April 14. 2024. 7:38

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Popular, unpopular economic policies on the eve of Albania’s local elections

Prime Minister Edi Rama has promised the average salary of Albanians will reach around €900, or 102,000 lek, more than double what it was a decade ago, just over two months before local elections.

The average salary in 2022, according to INSTAT, is 66,000 lek or €581, one of the lowest in the region, which averages around €800-€900 except for Kosovo. Over the last eight years, the salary increased by 10.8% in Albania, but when indexed against inflation in 2022, it averaged 4.1%.

With local elections set to take place in May, Rama promised that salaries would increase to €900 in two years, equivalent to 54%.

“Now we have in my hands a very ambitious but at the same time reasonable plan for a salary increase which aims to enable Albania to rise to the top level of the region within the span of these two years, i.e. 2023, 2024. It aims to achieve a target of an average salary of €900”, Rama said on Wednesday during the reading of the government’s decisions.

He said details of an approval act and a full plan would be published in the following two weeks. In addition, he highlighted the recent decision to increase doctors’ and nurses’ salaries by 7% during 2023, stating there would be a bigger increase in 2024.

The prime minister also announced the distribution of the funds gathered through windfall taxes imposed on energy exporters. He said this would be equivalent to 5,000 lek with their next pension instalment.

“We are in extraordinary conditions. We will take a step now and a step next year. We will make a historic wage increase. It is a salary increase that is actually different from other salary increases because it is a reform of the entire salary structure of Albania. So it is the result of reforms, efforts, developments and changes that have taken place and for which many have the right to say that we still have lower wages than others in the region?” Rama said.

Albania’s wages have been slow to grow over the last decade, partly due to low productivity and labour shortages driven by emigration. A number of business sectors, in particular manufacturing, tourism, and hospitality, have all reported significant staff shortages.

“I don’t know the circumstances of this decision at the moment,” he said.

Executive Director of the Institution for Political Studies, Afrim Krasniqi, added, “the decision on pensions, salary increases, and other financial facts for social allowances is a political act and related to the elections.”

But the government is also powering ahead with unpopular economic decisions. A reform of self-employed and small-business tax rates, unpopular with professionals and professional organisations, has passed a recent round of approval.

Currently, small businesses and the self-employed earning up to €88,000 a year enjoy a zero tax rate, but this is set to change from January 2024. On Wednesday, the Parliamentary Committee on Economy and Finance approved the draft law on Income Tax, which would see a progressive tax regime introduced with a scale between 15-23%.

From 1 January 2024, those working in free professions will no longer be treated as small businesses paying a rate of 0% tax. Instead, they will have to pay progressive tax based on income level. For small businesses and some kinds of self-employed, the law will take effect in 2029.

There have been a number of opponents to the proposed law, including the Institute of Accountants and the Association of Banks.

(Alice Taylor | Exit.al)