New calculation of minimum cost of living
Under the Social Assistance Payments Act, the minimum cost of living needs to be determined at least every six years on the basis of a comparable methodology. The minimum cost of living is determined as the multiple of food costs, for which there are accepted standards, and the reciprocal of the share of total household expenditure spent on food.
The minimum cost of living was last determined in 2017 (Stropnik et al., 2017), on the basis of research into household spending from 2015 and average monthly prices between January and October 2016. On this occasion the research was again conducted by the Institute for Economic Research.
The key findings from the new calculation are as follows:
- the new minimum cost of living (MCL) is EUR 669.83, up 9.2% on the previous MCL calculated in 2017;
- the new minimum short-term cost of living (MSCL) is EUR 488.58, up 10.6% on the previous MSCL calculated in 2017.
The new minimum cost of living figures (MCL and MSCL) affect the level of the minimum wage
The Minimum Wage Act stipulates that the minimum wage should be aligned with the MCL calculation within three months, via a resolution by the minister. The Minimum Wage Act also stipulates that the minimum wage is set in the amount of the minimum cost of living, plus an amount of between 20% and 40%. Given the new minimum cost of living, the minimum wage should be at least EUR 803.80 and no more than EUR 937.76.
Under the Social Assistance Payments Act, the minimum short-term cost of living affects the minimum basic income (MBI), which determines the size of social transfers.
The current MBI, to which the social assistance payment for a single person is equal, stands at EUR 421.89. The benchmark for income support stands at EUR 620.18.
If the MBI is aligned with the new MSCL:
- the social assistance payment for a single person would rise to EUR 488.58,
- the benchmark for income support would rise to EUR 718.21,
- the labour participation bonus for a single person working more than 128 hours per month would rise from EUR 215.16 to EUR 249.18, an increase of EUR 34.01 or 4.2%.
Budget expenditure would increase by EUR 48.7 million on an annual basis.
Before determining the size of the adjustment to the minimum wage, and drawing up the basis for raising the minimum basic income, we will coordinate with the government and the social partners on the Economic and Social Council.