THOUSANDS of minimum wage and low-income workers will be eligible for an annual employment bonus under a proposal making its way through parliament. The Finance Ministry has said it expects the bonus will curb long-term unemployment and increase earnings among low-income employees.
On October 24, parliament advanced the proposal, which amends income tax law, to a second reading. If approved, around 180,000 workers could receive a bonus of approximately Sk200 (€6.64) a month.
“This measure will gradually lead to higher employment,” Finance Minister Ján Počiatek told the public Slovak Television broadcaster. “In particular, it will help the long-term unemployed, under-qualified job seekers and increase interest in part-time jobs.”
Minimum wage earners are currently exempt from paying income taxes. The revision would make them eligible for a negative tax, which means the state would provide a monthly bonus of Sk209. The first payment would arrive in March 2010, as it will be paid annually starting in 2009.
The cabinet sees the bonus as a form of supplementary social help aimed at those who are trying to improve but do not have the opportunity to get a higher-paid job. As well as decrease long-term unemployment, the objective is to improve the social situation of low-income employees and boost motivation to work rather than receive state benefits, the government’s documents read.
As of the end of June there were 278,000 unemployed people in Slovakia, of which 151,200 had been jobless for more than two years, according to the Slovak Statistics Office.
The opposition has criticised the bill, arguing that it does not apply to the self-employed, which also make up part of the country’s low-income earners.
“We will draft an amendment extending this bonus to the self-employed,” Ivan Mikloš, the former finance minister and an MP for the opposition Slovak Democratic and Christian Union, told STV.
The Association of Employer Unions of Slovakia (AZZZ) approves of the proposal.
“It is not a systemic measure, but it makes a certain amount of sense,” Rastislav Machunka, a member of the AZZZ council, told The Slovak Spectator. “In particular because a part of the unemployed is made up of people for whom it is difficult to employ, namely those who are not well educated. This measure can have an effect, though the rise in the minimum wage is reducing the effect. Even so, I think that it has its place exactly at the time when fewer people are being hired as a result of the global economic crisis.”
The Finance Ministry based its calculations on minimum wage level of Sk8,690. Employees working on a regular labour contract for 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. Thus the maximum annual bonus would be Sk2,508.
But on October 15, the cabinet approved an Sk800 increase in the minimum wage to Sk8,900 (€295.5). At this amount, which is Sk210 higher than the original plan, the monthly employment bonus would shrink to Sk174.25, putting the annual bonus at Sk2,091, according to the Hospodárske Noviny daily.
Some businesses are expressing concern that the proposal will not achieve its intended objective.
“A monthly bonus of Sk200 can motivate under-qualified workers, but very little,” Robert Kičina, the executive director of the Slovak Business Alliance (PAS), told the Spectator.
The PAS and the AZZZ said they would rather see a reduction in payroll taxes, namely compulsory pension and health insurance contributions.
“Reduction of contributions for all, or an increase in the tax-exempt minimum, might be a more effective stimulus,” Kičina said.
Kičina added that a tiny increase would slightly increase the motivation for low-income employees to work, but would also increase the red tape for companies and make calculation of income taxes less transparent.
Additionally, a permanent subsidy of low-income workers would discriminate against those not entitled to the bonus, he said.
“From this point of view, a temporary subsidy would be more suitable, for example, for two years after an employee enters the labour market,” said Kičina.
He also thinks that at this time, when the unemployment rate in Slovakia is relatively high and employers are complaining of a lack of qualified labour, the focus should be instead on increasing qualifications among the unemployed.
“Moreover, statistics show that as the unemployment rate has decreased over the last several years, it decreased the most in the segment of long-term unemployed,” Kičina said. “So they were motivated to find a job without any support measures.”