Latvia

Economic Diary of Latvia. Tractors vs. sanctions

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September 13, 2015

Thanks the to the sense of solidarity present among all members of Latvia’s political elite, people are learning more and more about the people expected to pay the so-called solidarity tax.

BNN had reported about this tax initiative last week. Now the first shots have been fired. President of Lattelecom Juris Gulbis has announced that the so-called solidarity tax could potentially force the management of his company to lay off a number of employees and raise prices of its services.

With that, it is not hard to imagine that there are many people working at Lattelekom whose monthly wages reach EUR 4,000 or more, because the new tax applies to recipients of large wages. According to information from Latvian Finance Ministry, there are 4,700 people in Latvia who receive such wages.

Gulbis had previously said this tax is nothing more than a sign of incompetence and inconsistent work of the government. According to him, it will only cause negative consequences for the country’s economy and welfare. Gulbis is certain this tax will lead to a decline in legal employment and an increase of shadow economy.

The idea of solidarity tax first appeared during the formation process of Latvia’s budget for 2016. It was immediately criticized by business organizations, trade unions and political opposition. According to them, the budget formation process was very unprofessional and tax initiatives – inconsistent.

Tractors vs. sanctions

Large-scale battles were fought outside of Latvia as well this week. According to different sources, the protest act in Brussels had gathered five to six thousand farmers from EU member states and more than a thousand tractors. Baltic farmers had participated as well. The protest act took place at the same time with the meeting of EU Council of Agriculture and Fisheries Ministers. During this meeting, ministers planned to discuss measures to support European farmers.

In the end, the EC offered to allocate EUR 500 million as financial support. And although Vice-President of the EC Jyrki Katainen has added that this financial package is reliable and effective response to farmers’ requests, those working in agriculture believe it will not be enough to cover their losses.

According to Albert Ian Maat, a representative of one of the farmers’ initiative groups, has said losses caused by export decline due to EU sanctions against Russia and the latter’s food embargo are currently estimated at EUR 5.5 billion.

According to Maira Dzelzkaleja, representative of the Farmers Saeima, EUR 500 million will not be enough to support the agriculture sector. She believes Latvian farmers alone require EUR 5-6 million per month. In order for farmers to make it to the end of October, local farmers will require EUR 20 million. This is why EC’s planned assistance will not be enough.

Earlier Latvian Agriculture Ministry announced the damage caused to Latvian farmers by the Russian embargo is estimated at EUR 140 million.

Housing becomes more affordable

There is some good news: housing affordability has improved in capitals of all three Baltic States, according to information from Swedbank Housing Affordability Index.

In Q2 2015, compared with the same period of 2014, Riga’s housing affordability index rose from 142 to 152 points. Index value of 152 points means income of standard households (equal to 1.5 average net salaries in Riga) was 52% higher than required to pay monthly mortgage loan for an apartment with a total area of 55 m2.

Index growth was due to a rise in average wages in Latvia (+7.3%) and drop in interest rates for loans by 16 base points. These factors had also helped improve housing affordability in Tallinn and Vilnius. IN Tallinn, housing availability index increased by only a little – from 149 to 151. In Vilnius, housing affordability index continued growing the fastest. However, it remains below that of Riga and Tallinn (133).

Seniors always get their way in Latvia

What is particularly interesting is that housing conditions are one of the criteria which UN experts consider when compiling the rating of countries best suited for people older than 60.

Expectedly, the Top 10 of this list consists of Switzerland (1^st place), Norway, Sweden, Germany, Canada, Holland, Iceland, Japan, USA and UK.

Among countries of the former USSR, the best positions are held by Estonia (23rd), Georgia (29th) and Latvia (35th).

When compiling this list, specialists study data from the World Bank, World Health Organisation, International Labour Organization and UNESKO. The index takes into account living conditions of approximately 90% of senior residents around the world based on criteria like frequency of visiting healthcare institutions, living conditions, education, number of employed people and social activity.

There are countries in which care of elderly people is a separate part of state economy. This applies to Portugal, where British and German elderly people happily go to live out the rest of their years. Estonia is often picked by Finnish elderly people.

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