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Free Trade Union Director: government will force people to make a living illegally

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Baltic news, News from Latvia, BNN-NEWS.COM, Peteris Krigers

Director of Latvian Free Trade Union Confederation Peteris Krigers

The new just approved 2011 state budget will boost the shadow economy proportion, slow down the internal consumption and force people to leave Latvia, believes the Director of Latvian Free Trade Union Confederation (LFTUC) Peteris Krigers.

How do you, as a man experienced in political struggles, evaluate the fact once again the government neglected the view of the social partners and the people, when drafting the next year’s budget, approved on December 20?

This is actually quite a strange situation, so it is difficult to comment on it. I have always believed the state budget is formed to protect people’s interests. But if we were not involved in preparing it, I must conclude it was not drafted in the interests of the state and there are some other interests our government put effort to include in the budget. Because Latvian Employers Confederation, the Latvian Chamber of Commerce and Industry, as well as other professional and non-governmental institutions suggested including many positions improving the financial situation of the residents. Unfortunately, the government of Latvia holds the opinion people’s welfare rise is the very last task to accomplish…

Thus the government believes people have accumulated «the fat years» reserves?

What I do not know is where all «the fat» has gone. It was actually very little of «fat» for tax payers. Speaking about wage rise, we did not reach the average level of the European Union (EU) even at that time. We got only about 25% of their salaries.

If this can be called «fat», what should the rest of the EU states, struggling to introduce severe austerity measures, do?

There was an information the international lenders have not even approved the budget and their delegation will review it in January, thus it might happen we will have to open the budget in February. Why was there such a rush?

I could agree that it is better for a state to start the new year with an approved budget. But this budget has to be of good quality, low quality budget is not possible in times of economic difficulties. The budget formation process could have been quicker, but it was delayed intentionally, similarly as the government formation was problematic. The international lenders see the budget positions that are not well though over and conclude that the government will not be able to meet them. They know from experience accumulated during long years. The lenders’ priority is protection of their money and commercial banks capital, they do not care much about the people in our country.

There were two weeks to come up with proposals and amendments. Did you do that?

We have provided our proposals for this government for one year and a half already, both alone and together with the Latvian Employers’ Confederation, Latvian Local Governments, Latvian Academy of Sciences and Latvian Chamber of Commerce and Industry. Unfortunately, these proposals are lost in the mist either in the Cabinet of Ministers, with the Prime Minister Valdis Dombrovskis or else where… The latest proposals we submitted to both the Saeima Speaker Solvita Āboltiņa and the government. It is impossible for me to understand why such logical and well grounded proposals were not included in the budget, instead giving questionable revenue forecasts.

Could the fault be in the fact that no social democratic party is represented, for example, the Harmony Center?

That is not good, of course, that no strong social-democratic movement is developing. The Harmony Center (HC) stands the closest to social democratic policy, yet they have their own internal problems as well, linked to carrying out the interests of the wealthy. Thus the HC is developing a very centrist political association. Also the right-wing parties left in the opposition – For a Good Latvia and All for Latvia/For Fatherland and Freedom/LNNK came up with valuable suggestions, also agreeing with our proposals. Before the elections we signed a memorandum of understanding also with the political association Unity, but they are already contradicting it with the budget adoption. We see the politicians are not good at keeping their promises.

Might Unity face payback in the next elections?

Our people are immature in terms of democracy, with short memory. If Nicolas Sarkozy tried to pull through a bill not supported by the nation, he would have no hope in the next elections. While we will be presented with the same, but in different colours – be it either national values, religion or security, but forgetting national economy development and welfare – wages and pensions. Unfortunately, our residents are quick to believe them again, not recalling the priorities any more. Business activities of a country determine its strength, not some controlling institutions or the beauty of the Parliament members.

Do you promote the role of trade unions among collegues, factories?

This is what we do on daily basis. The order is much bigger in companies with trade unions, as collective agreements are in force there; moreover they have higher wages and meet all workplace safety standards. However, we represent only 15% of all the employed persons in the state. The interests of the rest of them are not protected in the labour market. A huge part – about 40% of them – work in the shadow economy that cannot even dream of having trade unions and collective agreements. If they wish legal protection from the part of trade unions, they will lose the only source of income. There are certain employers believing they are smarter than trade unions and capable of managing everything themselves. If a person wants to found or join a trade union, we provide free of charge consultations of how to do it correctly, although people in Latvia are individualistic-oriented and convinced they alone will solve all the problems better.

Why are we that passive in organizing strikes?

This is closely linked to what I have already mentioned – strikes are not possible in the shadow economy. Honest employers ensure more or less adequate pay and social guarantees, hence there is no necessity to strike. The public sector is very fragmented, officials are very nervous, as they are threatened with structural reforms all the time. Everyone is sticking to their positions.

