"We have two types of benefits and allowances today – there is the unemployment insurance benefit that comes from the unemployment insurance premiums paid by people and employers. The benefit is paid out over the insurance period if a person loses their job and depends on their previous lever of salary. The second instrument, which is currently financed from the state budget, is the unemployment allowance. The discussions for which I have been present, and which were interrupted by the Covid crisis, centered on abolishing the unemployment allowance and creating a new type of insurance – a so-called minimum or base benefit, which would also be financed from unemployment insurance resources," Paavel said, adding that it is clear there will be added pressure on the Unemployment Insurance Fund from 2025.

Asked whether expenses of €130 million moving from the state budget to that of the fund means the latter will find new sources of revenue or be forced to cut back somewhere, Paavel said that the relevant discussions are only beginning.

"We have taken a frank look at our figures, and while a reserve of €600 million might seem like a lot at first glance, our budget is considerably tighter than it was before the Covid crisis when we look at the expenses side of things. While we used to have a buffer for five or six years, it's just 1.6 years today," he said.

The head of the fund remarked that one option is to look over the labor market services offered by the fund, such as retraining and various counseling options. But according to Paavel, the fund has already optimized relevant processes, which cannot be dialed back much more.

He said moving the benefit to the fund's budget might come with state budget support for other labor market services, with hiking the unemployment insurance premium another option at the fund's disposal.

Asked what hike would need to be to pay for the changes, Paavel said a hike of a single percentage point yields around €13 million. "But I will say right away that hiking the premium is the last resort. We will start with a new benefits design and services in terms of making sure our expenses stay within reason."

The head of the Unemployment Insurance Fund admitted that shortening the benefits period is also under consideration.

"With this new benefit, we have discussed shortening the allowance period from six months to four. But these are very preliminary analyses," Paavel said, adding that recent amendments to the Unemployment Insurance Act also allow the benefits period to be temporarily lengthened during difficult economic times.

Meelis Paavel said that the unemployment insurance system has been in place for over two decades and it is high time to discuss how it should be modernized. He added that clarity in terms of 2025 changes should be achieved by the middle of next year.

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