Банкеръ Weekly

Briefs

INCREASE OF SALARIES IN PLAN OR... IN SPIRAL

Writing strategies has become favourite preoccupation of the current Government as it happened with its predecessors in the past. The Ministry of Labour and Social Policy gave its contribution, too. Obviously, coalition ruling has had a sobering effect on the red wing and they no longer utter a word about a shocking increase of the salaries in 2007. However, it is neither possible to keep justifying the social condition of the country with the mischiefs of previous cabinets and try to retrieve the case with a few levs when there is inevitable need to raise the price of electricity, heating, water... when excise duties jump far-sightedly, etc. Naturally, it was time for Minister Emilia Maslarova to present to the Economic and Social Council a draft strategy for increasing the income in the period 2007-2009. Its nice moments can be noticed at the very first sight - it refers to increasing the income of the population. Later on, a careful reading of the document brings up a number of questions. And the peculiar opinion of the financial minister only proves how easy it is to raise salaries and pensions on paper, without considering the precise calculations of the financiers.
At the centre of the planned new policy is the definition of the so called poverty line which is equivalent to BGN152 now. The amount of other minimum and socially protected payments will be bound to it. For example, the plans include a minimum working salary in 2007 between BGN174.80 and BGN219. Respectively, social old-age pension will be 45% of the poverty line and the lowest pension due to insurance length and age - at least 50% of the lowest salary.
According to the strategy, from the start of next year the minimum working salary should also become a state regulator of the labour income and labour market. The aim is to provide a stable annual growth of the salary by the end of 2009 by reporting growth of GDP, forecast inflation for the respective years, labour productivity and competitive power of the economy and enterprises.
The plans are to make remunerations in budget organisations grow through an index involving 100% of the forecast inflation and up to 75% of the expected growth of GDP. In the private sector this index will be advisory, of course, and will again involve expected inflation as well as up to 65-70% of the expected growth of labour productivity in the respective economic sectors and branches. In order for pensions to be updated, from 2007 the golden Swiss rule will be adopted. It forms an index that includes 50% of the real inflation reported in the previous year and 50% of the growth of the insurance income.
Minister Maslarova apparently forgot to consider others' opinions as she thinks that thanks to application of the new mechanisms, salaries may be growing by 10% a year until 2009 and pensions - by 7 to 10%, with the minimum service and age pension becoming equal to the poverty line.
The Confederation of Independent Trade Unions in Bulgaria is a partner in the creation of the strategy but we cannot save our fear that its implementation will only re-confirm the status quo. With no serious numerical tracks, agreements become slogans and wishes, Dr. Zhelyazko Hristov, Chairman of the union, said on occasion of the draft document. According to trade union experts, the planned nominal increase of salaries is almost the same as nominal growths reported in the past years. It is also unclear whether and how the population will be stopped from getting poorer in 2006 which is a basic year for the parametres set in the three-year period of the strategy.
Business sector representatives have remarks to the document, too. They claim that the planned growth of the salaries is realistic and feasible, but some of the principles and mechanisms proposed for increasing the remunerations do not correspond to the condition of the Bulgarian economy and the international economic practice and situation. There is no assessment of the grey sector of the economy, no measures aimed at putting limits on it, and in the plans it makes the social ministry is using some unofficial statistical figures improperly, members of the Bulgarian Industrial Association say. Employers are convinced that the faster increase of the minimum working salary in Bulgaria will transform remunerations from labour incentives into instruments for social assistance paid by the enterprises. They want the growth of income to be mainly determined by labour productivity and the level of the minimum wage to depend on the level of the average one.
From a logical point of view, most vulnerable seems to be the idea to increase salaries in private companies through an index involving 100% of the expected inflation rate. In principle, it is lower than the real one but again there is no reasonable argument to require that employers pay for governmental decisions that contribute to the inflation growth significantly (like this year's growth of excise duties). Whatever the cause for it, inflation does not lead to higher profit in the companies which would raise salaries automatically.
How much the lowest salary should be raised next year, what the consequences will be - bankruptcies or higher revenues to the insurance system, is inflation indexing suitable and whether working salary is a dividend or expenditure...? The dispute between the social minister and his financial counterpart may seem a usual one, but a feeling remains that the Government itself is still far from reaching an agreement on the income increase strategy. As much as it is away from fulfilling the social promises it gave before the elections.

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