguing that reserves should be built up in times of economic growth. The decision was ruled constitutional, although the Chancellor of Justice questioned whether it was good governance.

Insurance premium reduction proposed

On 17 September, the tripartite supervisory board of the Estonian Unemployment Insurance Fund (Töötukassa) proposed reducing unemployment insurance premiums from 3% to 2.1%. The board were in favour of this proposal by four votes to two. Representatives of both employers and trade unions voted in favour, arguing that the EUIF’s current reserves are large enough to survive another crisis. By the end of 2013, the net assets of the EUIF were expected to be €525.3 million, predicted to increase to €529.4 million by the end of 2014. According to the social partners’ estimates, at the reduced rate of 2.1% the EUIF would collect €125.7 million gross revenue in 2014 and its expected outgoings would be €121.6 million.

However, government representatives on the board voted against the proposal. They argued that although the economy has recovered quite well, it is important not to repeat mistakes made during the ‘boom years’ (EE0711029I).

Government rejects proposal

On 28 November, the government announced that unemployment insurance premiums would not be reduced because of the uncertain economic situation in neighbouring countries and the decline in exports. Instead, it argued, reserves should be built up so that taxes would not have to be increased in there was a further economic downturn.

The social partners expressed their disapointment. The Estonian Employers’ Confederation (ETTK) said in a press release that, by ignoring the tripartite supervisory board’s proposal, the government had broken a social agreement between the social partners and the state. The Estonian Trade Union Confederation (EAKL), supported by the ETTK and the Estonian Employees’ Unions’ Confederation (TALO), asked the Chancellor of Justice to determine whether the government’s decision was constitutional.

Chancellor of Justice questions the government’s decision

The Chancellor of Justice, Indrek Teder, ruled that the government is not obliged to implement board’s proposals even if they have been robustly argued. However, he questioned whether the decision was an example of good governance.

Although the social partners were surprised by the Chancellor’s response, they said they were grateful that the roles of the tripartite supervisory board of the EUIF and the social partners had been clarified.

The ETTK Chair, Toomas Tamsar, said the supervisory board takes its duties very seriously and that its proposal had been based on careful analysis. He also proposed that, in order to avoid similar problems in the future, the law regulating the functioning of the EUIF should be revised.

The EAKL Chair, Peep Peterson, said that the social partners should now concentrate on using the EUIF’s financial surpluses to improve the wellbeing of employees as well as the economy.

Commentary

This is not the first time the social partners have opposed the government on this issue. In October 2011, the government refused to reduce unemployment insurance premiums when the tripartite supervisory board used the same argument to propose cuts.

The government has also consolidated the reserves of the EUIF and the Estonian Health Insurance Fund (Haigekassa) under the control of the state treasury to improve investment and cash flow management. At the time the ETTK withdrew its representatives from the supervisory board and the EAKL considered suing the government (EE1112019I).

Unemployment insurance premiums are paid by employers and employees to cover the risks of unemployment. These contributions can vary from 0.5% to 2.8% 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 EUIF.

Liina Osila, Praxis Center for Policy Studies

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