Unity plans to propose raising the minimum wage from EUR 360 to EUR 400. This topic will soon be discussed in the coalition. At the same time, Unity will propose refusing from a suggestion written in the law to reduce PIT by one percentage point, as reported by TV3.
As it is known, Economy Ministry supports raising minimum wages from EUR 360 to EUR 375. Welfare Ministry believes minimum wages should either be raised by EUR 7 or not raised at all, according to the ministry’s informative report on minimum wage size in 2016.
It is mentioned in the report that low labour costs in Latvia remain a competitive advantage. With that, raising minimum wages could create a negative impact on businessmen’s competitiveness. Wage rise would increase labour costs and businessmen’s desire to avoid paying taxes.
The report does mention other factors why raising minimum wages is welcome.
First of all, higher minimum wages would increase residents’ purchasing power, which would have a positive impact on domestic demand and economic growth. Secondly, it would help bring Latvia’s wages closer to the average level in Europe, which is one of the tools to help stop emigration.
Thirdly, increased wages could help stimulate new competitive advantages and help with innovations and investments in new technologies to reduce costs and increase productivity of production resources.
Considering the aforementioned, EM supports the option of increasing minimum wages from EUR 360 to 375 starting with 1 January, 2016. At the same time, the ministry believes it is also necessary to raise the tax free allowance for small wage recipients to maintain their competitiveness.
Finance Ministry believes that in the current situation, when economic growth has become slower and future perspectives are threatened by external risks, including the tense geopolitical situation in the region and recession in Russia, raising labour costs for businessmen would not be economically justified.
In order to maintain Latvia’s external competitiveness, the increase of minimum wages should be carried out in accordance with productivity growth in the national economy, believes Finance Ministry.
The ministry notes that minimum wages had already been increased in the past two years (from EUR 284.57 in 2013 to EUR 360 in 2015). In addition, actual minimum wages, considering inflation, have grown by 25.6%. Productivity, on the other hand, has only grown by 5.6%, mentions Finance Ministry in its report.
FM also points to how a rapid rise of minimum wages can negatively affect the level of employment in the category of labourers who are less qualified. With that, the entire employment level in the country could suffer. According to statistics, the rise of employers in 2014 had become significantly slower. The rise in the private sector has come to a halt. This means that wage rise could potentially threaten the creation of new jobs.
Welfare Ministry believe minimum wages are an instrument to be used to protect low qualified labourers, reduce inequality and maintain general demand. However, its size should be set considering productivity changes and the possible economic situation, which is not considered positive under current geopolitical risks and challenges before Eurozone.
At the same time, Welfare Ministry believes changes to the minimum wage amount should be viewed from the context of change to tax free allowance and PIT.
Welfare Ministry believes that the current minimum wage should either be left the same or increased to EUR 367.