In a recent address on October 23, 2024, Albanian Prime Minister Edi Rama emphasized the critical importance of addressing the issue of false salary declarations in Albania’s economy and announced drastic measures against small businesses failing to pay social insurance contributions. His remarks came during a meeting with tax authorities aimed at combating informality. Mr. Rama highlighted the alarming trend of employers declaring minimum wages to avoid tax obligations, a practice that he referred to as both dishonest and harmful to the pension system.

Why does it matter: The implications of these false salary declarations are severe. This practice results in a substantial shortfall in the state’s pension fund, a gap that the government currently covers with half a billion euros annually. Without these funds, the pension system would be unsustainable. The issue is not just about financial loss, but also about the social contract between businesses, workers, and the state. By underreporting wages, businesses are not only defrauding the government but also harming future pensioners, including their own employees.

Albania has long struggled with low pensions, a problem that has persisted due to a combination of demographic changes, insufficient contributions, and a high level of informality in the labor market. The pension system is heavily reliant on contributions from employers and employees. However, when wages are falsely reported, the contributions to the social security system are significantly reduced. This not only affects the current pensioners, whose payments are already limited, but also jeopardizes future pensioners, as the system faces growing deficits.

Prime Minister Rama pointed out that more than 156,000 employees across 17 key sectors are being declared with a salary of 50,000 lekë per month. This widespread practice, driven by employers seeking to avoid tax obligations, is part of a larger informal economy issue in Albania. With these “false salaries,” businesses are evading their legal responsibilities, creating significant distortions in the country’s labor market and severely impacting the pension system. While this might seem like a cost-saving measure for businesses in the short term, the long-term consequences are devastating, particularly for pensioners.

The systemic underreporting of wages results in a major deficit in the country’s pension fund. The government has been forced to fill this gap with approximately half a billion euros annually, an amount that could be better utilized for investments in infrastructure, education, healthcare, and other essential public services. Without these additional funds, Albania’s pensions would be far lower than their already modest levels, leaving many elderly citizens in precarious financial conditions.

Mr. Rama warned of severe consequences for businesses that fail to comply with social insurance regulations, urging business owners to take the issue seriously, highlighting that the government prefers cooperation but is prepared to take stronger action if necessary. In his words, these unpaid contributions are debts to pensioners, and the government will not tolerate businesses that continue to operate without fulfilling this obligation.