WE HAVE seen many ominous signs of incompetence from the Fico government in 2007 ranging from contradictory statements on foreign policy, foolishly bellicose statements on pensions and health care (Fico's "big war" with private health insurers, and his comparison of private pension funds to pyramid schemes), and draft laws that appear to have been written with no regard for (or worse, no understanding of) their impact.
Among the many examples, let's take the draft Labour Code amendment. And among the myriad foolish proposals to be found there, let's look at just one - the call for people working on the basis of a trade license to be required to become full-time employees.
The amendment says that any work that can be considered "dependent" - i.e. that it is done on the employer's premises and using the employer's equipment - must be performed by full-time employees rather than self-employed people working on the basis of a trade license (živnosť).
The aim of this measure, like many proposals in the new code, is to protect workers from exploitation by unscrupulous employers. And it is true that many Slovak employers, especially in the construction sector, have forced full-time employees to become self-employed, as this frees the employer of the need to pay the 38.5 percent surcharge in social insurance dues on full-time salaries, while it also strips the workers of any protection or entitlements under the Labour Code.
However, Slovakia no longer faces 20 percent unemployment, and the position of workers has dramatically improved as labour has become more scarce in this country. Former full-time employees who agree to become self-employed now typically get a bonus from their employers (partly to make up for the social insurance dues that they have to pay themselves, and partly as a way of "splitting the profits" from the arrangement). They also often have clauses like vacation time and dismissal conditions written into their commercial contracts, so they enjoy all of the rights of full-time employees, but have more freedom to take on extra work on the weekends or evenings.
Besides that, self-employed people get to declare 40 percent of their revenues tax-free, and the more clever of them often find a way to use receipts to bring their taxable income down to a nominal amount.
In other words, both sides are generally happy with and profit from the current situation.
If the amendment passes in its current form and many self-employed people must be re-hired by employers, several things will happen. First, not all of them will be re-hired, as the employers will be forced to pick up the extra labour costs involved. Second, their take-home income will fall dramatically, not only because they will be paying income tax on all of it rather than only on 60 percent, but also because - and this is the kicker - by law they will have to keep paying those monthly social insurance dues for a minimum of a year after they return to full-time employment status.
As with most of the new Labour Code's worst elements, this too was proposed by organized labour as a means of "protecting" workers, i.e. increasing the potential union membership base. Its impact will be to increase both unemployment and illegal employment, as well as inflate wage costs for employers and slash the take-home pay of the former self-employed. It makes no sense, and it will cause more harm than good.
It has often been said that Slovakia's economic growth is so strong that nothing this government can do will harm it. The legislation that has been unveiled so far in 2007 has extinguished this fatuous notion like a cold shower. Collectively, legislation like the new Labour Code, the Tripartite Act, the Regulation Act and the Health Insurance Act (and whatever other misguided laws are in the pipeline) can seriously damage the country's current growth and, more importantly, its future prospects.
By Tom Nicholson
19. Feb 2007 at 0:00