Pension indexing bill advances despite budget deficit

RIGA - Saeima Social and Labor Affairs Committee on July 8 forwarded to the Saeima for review a bill that provides for resuming pension indexing starting this fall, reports LETA. The bill stipulates that the pensions below 165 lats (235 euros) will be indexed on Oct. 1, taking into account the actual consumer price index. If the index is smaller than 1, meaning that any indexing would actually reduce the pensions, then the pensions will not be indexed.
It is expected that the law will come into force on Sept. 1, 2011.

On July 6 Finance Minister Andris Vilks (Unity) announced that retirement pension indexing cannot be afforded in the current situation. The minister called the proposal to resume indexing of retirement pensions “pre-election populism,” indicating that, in the current situation, few companies, if any, can think of increasing or indexing salaries. Besides, no one revised pensions downwards during the period of deflation.

Vilks stressed that the priority now is to take budget consolidation measures for 2012. And even if there are any available assets, they should be used in the consolidation process, said Vilks, noting also a dramatic decrease in the welfare budget.
According to Vilks, inflation rates that determine indexing of retirement pensions can again decrease next year, so indexing should not be the priority now.

Several weeks ago, the mayor of Ventspils, Aivars Lembergs, had given Prime Minister Valdis Dombrovskis’ (Unity) government an “assignment” to index pensions, matching the inflation rate - 5 percent.
The Union of Greens and Farmers (ZZS) “categorically disagreed” with Vilks’ position on allocation of the social budget’s funds, and continued to insist on indexing retirement pensions.

ZZS has estimated that this year’s budget will have sufficient funds that can be channeled for pension indexing. The party rejects Vilks’ proposal to channel any available social budget funds to budget consolidation.
The government must not succumb to populism regarding the calls for higher salaries and indexing of pensions, said former President Valdis Zatlers after a meeting with Dombrovskis on July 6. Zatlers urged the government “to not succumb to populist promises that in fact border on misleading the people, promises that wages could be increased or pensions could be indexed.”
The government must be decisive in structuring the 2012 state budget so Latvia could complete the program that will lead it out of the crisis. The painful budget cuts must continue in the name of faster growth in the future, said Zatlers.

Strategic Analysis Commission Chairman Roberts Kilis’ statement that Latvia might have to abandon its pension system in the future kicked off the recent public debate about the pension system. His statement was deliberately provocative, said Dombrovskis on the LNT morning show ‘900 sekundes’ last week.
“The Strategic Analysis Commission chairman does not have the same liberty as an independent expert,” said the prime minister. Such problems are to be tackled in a different way, by social budget sustainability measures, which are currently on the government’s agenda.

A part of these measures has been already approved by the Cabinet and Saeima, while the approval of several other social budget sustainability measures in the parliament is still pending.
President Andris Berzins said on Latvian Radio on July 11 that if the budget situation allows, pension indexing can be done this year. Essentially, he added, that would be a question for the coalition.

Unity’s leadership said on July 12 that they have no objections to ZZS’ proposals, if money is available.