This week, the government once again demonstrated its inconstancy by refusing its previously given promises. Businessmen are shocked to say the least.

The government changes its course

In May 2012, the government promised the tax-free allowance to be increased from 45 to 60 LVL in 2013. IT was also promised to be raise by 20 LVL more in the next two years. However, two months later, the Cabinet of Ministers suddenly decided to back away, saying that there will be no review of the tax-free allowance. This announcement shocked the social partners – trade unions and Employers’ Confederation of Latvia (ECL). The trade unions called off their signing of the trilateral agreement and have already threatened to engage the referendum mechanism for the dissolution of the Saeima. Director General of the ECL Liga Megelsone announced the following: the decision of the politicians is evident that short-term needs are more important to them than long-term solutions to the problems of local economy. «The increase of the tax-free allowance and dependents’ benefits – is one of the instruments of tax policy that help reduce the burden of collecting taxes and, at the same time, reduce poverty risks for households with children,»- she said, reminding the government of the 70 million LVL that were additionally divided among the ministries. In truth though, such «course correction» measures are a normal thing for Prime Minister Valdis Dombrovskis. In 2009, before the municipal elections, New Time, which is now part of Unity, swore that it would not worsen life for pensioners. Nonetheless, the given promises were conveniently forgotten one day after elections. Particularly, the government of Mr Dombrovskis reduced payments to working pensioners by 70%. This decision was then cancelled by the Constitutional Court and all unpaid money was then taken from the budget.

77 years to stability

The government also turned away from another worthwhile idea. After reading through the report of the Finance Ministry (FM) on the fees on financial stability (FFS), which was introduced in the country in the beginning of 2011, the Cabinet of Ministers decided that there is no need to direct it to a separate stability fund that is meant for overcoming a possible future bank crisis. The fee will go directly to the budget. It will be collected from the total amount of obligations of the credit institution at the end of the taxation period following the net of guaranteed deposits, subordinated liabilities and other items. Starting from 2012, the collection amount doubled from 0.036% to 0.072%.

Sweden is a FFS pioneer. It introduced the fee in 2009. Swedish banks (but not their «daughters» in other countries) transfer the fee to the stabilization fund, which it controlled by the State Debt Bureau Riksgalden. According to Swedish Finance Minister Anders Borg, the autonomous nature of this mechanism allows it to avoid putting pressure on the state budget’s expenses. Therefore, it is said that during a period of economic downslide, the fund will not become an additional burden for the finance sector. Sweden plans to increase the fund’s size to 2.5% of GDP by 2023. According to the government, this is the amount of money the government spends to support banks during recent shakes.

The Latvian government explained its unwillingness to follow in the steps of its Scandinavian counterparts with modest FFS amounts: they made up 2.4 million LVL in 2011; this year’s projections are around 4.6 million LVL. Given the current rates, the fund could only save 0.32% of GDP in ten years, which is clearly not enough to combat the crisis. To reach an index of 2.5% of GDP the FFS would require 77 years.

Courts and cases

One more topic received development this week. This topic was being discussed at varying types of activity for a long time. The Cabinet of Ministers Committee has approved the draft law, according to which Latvia will adopt an official certification of mediators.

The sluggish nature of Latvian courts has become a fable. Meanwhile, many questions, including ones related to household arguments, can be resolved without the judiciaries- with the help of mediators. This is an alternative instrument for settling conflicts used in many countries of the world. It differs from the court because it a voluntary and confidential process. Two sides of the conflict turn to a mediator – an independent third party – who helps to reach a compromise. This person does not make a decision for the parties; instead, the person directs the dialog to reach a bilaterally beneficial decision, while preserving neutrality in the question.

Even though Latvia has had this system for a long time, such mediator structures have the status of social organization and they work at the probation service, Orphan Court, etc. People rarely turn to mediators, even though this kind of system is active at the Chamber of Commerce and Industry.

The approved draft law is planned to bring in the mediator process in the judicial system of the country. It is expected that court institutions, when receiving pleas, will inform the sides about the possibility to use the mediation service. If the plaintiff and defendant both agree, they turn to the mediator and seek a compromise within a given time period. As a result, both sides sign a written agreement or receive the conclusion of the mediator that no agreement can be reached. This document is then submitted to the court for further study. The court then decides whether or not to initiate civil proceedings.

It should be noted that, according to the Court Administration, 36 329 pleas from Latvian citizens awaited a review at first instance courts of Latvia in Q2 of 2012. 10 513 new pleas were received for the same period.

At least the harvest is good

In conclusion – some good news. Latvia is expected to harvest 1.8 million tons of grain this year. This is the best index in the history of Latvia agriculture. The harvest will exceed last year’s index by 27%.

Latvian farmers are in luck, when compared with their colleagues from Romania, Portugal, Spain and Italy that currently suffer from drought. Because of this, the European Commission predicts that grain harvest will be 5.3 million tons short. The sun has burned out crops in many parts of Russia, Ukraine and Kazakhstan – large global suppliers of grain.

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