Thursday, May 29, 2008

Latvian pensions referendum, part 1

Latvia will soon have a referendum on increasing the state-provided old age pensions. This is the first of the two posts on what exactly is happening. In this post, I will summarize the politics around the referendum. The financial side will be discussed in the second post, which will follow in a few days.

The organizers.
The referendum initiative originates from a group lead by Janis Kleinbergs, a Latvian who spent most of his life in Venezuela and returned to Latvia a few years ago. He filed for Latvian retirement benefits and discovered that, since he has not been employed in Latvia at all, he was only eligible for the minimum benefit which was about 60 euros/month at that time.

Kleinbergs felt insulted by such a meager pension. He might have had savings from Venezuela or other income (as one can see from his property declaration which shows a substantial amount of property). But his country paying him 60 euros/month... that was insulting. And some other people may have to live on similarly meager pensions and (unlike him) have no sizable savings from Venezuela.

Kleinbergs became the leader of the Party of Retirees and Senior Citizens and run for parliament in 2006. The party gathered 0.79% of popular vote. Then, in summer 2007, he, together with other members of his party started gathering signatures for a referendum that would drastically increase the minimum pensions.

The signature campaign. The Party of Retirees and Senior Citizens had almost no money for advertising nor access to major media. As a result, most of Latvians (including myself) did not know that there was a signature campaign underway. Nevertheless, they gathered 8000 signatures between July 2007 to February 2008.

Then, in February 2008, the Latvian parliament decided to increase the fee for notarizing the referendum signatures from 2 lats (3 euros) to 10 lats (14 euros). They only needed 2000 more signatures but the hurdle just got higher...

Stokenbergs jumps in. At that point, the pro-referendum campaign gained another supporter, "Society for Different Politics", lead by the People's Party's defector Aigars Stokenbergs. With Stokenbergs' fortune (he's a real estate millionaire) and now much larger media coverage, the missing 2000 signatures were gathered in 3 days.

Why so late? "Society for Different Politics" was founded in November 2007 and only jumped into the campaign in February 2008. Under the more benovelent interpretation, Stokenbergs and his people were busy with other matters. Under the more cynical interpretation, they were initially opposed but then decided to score some publicity points by attaching themselves to a cause that was popular with people and was probably going to a referendum anyway but not supported by any of the major parties.

The rest of the story. Since 10,000 signatures were successfully gathered, Latvian government had to take over the organization of the signature process. (Here is an explanation of the Latvian signature process.) 170,342 more signatures were gathered in government-organized signature places. This substantially exceeds the required minimum of 149 thousands (10% of eligible voters), so, a referendum will be held.

Who supports it? Kleinbergs-lead Party of Retirees and Senior Citizens and Stokenbergs-lead Society for Different Politics have been very vocal. Stokenbergs has spent 100 thousand lats (140 thousand euros) of his personal money for advertizing and this law is now the defining issue of his future party. Most of other opposition parties (New Era Party and Harmony Centre) also support it but less vocally.

Who is opposed? All the parties in the governing coalition claim that the proposed law will break the budget and destroy the existing pension system. From the opposition parties, Sandra Kalniete-lead Civic Union party also opposes the proposed law, saying that referendums are not the right way to decide retirement benefits.

Does anyone believe the government? Since I don't have any polling data, I have to use unscientific information from our last family gathering. People supporting government's position (that the proposed law is a catastrophe) were in minority but it was a substantial minority.

When will we have the referendum? There are several formalities that should be completed, like Central Election Committee verifying the validity of the signatures. Given the typical amounts of time for that, the referendum might be in September, unless the constitutionality issue comes up.

Constitutionality issue.
Referendums on money issues are dangerous, since people are likely to vote for unfeasible combinations of lower taxes and higher benefits. In order to prevent that, the Latvian Constitutional Assembly of 1922 put in the following article into the Constitution:
73. The Budget and laws concerning loans, taxes, customs duties, railroad tariffs, military conscription, declaration and commencement of war, peace treaties, declaration of a state of emergency and its termination, mobilisation and demobilisation, as well as agreements with other nations may not be submitted to national referendum.
They don't mention retirement benefits, since those did not exist back in 1922, when the Constitution was written. But the current referendum affects budget in a substantial way and could be recognized unconstitutional because of that.

Who decides the constitutionality? Probably, the Constitutional Court. But nobody knows for sure, since we have never had any referendum proposal that could be questioned, based on Article 73.

Part 2 to follow in a few days...


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Roseann said...

Here, I do not actually consider this will have success.

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