Ministry Pledges Lower Unemployment Premium if Growth Forecast Permits ({{commentsTotal}})

Source: Photo: Reuters/Scanpix

Unions and employers are lobbying hard to reduce the unemployment insurance premium, as reserves have swelled to 498 million euros. But a reduction hinges on the next economic forecast, the ministry of social affairs has said.

Both the Trade Union Confederation and the Employers Confederation say the Unemployment Insurance Fund reserves are overstocked - having grown 223 million euros since 2011 - and a subsequent reduction to the tax rate is due.

The groups would like to see the tax lowered from 3 to 2 percent. The rate was already reduced at the beginning of 2013, having before been at 4.2 percent (although just 0.9 percent before the economic crisis). Employees pay two-thirds of the premium; employers, one-third. 

"We would be able to help the unemployed [by establishing] a 2 percent tax and the gigantic rainy day fund would not decrease as a result,“ Peep Peterson, head of the Trade Union Confederation, told

Earlier this month, the government evoked indignation with a provision to block unions from having a say in setting the tax rate. The Ministry of Social Affairs has said it would support a reduction, though, if the new economic forecast is satisfactory, without giving exact figures. The new forecast is due to be released by the Finance Ministry at the beginning of September.

Massive in Estonian terms, the reserves have been a matter of controversy in recent years, foremost for the government's decision to use them to cover its budget deficit, and thus avoid borrowing. By using the reserves, the government won't have to pay fees to external lenders, while giving the Unemployment Fund favorable interest rates, supporters have argued. The government tapped the reserves this year to pay for the raises demanded by health care workers in the wake of a strike.

The strife in the Unemployment Fund reached a peak in 2012, when the unions and employers quit the supervisory board, seizing up its budget confirmation process. Pressure from the unions and employers finally led to a concession from Prime Minister Andrus Ansip to lower the unemployment tax to 3 percent at the beginning of 2013.

There are other arguments still up in the air as well at the fund. The unions have pushed for unemployment benefits to those who have left a job by mutual consent, a move opposed by employers and the government.

Both the unions and employers do agree, however, on raising the income tax-free minimum, currently at 144 euros per month. No parties have actively opposed such a reform, but there are no signs of implementation either.

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