20% Cut in Unemployment Insurance Premium Proposed

Economist Heido Vitsur (Postimees/Scanpix)
8/19/2014 12:44 PM
Category: Politics

The Unemployment Insurance Fund board has approached the Cabinet with a proposal to lower the unemployment insurance premium from 3 percent to 2.4 percent.

Currently employees pay 2 percent and employers 1 percent. Under the new proposal, the split would be 1.6 percent and 0.8 percent.

The fund's board, which is currently chaired by the head of the country's unions, Peep Peterson, said Monday's offer was a compromise.

"The new premium rate would allow us to cover the needs of the work ability reform and to continue amassing reserves at a reasonable rate," said Peterson, as reported by uudised.err.ee. "The board reviewed the potential crisis scenarios before making the decisions and we can be sure that we can get by with the with the insurance resources we have even in complicated times."

Economist: Wise to Keep Growing Reserves

Economist Heido Vitsur says the 0.6-point cut in the premium rate wouldn't provide much of an economic stimulus, adding that the existing reserves, which have swelled to unprecedented size, are not actually that big.

The reserve will grow about 10 percent this year. It is expected to reach 582 million euros this December and 608 million euros by December 2015 in the current economic climate.

"There is no doubt that lowering the premium will reduce the unemployment related tax burden but it's just as clear that it is a much smaller cut than the one the business community is seeking and it will not have particular impact on the economy," said Vitsur on uudised.err.ee.

"That is especially if it remains a one-off step and is not followed by other supportive steps."

Vitsur said although unemployment used to be triple the current rate, Estonia's rapid exit from the slump was partly due to world trends beyond its control, and the fact that tens of thousands of Estonians have found work outside Estonia.

"It isn't right to exclude the possibility that the crisis is not over and a new flare-up could prove longer where we can't put stock in freedom of movement of the workforce as much," Vitsur said. "So it isn't right to say that the current reserves are too high."

Vitsur said Estonia's reserves are in fact too small to ensure economic security.

"To hedge risks, we need to be ready for a situation where we need to freeze payment of unemployment insurance premiums completely for some time."


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