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Ceturtdiena 24.05.2018 | Name days: Marlēna, Ilvija, Ziedone
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Banker: tax policy should boost business not squeeze it

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The state’s tax policy should foster business, instead of crashing it, Rietumu banka Council’s Member Aleksandrs Kaļinovskis (Kalinovskis) indicates in an interview to the business portal Nozare.lv.

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUTo his mind, one of the main problems in the state budget consolidation process, which is basically done at the expense of tax raise, is not considering the long-term solutions.

Kalinovskis believes that the government cannot keep introducing new taxes for business, because it is a path that leads to nowhere.

The banker criticizes policticians’ arguments that the tax burden in Latvia should be levelled out, for instance, compared to the Scandinavian countries.

When defending the new tax changes, the government says the tax burden is lower than in Scandinavia, and this is ridiculous. In order to compare with the Scandinavian countries, Latvia should first reach their level of development, the expert points out.

There is no need to deny that the majority of Latvia’s inhabitants do not believe the government can properly use tax payments, but in Scandinavia a system has been developed over several decades, and the society knows where the government will apply the taxes. With the current tax collection system, the volume of shadow economy and massive distrust in the government as a wise manager, raising taxes in Latvia would mean reducing the number of taxpayers, Kalinovkis says.

He considers that currently the government is only continuing to enter numbers in Excel tables to comply with the international lenders’ requirements, without thinking of what will happen tomorrow, in a year or two. Everyone relies that the situation will be better, yet even with signs of recovery, the Latvian economy is still in a very fragile state, Kalinovskis warns, adding that the tax increase in this situation would only reinforce the likelihood of stagnation.

The banker assesses that the Latvian economy, especially in the private sector, has pulled through for many years, and not because of the government’s decisions. Of course, it is possible to keep loading weight on one horse, hoping that it would hold it. But there is a risk that at one point, however, the horse will fall, acknowledges Kalinovskis.

In his view, if the Latvian economy keeps declining, the economically-active inhabitants will continue leaving the country and we will become unattractive to foreign investors, which will have serious consequences in the coming years. The demographic crisis, which may coincide with further economic crisis, is a major problem that cannot be solved with a budget consolidation. Thus, we risk to arrive in a very unfavourable situation, compared with our neighbours in terms of economic, demographic and tax burden. Moreover, Kalinovskis concedes that at one point all these processes can achieve the critical mass and then the crisis influenced by international events will be accompanied with a local crisis.

To prevent such scenario, a cardinal economic policy replacement is necessary, which should be aimed at the attraction of foreign investments and economic activity, even at the expense of budget deficit, which must be reduced to minimum by the government sector spending cuts.


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  1. Gunnar says:

    Really comparing situation in other countries, no matter if they are neighbours, seems not wise, because there are many other factors that influence it.

    Thumb up 0 Thumb down 0

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