This agreement comes after a long period of disagreement between the two organizations.
The social partners propose to raise the minimum monthly wage next year by 40 euros, or up to 740 euros, and set the fixed non-taxable minimum at 500 euros, expecting that it will increase in the following years, reaching 80% of the minimum monthly wage of the respective year.
The Union of Trade Unions states that in the last two weeks, the government and social partners have worked intensively on tax policy reforms, based on the labor tax scenario presented by the FM on August 20. FM’s offer was received with a critical reaction from both LBAS and employers’ organizations, as a result of which LBAS and LDDK have developed their own offer in bilateral negotiations.
In previous negotiations with the government, employers’ organizations have proposed increasing the value added tax (VAT) by 1% as a potential compensatory mechanism for the labor tax reform. LBAS does not support the increase in VAT, stressing that the biggest burden in the event of a VAT increase will fall on low-wage earners, while at the same time affecting all employees, regardless of the salary level.
If employers and the government agree on an increase in VAT, LBAS insists that such changes are permissible only on the condition that a fixed non-taxable minimum is introduced as early as 2025, an increased relief for dependent persons, as well as gradually up to 50% of the average salary the minimum wage is increasing in the national economy. Such changes in the assessment of LBAS are said to be necessary to compensate for the drop in purchasing power from increased VAT, as well as to ensure a net salary increase in all salary categories.
In order to maintain the purchasing power of citizens, by raising VAT by 1%, the minimum salary should increase by at least ten euros, while the average salary should increase by 15 euros, which means that changes in the tax policy should compensate for at least this increase, LBAS says, emphasizing at the same time – previous experience shows that changes in VAT are not limited to price increases at the level of the tax rate, changes in VAT also affect the price policy of producers, traders and overall price increases.
In the view of LBAS, the fixed non-taxable minimum would be able to cover such price increase, at the same time, in order for the increase to compensate for the changes in consumer prices, in LBAS’ view, the minimum wage should be raised to at least 740 euros, because it is the recipients of low wages who would feel the increase in consumption prices the most. On the other hand, relief for dependents would remove the burden directly from families with children.
The agreement between LBAS and LDDK provides for an increase in the minimum wage to 740 euros in 2025, as well as the determination of a fixed non-taxable minimum of 500 euros, which would mean that in net terms, employees would receive 44 euros more than this year at the minimum wage. At the average salary, employees would receive 86 euros more “on hand”, social partners have calculated.
LBAS and LDDK have also agreed on the minimum wage and tax-free minimum increase schedule for the coming years, the goal of which is to reach the minimum wage level of 50% of the average wage in the national economy, based on the 12-month average wage from the 1st quarter of the previous year to the 2nd quarter of the previous year. . In 2025, the minimum wage would be set at the level of 47% of the average wage in the relevant reporting period, while in the following years this ratio would increase by 0.5% until it reached 50% of the average wage in the national economy.
On the other hand, the non-taxable minimum should reach 80% of the minimum salary. Aware that the introduction of a fixed non-taxable minimum means significant costs in the budget, the social partners have agreed that in 2025 it can be maintained at 500 euros, taking into account that the introduction of a fixed non-taxable minimum in itself means a net salary increase at all salary levels. However, starting from 2026, it should increase to 75% of the minimum wage level and in the following years, reach the set goal of 80%, according to the social partners.
In the view of LBAS, an important criterion for agreeing to the implementation of the aforementioned scenario is the inclusion of mobility expenses in the eligible expenses for the employee, if this is agreed upon in the collective agreement, as well as increasing the amount of the allowances. Trade unions and employers offer to set this amount at 840 euros per year, although the FM working group proposed to set the limit at 700 euros.
The social partners did not discuss changes in the personal income tax rate during the negotiations. However, in the negotiations with the government, LDDK has suggested moving to a fixed personal income tax (IIN) rate of 25%, which LBAS is not ready to agree to, because the introduction of such a rate for wages excludes progressivity and reduces the benefits of the fixed non-taxable minimum for employees with small salaries, thus not fulfilling the union’s setting to reduce taxes burden on small and medium wages.
Trade unions maintain the position that in the future the labor tax model should reduce the tax burden on low and medium wages in accordance with the recommendations of the European Commission and the Organization for Economic Cooperation and Development. Perceptible and stimulating increase in purchasing power, a net salary increase should be provided to employees whose salary is up to 2,500 euros, according to the social partners.
As reported, with the proposed tax policy changes, it was planned to get 116.1 million euros in next year’s budget, according to the presentation prepared by the FM on the tax revision scenario.
Among them, the state budget would gain an additional 60.5 million euros from this amount, the special budget would gain 50.9 million euros, while the municipal budget would lose 39.9 million euros. Reducing expenses in state and local government institutions would result in 45.8 million euros, but the impact on the state budget, in compliance with the law, would result in a loss of 1.2 million euros.
The main goal of the tax policy changes is to achieve faster growth of the economy, which has slowed down due to inflation control, according to the scenario.
On the other hand, the goals formulated by cooperation partners for changes in labor taxes envisage ensuring the competitiveness of labor costs in the Baltics, simplifying the labor tax system, increasing the number of employees, increasing the availability of labor through promoting mobility and increasing net income, or reducing inequality.
The LDDK and the Latvian Chamber of Commerce and Industry previously criticized the tax change project proposed by the FM, which had not yet been presented to the wider public.
The employers reject the offer sent on August 16 and demand that it be modified in accordance with the objectives set together. According to the organizations, this scenario does not meet the goals set in the government’s declaration and will continue the stagnation of Latvia’s economy and lagging behind neighboring countries.
2024-09-01 02:41:22