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Friday 25.05.2018 | Name days: Junora, Anšlavs
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Economic Diary of Latvia. Candidates without skeletons in their closet?

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUIt is best to knock on week three times before saying that the government has found a new head for the State Revenue Service. In any case, Ilze Cirule, who has a lot of experience working in insurance, has been proposed for the aforementioned post.

It is no surprise that after the scandals with previous heads of SRS – Inara Petersone and Inga Kolegova – one of the first questions journalists asked Cirule after she was officially proposed for the aforementioned post by Finance Minister Dana Reizniece-Ozola was whether or not she has any skeletons in her closet. Cirule replied by saying that ‘there was nothing there this morning’. She said she pays taxes honestly and does not expect any conflicts of interest in her work.

In regards to concerns voiced by business organizations about Cirule as the head of SRS, she said their reaction is understandable, as she is unknown to them. According to her, the only way to earn their trust is to meet regularly and prove that she is ready to listen to them and help realize their ideas.

As for plans for her as head of SRS, there are currently no specifics. From what Cirule has said so far, she stands in favour of enhancing analytical work in the service. She intends to turn SRS into a business-friendly institution. She also proposes limiting the turnover of cash money, which, according to her, will help combat grey economy and envelope wages more effectively.

Prime Minister Maris Kucinskis told journalists that he sees two ways to approach work as head of SRS: revolutionary and evolutionary. Kucinskis believes SRS requires improvements to its existing system, not a revolution. Improvements can be accomplished if Cirule is approved.

The government will view the matter regarding her possible approval on Tuesday, 8 November.

An unpleasant surprise

A flash assessment of Latvia’s GDP growth was published this week. It came as an unpleasant surprise – economic growth was only 0.8% in Q3. Such a slowdown for GDP growth turned out unexpected event for Finance Ministry, which expressed hope in its commentary that a more in-depth assessment may reflect more expansive GDP growth.

In Q3, similar to the first half-year, Latvia’s weakest sector of economy was construction, where annual economic decline reached 24%. Construction sector’s growth is slowed by the realization of EU structural funds, which has declined significantly since the change of the finance periods. Although a decrease in realization of EU funds was predicted for this year, such a significant effect on construction was not. The current decline in growth rates is comparable with the decline in industrial production output during the crisis, the Finance Ministry admits. Negative developments in the construction sector also affect real estate and insurance sectors, the ministry adds. The institution expects a speed up in realization of EU funds in 2017.

A good spoon for the table

The Green Spoon and the Maroon Spoon brand quality seal make a product more expensive, cause losses for manufacturers, distort competition on the market and assists foreign wholesale traders. Such a conclusion was made in a study conducted by FWD Associates.

The study interviewed 50 companies (40 Latvian and 10 foreign food producers), 20 representatives of municipalities, as well as 15 schools and orphanages.

The majority of interviewed producers admitted viewing the idea of adding requirements of green procurements positively. Producers who have been provided with one of the ‘spoons’, on the other hand, admit that the seal’s effect has either been very small or none-existent. Trade networks pay no attention to the seal of quality. Because of that, its presence or absence has no effect on sales. Consumers’ choice of products focuses mainly on the price range and marketing, the study mentions. Having the emblem does not automatically ensure better quality of the product.

Commenting on results of this study, Inara Snure, head of Latvian Federation of Food Enterprises, said they provide concerns over the real goals of the people who ordered this study to be performed. According to her, this study was conducted in order to reduce the criteria for the provision of Green Spoon and Maroon Spoon seals of quality, because there are companies that cannot or do not wish to comply with requirements.

Green Spoon seal of quality is provided to products manufactured produced using resources found in Latvia and compliant with increased quality requirements. Maroon Spoon seal of quality is provided to products whose production cycle takes place in Latvia but the raw materials for which can be imported.

Amendments with slow effect

Economy Ministry submitted a proposal to the Saeima this week to amend the Electricity Market Law by introducing differentiated payments of mandatory procurement components for end users depending on connection power and consumption volume starting with 2018, not 2017, as it was planned earlier. This proposal was submitted by the ministry for the second, final reading.

Economy Ministry proposes entrusting Public Utilities Commission with the issue of a method for calculation of MPC before 1 October 2017. According to the ministry, amendments should come into force on 1 September 2017.

The decision to put off the reform for MPC for one year is a positive decision, believes head of Latvia’s Chamber for Commerce and Industry Janis Endzins. The reform is based on principles similar to those that lie in foundation of tariffs for Sadales tīkls that caused opposition among entrepreneurs and uncovered many unresolved problems, he said.

Director General of Latvian Employers’ Confederation Liga Mengelsone believes any more delays will prove fatal. She believes MPC is already a major problem. Delaying the reform for one more year means the coalition is unwilling to carry out reforms. This will only reduce the capabilities of industrial companies to invest and secure wage growth for their employees. Such a step, according to her, is a very poor decision.

Amendments to the Electrical Energy Market Law suggest dividing MPC payers into four groups based on connection power and consumption volume. Part of MPC will depend on consumption volume (variable part); another part will consist of a fixed payment amount for power. It is planned to thereby reduce the average size of MPC payment for connections of 100 kV, 6-20 kV, 0.4 kV (households under 64 A). It will, however, increase for other connections of 0.4 kV.

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