Law on Indexation of Wages Available, but Not Applied

Since early February, President Ilham Aliyev has signed decrees on increasing pensions, allowances and wages paid to the population by an average of 10%. If the Law on Indexation of Cash Incomes and Deposits of Citizens in the Republic of Azerbaijan were in force, then not only labor pensions, as it is now, but also those who receive wages from the state budget, work both in state and private enterprises, everyone whose monthly cash income is less than 4 times the minimum wage (as of January 1, 520 manats) would be protected from rebellious inflation. Now in Azerbaijan just so much is the average monthly wage.

Forgotten Law of A. Elchibey

June 17, 1992, at the most difficult time, when the socio-political situation in the country was strained to the limit, the newly elected President Abulfaz Elchibey signed a law that served the interests of the widest sections of the population. The law "On indexation of monetary incomes and deposits of citizens in the Republic of Azerbaijan" http://www.e-qanun.az/framework/7211 is in force to this day. It would be unfair to say that the new government that was established in 1993 (in that year the official price increase in the country was 1229.1%, in 1994 - 1763.5% - Ed.) forgot about its existence: until now the law was amended 11 times. And for the last time in May 2017, the law was made cosmetic changes http://e-qanun.az/framework/35907.

The higher the minimum wage (MW), the more workers will be covered by the law. Because, by the law, the limits of indexation are limited by the level of MW. Maybe, that is why the government, proceeding from the perspective, carefully increases the size of the minimum wage. Experts say that currently MW serves as a service for calculating taxes and social insurance payments.

For example, if this year the government indexes wages according to inflation, how much would the earnings grow? Let's try to find an easy answer to this question by simple calculations. The law provides indexation of salaries in accordance with the minimum wage. For example, the income of employees with a monthly salary of 130 manat should grow by 100% of inflation, that is, by 16 manat 77 gapik. The depreciating salary of persons whose income is less than 2 times the size of MW should increase in the amount of 80% of annual inflation, i.е. maximum by 26.84 manat. With a salary less than 3 times the minimum wage, its growth should be at the rate of 60%, and with earnings less than 4 times the level of MW - 40% of the inflation. The law does not protect those who receive higher wages from inflation. And in this case, the government and most private companies seem not to notice the rise in prices in the consumer market.

If the Law Were a Law ...

According to the law, wages are indexed if the price growth in the consumer market has exceeded 5%. In 2017, official inflation was 12.9%, and in 2016 - within the limits of 12.4%. In the previous 4 years, the rise in price did not affect the family budget so much: the prices on average increased by 1.1-4%. In recent years, the highest price growth would have been recorded in 2007 (16.7%) and 2008 (20.8%). However, as the government did not index salaries, citizens did not demand that the law be enforced.

True, over the years the President's orders on officials of employees of organizations financed from the state budget have been revised several times. And this year the government's decision on several budgetary organizations has revised salaries of those who received them at a low tariff scale http://cabmin.gov.az/page/doc/2680. But it was not universal indexation of earnings and was associated with an increase in the minimum wage from 116 manat to 130 manat http://president.az/articles/26593. The increase in wages was foreseen for those who received a salary from the state budget at a rate of 1 to 4 tariff rates of the Unified Tariff Grid (UTG). In the public sector, wages are so low that even after this increase in the law on indexation, those who received wages at 18 rates from the 19-rate UTG could use it. The salary under the 18th tariff rate is 486 manat http://e-qanun.az/framework/32269. It was necessary to index the salary (up to the 17th rate of the UTG) also for the majority of employees in state-financed enterprises and organizations under the National Academy of Sciences of Azerbaijan (ANAS) and its Nakhchivan and Ganja scientific units.