Do you consider changes in the state apparatus would have brought greater financial reserves, so that tax rise is not necessary?

This was one of our first proposals to the former Prime Minister Aigars Kalvītis. We suggested gradual moving towards average size bureaucratic apparatus, capable of taking important decisions fast enough and not intervening in business that much. Instead they should help businessmen to make profit. The number of ministries is not important. There could as well be a single ministry with several ministers operating according to the parity principle. Why do all ministries need their own buildings, transport parks, accounting, supply system – making the whole management much more expensive? The government should start forming a budget draft from a zero point, which means identifying the functions the state cannot exist without – the internal and external safety, health care, education, social security, in order to see the costs of each and every matter. It is impossible that high wages are set for state agencies and other structures that we do not actually need. Currently we are not moving anywhere – cutting funds at the beginning of the year, while attributing additional ones at the end of it. Some ministries have greater internal reserves, some – smaller; however ministers do not prefer talking about that, they rather point at reserves in other ministries, in order not to face certain cuts themselves. We offer developing collective agreements also in state institutions, normalizing salaries, bonuses, premiums and the system of giving days-off. The State Audit Office (SAO) objected to this. Currently it is difficult to supervise the ministries, as the SAO cannot control each and very function.

There was an anecdote published in Rīgas Laiks about Zatlers visit to Brussels, asking whether they want to over take Latvia with or without the people and adding that the state will be available empty in few years.

There are two parts of this story. If 100 000 had not left for more wealthy states, the budget would have to provide for them either paying unemployment benefits or ensuring their participation in the hundred lats programme. It would not be possible. They would not send money to their relatives, thus their parents and children would not be able to survive. The state is excellent at short-term goals – getting the people out of Latvia and forcing those who have left to join the shadow economy. The money they send is taxed, of course, which is beneficial for the budget. Currently there is a tendency people leave together with families, thus the transactions will not be that big any more. Foreign countries have cut wages and social benefits as well. But I believe the territory of Riga will not be empty, as there are many regions in the world that are overcrowded. The EU will figure something out what to do with the population density. We see that in other countries there are already parts of cities occupied by Chinese, Korean and Vietnamese, it might as well take place here. If the local people leave, someone will replace them, as the amount of services and infrastructure is good enough here.

Do you agree with the statement of an economist that due to the 22% VAT rate, 50% of businessmen will opt for joining the shadow economy, starting from January 1, 2011?

It will, of course, boost people joining the shadow economy. This summer we were actively debating minimum wage rise simultaneous with sharper untaxed minimum rise, in order to get people out from the shadow zone. Dombrovskis government did the other way round, forcing people to make living on illegal income. The government will by no means collect the revenue from the minimum wage rise at the extent they have planned in the budget. The international lenders see very well this direction is leading nowhere.

2011 is only the beginning, we will have to start repaying the debt in 2013 and 2014.

The Prime Minister is optimistic regarding our chances to refinance the debt, which is likely. But then the question is, will the rates in the money-market be completely different from 3.5% a year? Our suffering will be lasting. We see from global experience that crises are cyclical. We can expect another downfall in two to three years. Focus on production and export exclusively is short-sighted as it «suffocates» the internal consumption. If export markets shut for us, there will be real trouble. LFTUC approves of introducing the euro in 2014, but it should not be our only goal. We need a «B» plan, in case the euro introduction slows down, we cannot meet the criteria or the euro block collapses. The government is not taking into consideration additional risks accompanying each tax rise. What impact will they have on business activities and the internal consumption? Although we asked, the Finance Ministry did not present us with estimates on possible risks due to tax changes. Either there are no estimates at all or they are kept secret. The government’s given budget forecasts are naive and silly. For example, when the government planned collecting 38 million lats from company car tax and we said it will not be possible to prove that the car is used in business activities. They answered the international lenders had agreed to it. As a result, they collected ten times less. This government is not learning from its lessons. It does not forward political processes. Sometimes it seems it is not Dombrovskis who runs the government, but someone else. Possibly, Dombrovskis is simply playing a role of the Prime Minister.

What is your attitude towards the government’s announcement this is the best possible budget, given the economic situation?

No government in the world would admit they have drafted a faulty budget. They are reporting positive things, in order to calm the people. The Finance Minister Andris Vilks is the former expert of commercial banks and he will always encourage people to invest, borrow, so that the money would circulate. The government is lobbying the Swedish banks. When it cut pensions by 10%, the international lenders did not object, while when they wanted to take the money from the 2nd Tier of pensions, that are located in banks – the lenders raised concern it should not be done and that the contributions should be increased. Because the commercial banks sector is making huge profit on that.

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  1. IU says:

    Good and interesting interview!

    Thumb up 0 Thumb down 0

  2. Piter says:

    His ideas have a point.

    Thumb up 0 Thumb down 0

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