Low-paid to get new state help (The Slovak Spectator)

povedal pre The Slovak Spectator dňa 11.8.2008 Richard Ďurana z INESS, platby
zo strany štátu nie sú najšťastnejšie riešenie. Ministerstvo sa snaží pomôcť
nízkopríjmovým skupinám obyvateľstva, a toto opatrenie im čiastočne môže
pomôcť, existuje však lepšie a systémovejšie riešenie, a tým je znižovanie

Low-paid to get new state help (The Slovak Spectator)

LOW INCOME employees
may soon start receiving a special annual bonus, a move that the Finance
Ministry hopes will motivate employers to create more jobs and the low-skilled
unemployed to take them up.

The annual Sk2,500
bonus will got to employees on regular work contracts with salaries close to
the minimum wage, which for 2009 has been set at Sk8,690 per month. If the
Finance Ministry’s proposal survives interdepartmental review and gets enough
political support the state would start paying 2009 bonuses from 2010.

The employment bonus
is intended to ease the tax burden on labour, especially for vulnerable low-income
groups, according to the Finance Policy Institute at the Finance Ministry,
which also hopes the bonus will curb long-term unemployment.

Employees working on
a regular labour contract who work a minimum of six months in a given year
would be eligible for the bonus, which they could claim at the end of the given
tax period.

The Finance Ministry
said that the employment bonus is in line with the government’s official
programme, which has committed itself to “increase the level of solidarity in
the tax system, mainly by gradual elevation of the non-taxable sum of the tax
base but also by eventual modification of the tax bonus”.

The bonus has found
little sympathy with trade unions who argue that all it does is motivate
employees to work for lower salaries, and creates a tool for freezing the
minimum wage.

“It is a de facto
state social subsidy by which the state wants to motivate people to work for
low salaries,” Vladimír Mojš, Vice President of the Slovak Trades Union
Confederation (KOZ) told a press conference, as reported by the SITA newswire.

The move would
change the philosophy of wages in Slovakia, he added.

While the measure
could provide some help to those in the lowest income groups the employment
bonus is not the best solution, said analysts.

“Payments from the state are not the ideal
solution,” Richard Ďurana of the Institute of Economic and Social Studies
(INESS) told The Slovak Spectator. “The ministry is trying to help low-income
groups and this measure will partially help, but there is of course a better
and more systematic solution, which is cutting payroll taxes [i.e. social
insurance and health insurance contributions].”

The Finance Ministry
expects the employment bonus to have a positive impact on the labour market and
problems such as the relatively high taxes on low incomes as well as the low
motivation of people to take up jobs.

However, the
ministry also expects the bonus to depress public finance incomes and increase
pressure on public administration budgets.

Tax revenues are
expected to drop by Sk400 million (€13.28 million) in 2010 if the employment
bonus is applied while the year after revenues would dip by Sk139 million
(€4.61 million) and in 2012 by Sk66 million (€2.19 million), SITA wrote.

However, the KOZ
sees other problems with the unemployment bonus which it regards as more

According to Mojš,
the employment bonus is not specific enough in targeting employees, while the
impacts on social insurance have not been sufficiently explored.

“The employment
bonus puts employees in the social security system at a disadvantage,” Mojš
said, as quoted by SITA.

Though the actual
income of these employees will increase, the bonus will not be included in the
calculation base for social security payments and thus in future it might in
fact result in lower pensions and social security payments for those employees
than they would have received if their actual salary had increased by the sum
of the employment bonus.

The trade unions
said they support the employment of disadvantaged people through active labour
market policies.

The Finance Ministry
defended the employment bonus saying that it is a normal tool used in many
countries of the world and is even recommended by the Organisation for Economic
Cooperation and Development.

However, INESS’s Ďurana said that instead of
the administratively demanding employment bonus, which requires payment of
taxes and their subsequent return, cutting the payroll tax burden for
low-income jobs would be a more effective tool.

“Employees would immediately notice the
effect on their salaries, as opposed to the promise that at the end of the year
they would be paid a one-time employment bonus,” Ďurana concluded.

Ďurana is convinced that there is room for a
cut in payroll taxes.

“I cannot imagine at what other time, if not
at a time of record growth for our economy and our tax incomes, would it be
less painful for the state to cut the payroll tax burden on labour and thus
help the labour market, mainly low-income families,” Ďurana told The Slovak Spectator.

However, Ďurana also said that such payroll
tax cuts should be accompanied by a responsible approach on the part of the
government to trim public administration expenses.

Lower incomes for the social security
provider Sociálna poisťovňa could be then compensated by transferring the saved
money from the state budget, Ďurana added.

As for the low motivation of the long-term
unemployed to take up jobs being one of the problems of Slovakia’s labour
market, Ďurana said this situation is caused by incorrect tuning of the social
benefits system, in combination with the high payroll tax burden and minimum
wage since these kill the motivation of low-qualified people to work and also
limit employers in creating low-income jobs.

“Briefly, the unemployment trap means there
is low financial motivation on the part of the citizen to return to work due to
the low or even negative difference between the unemployment benefits and the
net income after their return to work,” said Ďurana. “A monthly Sk200 bonus, which
moreover will be paid as a one-time payment for a year, is a very small
inspiration to take up a job.”

Slovak Spectator, 11 Aug 2008, Beata Balogová

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