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Parliamentary elections and the formation of a new government, an emergency medical crisis in Riga, stalled attempts to improve sector-level collective bargaining and the impact of the availability and quality of labour on foreign investment are the main topics of interest in this article. This country update reports on the latest developments in working life in Latvia in the fourth quarter of 2018.
On 6 October 2018, the new Latvian parliament (Saeima) was elected. Only 34 of the 100 Members of Parliament were re‑elected, therefore the remaining 66 were new parliamentarians. [1] The combination of parties elected was noticeably different: seven parties were elected in place of the six previously, and three of the seven – the New Conservative Party (JKP), Who owns the state? (KPV LV) and Development/For! – were new parties.
Parliament struggled to reach consensus on the formation of a new coalition government. The new government, which was finally approved on 23 January 2019, prepared a draft state budget for 2019 that includes numerous incentives regarding both income and expenditure. However, the implementation of these measures will be delayed until the budget is approved by the new government.
On 9 November 2018, the state emergency medical service announced a crisis in the healthcare emergency service in the city of Riga because the available resources in the healthcare sector were insufficient to cope with the number of patients needing treatment. This situation is a result of the mass exodus of healthcare workers who have left the sector or indeed the country because of extremely low wages, long working hours and poor working conditions.
On 27 November 2018, the employees of the emergency medical service met with the current Minister of Health, Anda Caksa, and representatives of the parties newly elected to parliament. After the meeting, the trade union organisation said that it was prepared to wait until the beginning of 2019 before taking action to defend the interests of healthcare workers, but if the wage issue was not resolved, it would not rule out protest action or even strikes. [2]
Social partners continued to propose amendments to the Labour Law regarding a special regime for sectors of the economy that have signed sector-level collective agreements, which envisages lower pay for overtime work. Labour Law currently stipulates that overtime work should be paid at 100% extra. Amendments to the Labour Law proposed that, in sectors where there is a valid general agreement on wages, overtime work should be paid at a rate of 50% extra. All conditions for the introduction of this model in the construction sector had been met, several other sectors were ready to adjust to the same model and the amendments were approved by the Cabinet of Ministers and adopted in parliament on 1 November 2018.
However, the president did not sign them and the amendments were rejected. On 3 December 2018, the European Federation of Building and Woodworkers asked the Latvian parliament in an official letter to support the national collective agreement for the construction industry.
On 6 December 2018, the Free Trade Union Confederation of Latvia and the Latvian Employers’ Confederation (LDDK) organised an international conference on ‘Sector level general agreements and sector level competitiveness: experience of social partners in Europe’. Special Recommendations for Action addressed to the state’s president, parliament and Cabinet of Ministers were adopted, inviting them to value the importance of social dialogue and general agreements.
The shortage of labour resources is one of the main factors prompting foreign investment to leave Latvia and hampering the inflow of new foreign investment, a recent study has found. The FICIL Sentiment Index 2018, presented by Professor Arnis Sauka and conducted by the Foreign Investors Council in Latvia (FICIL) in cooperation with the Stockholm School of Economics in Riga, examined the development of the foreign investment climate in Latvia.
According to data from Firmas.lv, in 2016 about one-fifth of enterprises in Latvia were owned by foreign investors. Their turnover and profit made up about half of the total turnover and profit of enterprises registered in Latvia, they contributed 48% of all taxes paid in Latvia and employed 27% of the total workforce.
In 2018, the amount of foreign investment decreased compared with the previous year. There are several other factors hampering foreign investment in Latvia, namely, inefficient decisions and policy incentives regarding the financial sector and risks associated with Latvia’s reputation that are connected with problems in the financial sector, and certain decisions regarding the reform of the tax system, corruption and the shadow economy.
According to Sauka, the supply and quality of labour is one of three significant challenges currently facing Latvia’s business environment. [3]
The most important events at the beginning of 2019 will be the approval of the new coalition government and the adoption of the state budget. Several changes are expected in the social policy arena. A state health insurance system will be introduced and the availability of healthcare services will depend on mandatory or voluntary social contributions. The statutory retirement age will rise to 63.5 years if a person’s social security contributions cover a minimum of 15 years. Early retirement (two years before the statutory retirement age) will be available for those whose insurance contribution period covers a minimum of 30 years.
From 1 January 2019, the solidarity tax rate will be reduced from 35.09% to 25.5%, of which 1 percentage point will be transferred to the financing of the healthcare system, and 14 percentage points to the state pension special budget and subsequently registered in the individual pension account of each taxpayer. The remaining 10.5 percentage points will be transferred to the personal income tax account in the State Treasury.