The Free Trade Union Confederation of Latvia (LBAS) and the Employers' Confederation of Latvia (LDDK), having disagreed with the scenario of tax changes from the Ministry of Finance, have developed an alternative proposal. It is about increasing the minimum wage and moving to a fixed non-taxable minimum, which should also increase, LETA reports. At the same time, trade unions and employers have not yet been able to reach a common position on the proposal to change the personal income tax rate. The Free Trade Union Confederation of Latvia notes that over the past two weeks, the government and social partners have been actively working on tax policy reform, based on the scenario provided by the Ministry of Finance on August 20. As is known, the scenario of the Ministry of Finance was criticized by both employers and trade unions. Result: LBAS and LDDK developed their proposal during bilateral negotiations. The social partners propose to increase the minimum monthly wage by 40 euros next year, i.e. to 740 euros gross (currently 700 euros gross). At the same time, it is envisaged to set a fixed non-taxable minimum at 500 euros, with an expected increase in the following years so that it reaches 80% of the minimum monthly wage of the corresponding year. Such an increase in the minimum wage and non-taxable minimum could compensate for a possible increase in value added tax, the social partners believe. Back in June of this year, the ruling coalition rejected the idea of Finance Minister Arvils Aseradens (New Unity) to increase the value added tax (VAT) by one percentage point in order to compensate for the losses to the state budget, however, employers supported this idea in previous negotiations. Trade unions, on the other hand, do not support the increase in VAT, emphasizing that the greatest burden of the increase in this tax will fall on low-wage earners, while it will affect all workers regardless of their salary level. Finance Minister Arvils Aseradens said on Delfi TV that there is currently no political support for the idea of increasing VAT in the coalition, but behind the scenes, such a possibility is still being discussed. If employers and the government do reach an agreement on increasing VAT, LBAS will insist that such changes are only permissible if a fixed non-taxable minimum is introduced as early as 2025, benefits for the maintenance of dependents are increased, and the minimum wage is gradually increased to 50% of the average salary in the country. According to LBAS, such changes are necessary to compensate for the loss of purchasing power from the increase in VAT, as well as to ensure an increase in net wages in all categories. In order to maintain the purchasing power of the population with a 1% increase in VAT, the minimum wage should increase by at least ten euros, the average wage by 15 euros, LBAS notes. At the same time, it is emphasized that experience shows that changes in VAT are not limited to price increases at the level of the tax rate, but also affect the pricing policy of manufacturers and traders, as well as the general increase in prices. From the point of view of LBAS, a fixed non-taxable minimum can cover such a price increase. At the same time, in order for the increase to also compensate for changes in consumer prices, the minimum wage should be increased to at least 740 euros, since it is the recipients of low wages who will feel the increase in the cost of living the most. Benefits for the maintenance of dependents would relieve the burden on families with children. The agreement between LBAS and LDDK provides for an increase in the minimum wage in 2025 to 740 euros, as well as the establishment of a fixed non-taxable minimum of 500 euros, which would mean that workers with a minimum wage will receive 44 euros more "net" than this year. With an average salary, workers will receive 86 euros more "in hand", the social partners calculated. LBAS and LDDK also agreed on a schedule for increasing the minimum wage and non-taxable minimum for the following years, the goal of which is to achieve a minimum wage of 50% of the average salary in the country's economy. The calculations were based on average salaries for the previous 12-month period from the 2nd quarter of the year before last to the 1st quarter of last year. The proposal envisages that in 2025 the minimum wage will be set at 47% of the average wage for the relevant reporting period, and in subsequent years this ratio will increase by 0.5% to reach 50%. At the same time, the non-taxable minimum should, according to trade unions and employers, reach 80% of the minimum wage. Understanding that the introduction of a fixed non-taxable minimum means significant costs for the state budget, the social partners agreed that in 2025 it can be kept at 500 euros, given that the introduction of a fixed non-taxable minimum in itself will lead to an increase in net salaries at all levels. However, starting in 2026, it should increase to 75% of the minimum wage and in subsequent years reach the set goal of 80%, the social partners note. An important criterion for agreeing to the introduction of the above scenario, from the point of view of LBAS, is the inclusion of transport costs in the deductible expenses per employee, if this is agreed upon in the collective agreement, as well as an increase in the amount of the deduction. Trade unions and employers propose setting this amount at 840 euros per year, although the FM working group discussed a proposal to set the threshold at 700 euros. The social partners did not discuss changes in the personal income tax rates during the negotiations. However, in negotiations with the government, employers proposed switching to a flat rate of personal income tax (IIN) of 25%. Trade unions do not agree with this, since the introduction of such a flat rate for wages, firstly, excludes progressivity (when the poor pay less and the rich pay more) and, secondly, reduces the benefits of the flat non-taxable minimum for low-income workers. According to LBAS, the flat personal income tax rate will not reduce the burden on low and average wages, which is the goal of the reform. Trade unions continue to insist that the future labour tax model should, in accordance with the recommendations of the European Commission and the Organisation for Economic Co-operation and Development, reduce the tax burden on low and average wages. Social partners believe that a significant increase in net wages, stimulating the growth of purchasing power, should be ensured for employees with a salary of up to 2,500 euros. Let us recall that the draft of tax changes from the Ministry of Finance, which was received by "Kas notiek Latvijā?", provided, on the contrary, for the introduction of a progressive personal income tax scale from 2026 – namely four IIN rates. The current lowest rate, which is 20%, was planned to be retained only for incomes up to 9,000 euros per year. This threshold actually corresponds to the planned minimum monthly wage. Currently, the 20% rate applies to incomes of up to 20,000 euros per year. Incomes exceeding 9,000 euros per year but not exceeding 48,000 euros per year are proposed to be taxed at the IIN rate of 26% from 2026. Incomes from 48,000 euros per year to 105,300 euros per year – at a rate of 28%, incomes over 105,300 euros per year – at a rate of 36.1%. At the same time, it was proposed to introduce a fixed non-taxable minimum of income tax (IIN) from 2026, abandoning the differentiated non-taxable minimum. The scenario of the Ministry of Finance also assumed a reduction from next year of the share of mandatory state social security contributions (VSAOI) directed to the second pension pillar, from the current 6% to 4%. At the same time, it was envisaged to reduce the VSAOI rate from 34.09% to 33.09%. Moreover, it was planned to reduce by 1% the VSAOI paid by employers.
