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Estonia Budget to Benefit From Minimum-Wage Increase, Ansip Says

Estonia’s minimum-wage increase during the next two years will help budget revenue without spurring inflation, Prime Minister Andrus Ansip said.

Ansip’s cabinet yesterday approved a 22 percent increase to the minimum wage to 390 euros ($531), defying the central bank’s warning that higher salaries may stoke inflation and harm competitiveness in the euro area’s newest member. The Confederation of Estonian Trade Unions and the Estonian Employers’ Confederation agreed on the move earlier this year.

“If the labor market parties have agreed on this, then the government considers it reasonable to accept their stance because this won’t cause an added burden on the budget,” Ansip said today in an interview Vilnius, where he was attending a European Union summit. “Rather, this kind of increase in the minimum wage will somewhat add to budget revenues.”

The Baltic country, which adopted the euro in 2011, needs to stem accelerating wage growth and housing prices to protect its economy, central bank Governor Ardo Hansson said Nov. 2. Wage pressure, driven by excess labor demand in some regions and industries, is starting to spill over into inflation, he said.

Consumer prices advanced 1.5 percent in October from a year earlier, slowing for a fourth consecutive month from this year’s peak of 3.8 percent in June. The impact of rising labor costs on inflation is being offset by one-time effects for now, Hansson said Nov. 22.

Revenue will be bolstered as higher income and social taxes will more than offset the cost to the budget from wage increases to public employees, Ansip said.

A 10 percent increase in the minimum wage this year was among the main reasons for faster wage growth, together with collective pay deals for state employees and a decline in unemployment, the central bank said in a statement Nov. 26.

“I don’t believe that minimum wage increase would significantly affect inflation -- it is rather affected by a big wage increase in private sector,” Ansip said. “Inflation has rather sharply slowed in Estonia, similarly to all of the European Union.”

To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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