«In the event that the way the next year’s budget is discussed is not changed, the council’s agenda will be added with a matter regarding the possible assessment of the level of professionalism exhibited by Latvian Finance Ministry with the formation of next year’s budget,» – as agreed upon by the Latvian Chamber for Commerce and Industry during the meeting on Monday, 31 August.
«Next year’s budget formation process and its result is the poorest in the past five years. This is the first time when proposals of cooperation partners were ignored and partners were not invited to hold discussions. Instead, the government continues its monologue on the adoption of a new tax and raising other taxes,» – said LCCI Chairman Janis Endzins. «Entrepreneurs are being juxtaposed with employers, saying that wages will grow. However, the coalition does not take into account that there are only so much turnover funds, and every unreasonable decision made by the government and not thoroughly discussed with cooperation partners will have negative consequences.»
LCCI notes that negative signals that are noticed by entrepreneurs and potential investors will lead to a decrease of wages, not increase. This will only contribute to massive migration of the population to ‘richer’ countries. This will mean worsening of the country’s business environment, further decrease of the state budget and even more risks for social groups that are already at risk: doctors, teachers and pensioners. It is important to understand on a state level that entrepreneurs are the people who keep the state financially secure. Ignoring them and keeping them out of the loop will only put in danger companies working in the white economic sector, said Endzins.
Entrepreneurs have developed multiple proposals that could help increase the state budget and cover its deficit. Entrepreneurs suggest refusing adoption of the social solidarity tax, which seems more like progressive PIT, and the adoption of differentiated tax-free allowance. Instead, LCCI offers multiple proposals – increase of natural resource tax for waste storage and attraction of international trade companies as Latvian tax residents, which does not object proposals voiced by the European Commission. LCCI has also proposed a number of measures to better combat shadow economy.
The matter regarding Finance Ministry’s responsibility and level of professionalism will be discussed during the next extraordinary council meeting, as reported by LCCI.
Latvian Finance Ministry has stated it will continue working on next year’s budget. On Monday, 31 August, ministers reached the final agreement on the most important matters related to the state budget. It has been decided that minimum wages will be increased to EUR 370. In addition, a differentiated tax-free allowance will be adopted.
«Up until now tax changes in relation to employers have equally impacted all employed people in Latvia. It did not help resolve the problem of inequality and repressiveness of the tax system. This is why proposals for next year’s budget are primarily targeted toward tax progressiveness and reduction of income inequality, which is one of the main priorities for the government. Tax changes will affect only a small group of taxpayers. Society as a whole will experience an increase of income,» – said Finance Minister Janis Reirs.
One of the solutions for tax progressiveness is the adoption of differentiated tax-free allowance. It will significantly reduce the burden on small wage recipients and increase their income.
The solidarity tax, which will only affect 4,700 large wage recipients with average monthly wages of EUR 4,000, will help reduce inequality. Because tax burden for small wage recipients is nearly the same for large wage recipients, it creates a regressive labour tax system.
Solidarity tax will contribute to fairness and provide additional state revenue to finance social benefits.
In order to further increase residents’ income, it is planned to increase tax-free allowance by ten euros – from EUR 75 to EUR 85. These changes will be felt by every employed person in Latvia. Finance Ministry’s proposal to raise minimum wages to EUR 370 has also been approved during budget talks.