Fikret Yusifov: "The Government Is Cautious"

Former Finance Minister Fikret Yusifov believes that one of the reasons for Russia's default in 1998 - the only state in the post-Soviet space that indexes money incomes - was the holding of this policy in this country. In his view, indexation of wages in accordance with inflationary limits is almost unrealistic, because "the rise leads to a new wave of inflation." Therefore, the main provisions of the Law "On Indexation" are not used in Azerbaijan since the day of its adoption and up to the present day. "After reducing the inflation limits to the normal level, it is impossible to review and reduce the salaries that are higher in indexation. Therefore, in matters related to the indexation of wages and pensions, it is impossible to make mistakes. And from this point of view, the government approaches the above-mentioned issue with caution," said the former Finance Minister and invited to review and to" bring into line with economic developments have taken place in modern times, "many of the articles of this law passed 25 years ago.

"The Government Raised Salaries Even Without This Law"

The economist Azer Mehdiyev does not share the view that indexation of wages can become a factor in the re-emergence of inflation. In his view, this result can only lead to hyperinflation. A 10-15% "inflationary correction" is not able to cause the effect of another rise in price.

"Although during the period of large oil revenues the government did not rely on this law, when adopting the budget for the next year it increased wages of employees of budgetary institutions by 10-15%. Later, however, this mechanism has been canceled. The use of wage adjustments in line with inflation is an important issue. However, the private sector makes changes in the wages of employees depending on the level of income and expenditure, but in budget organizations this can be done only on the basis of law and accounting for the composition of the budget. " This opinion is shared by Azer Mehdiyev.

The law also provides for the indexation of social benefits (families with children, unemployment, reduced staff, temporary disability, due to pregnancy and other benefits). The lawyer Elnur Aliyev says that according to the law "On social benefits," their size is determined by the President and indexed at least once a year. In practice, this is done in the form of a review or an increase in the amount of the president. The social benefits were last raised by 10% since February 1, 2016 by the decree of President Ilham Aliyev "with the aim of improving welfare and strengthening social protection of the population" http://www.president.az/articles/17538.

It is interesting that at the beginning of this year the Cabinet of Ministers amended the "Methodical instructions on the procedure for indexing the money income of the population in connection with the growth of prices for consumer goods and services" http://e-qanun.az/framework/37690. With this decision, the indexation of unemployment benefits was abolished. As the basis for the adoption of this decision the law "On unemployment inasurance" effective from January 1, 2018 is called.

The structure of the minimum consumer basket used in the calculation of inflation is considered with the participation of the Confederation of Trade Unions of Azerbaijan https://goo.gl/UmeCLh. However, the Confederation, which took on the mission of protecting the labor and social rights of workers, did not respond to Turan's questions related to the indexation of wages.

Turkish Experience of Indexing

Unlike Azerbaijan, in Turkey, a large part of the population (state employees working under contract, unemployed, pensioners) are insured to some extent from the price increase. In this country, wages and other payments are raised every six months in consultation with the trade unions. In the first half of 2017 in Turkey, the salaries of officials grew by 3%, and in the second half-year - by 6.92% https://goo.gl/RvLu25. And this year salaries will be revised.

The Law on the Indexation of Monetary Incomes and Deposits of Citizens in the Republic of Azerbaijan, developed on the basis of Turkey's legislative experience, states that its violation entails disciplinary, administrative and criminal liability in accordance with the law. However, the law works like a "lame horse".

125 Lucky Ones

... At the end of last year during the discussion of the draft budget in Parliament, deputy of Milli Mejlis (MM), NAP Deputy Executive Secretary Siyavush Novruzov proposed to increase the salaries of deputies, comparing it with a salary of heads of police departments and prosecutors https://apa.az/daxili_siyaset/siyavus -novruzov-deputatlarin-maasi-artirilmalidir-5966.html. After the budget was approved by the head of state, it became known that the deputies' dream of raising their salaries seems to have come true. True, this has not yet been officially confirmed. But it is also known that, after discussions in the government, MM expenses were increased by AZN 1.2 million. In general, expenses for MM maintenance (AZN 25.4 million) increased by AZN 2 million compared to the same indicator of 2017. This increase has nothing to do with the Law on the Indexation of Cash Incomes and Deposits of Citizens in the Republic of Azerbaijan. Like other members of society, its 125 deputies also forgot about this law.