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The agreement was signed Oct. 22, between Prime Minister Mart Siimann, Trade Union Association head Raivo Paavo and Director of the Association of Employers and Industry Henn Parn. According to the agreement, the national hourly wage would according to the agreement be 7.35 kroons.
Unlike in many Western countries, the decision was made trilaterally by the government, the employees and the employers. The preliminary decision of the employers was to raise the minimum wage to 1,400 kroons and tax free allowances to the same level with the minimum living wage, which is about 1,100 kroons. The government's preliminary proposition was to raise the minimum wage to 1,250 kroons and leave the individual's tax-free allowance on the same level. The employees, on the other hand, agreed with a 1,200 kroon minimum wage.
The new accounting method for tax-free allowances will apply to wages earned beginning Jan. 1, 1999.
According to Toivo Roosimaa, the task of enforcing the bill will become a burden for the government elected in March 1999 because the state budget for that year is already prepared.
Roosimaa said it is not clear how much revenue from income tax the budget will lose, but it may be around half a billion kroons. On the other hand, he believes it will all come back in the same amount in revenues from taxes of contribution or fines for example. Fines in Estonia are tied to a minimum wage.
The other advantage for the government, Roosimaa confessed, would be the inflation that eats up 10 percent of the exempt taxes held back by the government.
Roosimaa also stressed Estonian wage levels vary exessively, at times ranging anywhere between 4,000 and 100,000 kroons per month. Both the trade union and the goverment are looking to stabilize this trend.
"The other problem is that in our country, wages are not tied to a qualifications degree, which means that a highly educated official may receive less than a good constructor," said Roosipuu.
According to statistics, the minimum wage is the highest in Lithuania - about $107.50. In Estonia, it is $80.73 and in Latvia $71.55. Roosimaa, however, said it is foolish to compare these figures since the cost of living is different in all three countries.