Läänemets: Minimum wage hike condition for SDE's support of tax reform

Lauri Läänemets.
Lauri Läänemets. Source: Ken Mürk/ERR

Head of the Social Democratic Party (SDE), one of the three partners in Estonia's new governing coalition, said that the minimum salary hike included in the coalition agreement needs to be laid down by the government should employers refuse to go along. The SDE leader added that his party backing PM Kaja Kallas' income tax changes depends on it.

The coalition's plan of hiking the basic exemption, abolishing the current gradual exemption reduction and hiking the income tax rate to 22 percent will leave a person making €2,000 before taxes with an extra €100. This gain will be ten times smaller for those making under €1,000.

Lauri Läänemets, leader of the Social Democratic Party (SDE), said that the planned minimum wage hike will help compensate for growing inequality.

The coalition agreement of the Reform Party, Eesti 200 and SDE reads that the public sector minimum wage will grow to 60 percent of median salary by 2027. The promise is somewhat vaguer for those in the private sector, merely suggesting that the government prioritizes reaching a three-way agreement with employers and unions for a similar hike.

"If we fail to secure that, our coalition partners know that the Social Democrats will not be able to support tax changes and the abolition of the "tax hump," Läänemets emphasized.

The minimum wage is currently roughly 47 percent of the median salary.

Kai Realo, head of the Estonian Employers Confederation, suggested this could grow to 50 percent in the next four years.

"Unfortunately, we cannot see this matter separately from what is taking place on the labor market and the economy. Talking about the coalition agreement, it made no mention of economic growth," Realo said, adding that it is peculiar to talk about abrupt wage hikes in a situation where the economic forecast is less than encouraging.

She said that hiking the minimum wage would also hike the median, and it is difficult to lay down any long-term goals.

"Talks [between the employers, union and the government] look at public and private sector salary levels, earlier hikes, economic forecasts before the minimum wage is determined," Realo said, adding that salaries growing too quickly could have an adverse effect instead.

"It could lead to job losses in many sectors," the employers' spokesperson warned.

Läänemets: Government must be prepared to take matters into own hands

Läänemets said that should employers decide against hiking minimum wage to 60 percent of the median, this should be done on the level of the government.

While Läänemets suggested that the hike is prescribed by a EU directive that Estonia will have to adopt one way or another, outgoing Minister of Health and Labor Peep Peterson said the directive, which recommends setting minimum wage at 50 percent of average gross salary or 60 percent of median salary, is not binding.

The SDE leader added that the directive is not the main thing, and that, ultimately, the incoming coalition's planned tax changes would add to inequality without minimum salary advance.

"It is impossible to realize these tax changes without the minimum wage hike," he said.

Unions against a state-mandated minimum wage

Jaan-Hendrik Toomel, head of the Estonian Trade Unions Confederation, said that while minimum wage needs to go up, an overly abrupt hike could also have an adverse effect.

"One fear is that we will see alternative solutions to bypass it, such as part-time work or different kinds of contractual relationships," he suggested.

"But companies' profits are up and we could be bolder in asking for more," Toomel said, adding that a big step toward the 60 percent mark could be taken today.

But the unions' representative also said that minimum wage should be the result of talks between employers and unions also in the future. "It shows that a compromise has been negotiated, that there has been analysis and responsibility."

Toomel said that the unions would rather settle for a lower minimum wage rate than go to the government for help. "In entails certain risks," Toomel remarked. "Looking ahead, it would be just as easy for the next government to reverse it or plot a course that is contrary to our interests in some other way."

Võrklaev: Minimum wage principle cannot be included in legislation

Mart Võrklaev (Reform Party), set to be sworn in as Estonia's finance minister, said that SDE wanted the minimum wage principle to be laid down on the level of legislation. But the Reform Party, Eesti 200, employers and unions found that it cannot be put in the law, and that employers and unions should continue to hash it out during talks.

Võrklaev said that the sides to the new coalition sat down with employers and agreed to aim for a minimum wage of 60 percent of the median salary by 2027.

Data from Statistics Estonia reveals that the minimum wage has doubled in the last decade, which is also true for median salary. During that period, minimum wage has made up 45-50 percent of the median, or the borderline between the highest and lowest (50:50) pay of workers.

Forecasts put median salary in 2027 at €1,927, meaning that the minimum wage would have to be €1,154 by then.

Estonia currently has five counties where the median income is below €1,200. They are Ida-Viru County, Valga County, Võru County, Hiiu County and Saare County. This means that the national minimum wage would have to equal the median salary in those counties in just four years.


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Editor: Marcus Turovski

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