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Saturday 03.12.2016 | Name days: Raita, Jogita, Evija
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Economic Diary of Latvia. Situation is getting tense

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThis week, the government began viewing matters related to the formation of the country’s budget for 2017. The main matter is increasing the State Treasury’s revenue. And it became immediately apparent that ministers are unable to offer anything new in this area.

After the meeting of the government, Prime Minister Maris Kucinskis mentioned that the government will likely have to discuss the possible cancellation of certain benefits. He mentioned data from Finance Ministry, according to which the state provides different benefits worth a total amount of EUR 2 billion.

This applies to the illness and unemployment benefits. Currently caps are lifted for benefits. For example, unemployment benefits are paid within nine months regardless of the recipient’s work experience. If the policy is not changed, expenditures will continue growing rapidly by EUR 170 million in the next two years, said the head of Finance Ministry’s National Economy Analysis Department Inta Vasaraudze at the meeting of Saeima’s Budget-Finance Committee.

An idea has been voiced to cancel the reduced VAT rate for non-prescribed medicine. This proposal was immediately bashed by medical specialists and officials of Healthcare Ministry. Even Finance Ministry’s deputy state secretary for tax matters Ilmars Snucins protested against this idea. He believes cancellation of reduced VAT will worsen the already poor situation with medicine accessibility in Latvia, as it would cause an increase of prices for non-prescribed medicine.

While society was busily chewing on the bone thrown in the form of VAT for non-prescribed medicine, the Cabinet of Ministers quietly approved proposals voiced by Finance Ministry to increase budget revenue by EUR 50.3 million.

To limit the involvement of dishonest entrepreneurs in business schemes of security services, it is planned to allow hiring security services to a limited degree.

The proposal to improve conditions for the registration of transports to prevent VAT fraud schemes was also approved by the government.

The government also supported the proposal to limit cash transactions by establishing a restriction for private persons to conduct cash transactions if their amount exceeds 20 minimal monthly wages. Other measures were approved as well.

Based on experience from previous years, the battle for the budget is expected to be intense. There is one positive side to all this: unlike previous year, work on the budget commenced in time, not at the last moment.

Some remnant remains

The situation with the approval of Inga Kolegova as the head of the State Revenue Service has become heated too. Finance Minister Dana Reizniece-Ozola officially proposed the current head of the State Environmental Service for this post this week. However, immediately after that information surfaced that Inga Kolegova allegedly owns shares in Pallogs company, which may be involved in paying envelope wages.

According to information from Firmas.lv, Kolegova owns 50% of shares in Pallogs (the other half is owned by Elmars Svirksts). She received EUR 320,000 as dividends last year. This money was gifted to her brother. Kolegova had also given loans worth EUR 220,914 last year.

Kolegova’s predecessor in SRS Inara Petersone has publicly stated that talks about Kolegova’s declaration will not help improve SRS’ reputation. Petersone were she in Kolegova’s shoes, she would first sort out things in relation to inconsistencies with her declaration.

Saeima deputy Ringolds Balodis proposed inviting Petersone to attend a meeting of the parliamentary committee for anti-corruption investigations. This is because he believes there is a serious difference between what Petersone was saying while in her post as director general of SRS and what she is saying now that she is no longer part of SRS. For example, Petersone has said that reorganization in the institution has failed, which is demonstrated by poor results. In addition, the former head of SRS has said some ‘interesting things’ about the personnel selection process and its results. This is why Balodis offers inviting Petersone to the 9 August meeting instead of ‘interviewing SRS workers about general affairs.’

Balodis also emphasized that one of the fundamental goals for the committee is preparing a detailed report that would contain clarity about the reform currently being carried out in SRS.

Solidarity Tax has turned into Division Tax

As part of budget preparation talks, the government this week proposed to review the Solidarity Tax. One proposal voiced on this matter suggested integrating it into existing taxes. A separate proposal will be developed for this matter.

Meanwhile, the government’s social partners want this tax cancelled. No specific agreement on this matter has been reached yet, as announced by the head of Latvian Employers’ Confederation Liga Mengelsone.

As BNN had previously reported, multiple entrepreneurs and private persons had previously contested the Solidarity Tax in the Constitutional Court. At the end of July, the court decided to launch a case based on their plea.

The plea is motivated by the fact that the Solidarity Tax contradicts previously defined strategies detailed in the government’s declaration and regulations, which were ultimately ignored by the legislator, as previously mentioned by the head of Latvia’s Chamber for Commerce and Industry Janis Endzins.

He reminded that Latvia lacks a large number of large wage recipients to provide any tangible benefits to the country’s welfare.

It is now known that the number of people who pay the Solidarity Tax has declined 30% since the introduction of the tax. Because of this, revenue from this tax will not be as high as previously anticipated. With that, Latvia will likely lose highly qualified specialists that may decide to work in other countries.

Ref: 017.109.109.6892


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  1. Ilmars says:

    If the government is short of money, then why did they go and blow 58 million euros on Air Baltic.
    They are going to cut illness and unemployment benefits to keep a bankrupt airline like Air Baltic flying.
    Also, why are they going to appoint someone who pays envelope wages as the next head of the SRS.
    Latvia is a third world country run by a bunch of economic hicks.

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