Valdis Dombrovskis

This week marked four years since Valdis Dombrovskis approval as the head of the Cabinet of Ministers. This is a record in its own right: the average life expectancy of all of his predecessors was 9 to 11 months.

Dombrovskis’ victories

The Saeima approved Dombrivskis on March 12, 2009. He led the government in a fairly complicated period: the economic crisis was growing in strength, the state treasury saw a steep reduction in tax collection. The previous government led by Ivars Godmanis was forced to turn to international creditors. The government, which completely lost the trust of the people, was not prepared to carry out complicated reforms.

Dombrovskis and his ministers managed to stabilize state finances in a matter of several months. While budget deficit of 2009 was nearly 10% of GDP, that of 2012 reduced to a mere 1.5% of GDP. Consolidation was followed by painful reductions of state expenses in different industries and the increase of taxes. The fiscal burden started to decline in the last two years: PIT (increased from 23% to 26% in 2010) reduced to 24% in the beginning of 2013. It is expected to drop to 20% by 2015.

In 2009, Latvia’s economy experienced the largest GDP reduction in the EU – 18%. The economy reduced by a mere 0.3% in 2010. Latvia showed a 5.5% economic growth in 2011. Unemployment rate, which exceeded 17% in 2010, was only 10.9% in January 2013. Latvia successfully finished the international loan program a little over a year ago. The first emission of state bonds was carried out in 2011 fir the first time since 2008. International rating agencies Fitch Ratings and Standards & Poor’s restored Latvia’s ratings to the level of investment group.

In total, fiscal stabilization allowed Latvia to complete the Maastricht criteria. Best case scenario – the EU will decide to allow Latvia to join Eurozone in the beginning of 2014.

GDP exceeds expectations

Continuing the topic of government achievements it is worth mentioning that Latvia’s GDP increased by 5.6% in 2012. The data recently published by the Central Statistical Bureau of Latvia turned out to be notably better than the outlook given by experts some 12 months ago.

The largest contribution to this achievement was presented by export industries. In spite of the recession in Eurozone, they managed to develop fairly well. They also managed to stimulate and restore domestic demand – revive business oriented for the domestic market. However, economists warn: it is unlikely for such a surprise to tome to pass in 2013. According to their prediction, the current situation on foreign markets is more complicated now.

Analysts expect GDP will be largely contributed by the export of intellectual services: IT, communications and commercial services could be among the leading industries. Experts unanimously believe development rates of our small and open economy will reduce to 2.5-4% in 2013.

2 billion in reserve

Meanwhile, the State Revenue Service (SRS) has finally compiled the results is the campaign that took place in Latvia from March 1 to June 1 2012. As part of this campaign, residents that fall under specific criteria (having savings over 10 thousand LVL, real estate abroad and other assets) were required to report their state of property for 2011.

As a result the so-called zero declarations were submitted by 131.99 thousand people. The government initially expected a total of 70-120 thousand participants. 122 Latvian residents stated previously undeclared income for a total amount of 4.66 million LVL in their “zero declarations”. A total of 686 thousand LVL was paid in PIT by March 1. More than 4 thousand Latvians stated their owned real estate property in foreign countries. Furthermore, the campaign’s participants declared all kinds of vehicles they own abroad. In total, participants of the declaration stated a total amount of 2.29 billion LVL in cash and non-cash savings. More than half of all declared savings were stated in Euro, one-third – in Lat and a quarter in USD.

Righteous anger

The topic of taxation of micro-enterprises became actual once again. The recently opened for amendments Micro-enterprises Tax Law gave way for a number of officials to come forth with new initiatives. In particular, Elina Silina once again voiced proposals the realization of which would make the current regime (9% of revenue) non-beneficial and less available. She believes the acceptable amount of annual revenue for such enterprises should be reduced from the current 70 thousand LVL to 40 thousand LVL, but increase the rate to 15%.

The politician’s persistence has angered the management of the Latvian Chamber for Commerce and Industry, which once had devote much effort in order to convince the government to create special conditions for the industry of micro-business. The usually calm organization came forth with unusually anger-filled criticism. “I can only remind that a possible increase of the rate will contradict the tax strategy for 2011-2014 signed by business organizations and the Finance Ministry. Do we really want shadow economy to regain its hold?” – Chairman of the organization Janis Endzins asks.

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