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Wednesday 18.10.2017 | Name days: Rolanda, Rolands, Ronalds, Erlends

Economic diary. Regions need to be made more competitive

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThis week the government finally decided which taxes will be incremental to the state budget and how the reduction of the fiscal burden in society will be compensated in 2014.

Give with one hand…

Members of the Cabinet of Ministers have finally reached an agreement with business organizations regarding the model of labour taxing. This Tuesday the Cabinet of Minister approved the model that provided for 1% reduction of social insurance contributions. It will reduce from 11% to 10.5% for the employee and from 24.09% to 23.59% for the employer. On top of that, the tax-free allowance will grow starting 2014 (LVL 43 to LVL 53), as will the dependants benefit (from LVL 80 to LVL 116). The reduction of PIT from 24% to 22% (originally planned for 2014) has been decided to be postponed until 2016.

Latvia’s largest business associations have decided to support the government’s model. They have also called to hold timely and constructive dialogue with taxpayers in the future.

However, the reduction of the labour tax burden will not go “unpunished”. The government has decided to compensate this by introducing new duties and by increasing existing fees.

…and take with the other

Among other things the government approved the proposal of the Transport Ministry to introduce a fee for the use of state roads (it was originally intended to postpone this until 2016) in 2014. The fee will apply to cargo vehicles with a total mass above 3.5 tons. The amount of the fee will depend on different indexes (weight, number of axles, engine’s ecological category, etc.,)

The Cabinet of Ministers has also decided to double the state duties for the review of residence permit applications in Latvia. As noted by the Interior Ministry, current tariffs (LVL 15-70) do not cover all expenses. Changes will allow the government to increase State Treasury’s revenue to LVL 1.75 million starting 2014.

Furthermore, the initiative of the Environment Protection and Regional Development Ministry to introduce a tax on advertisement publications, specific types of fireworks equipment and use of water resources at small HES was also approved by the government.

Clarifications were added to the much disputed matter regarding the taxation of large Latvian ports. It is estimated that ports will be giving away 20% of their revenue. Port managers oppose this initiative. However, government officials refuse to back down.

To help regions

Regions are in an understandable predicament: the state has many problems. These problems need money to be resolved. For example, LVL 40 – 50 million need to be invested in Latvian provinces every year in order to increase their attractiveness. These measures are stated in the Regional development plan for 2013-2019.

The document states that the difference in the development of Latvian region remains rather large. It is caused mainly by socio-economic factors: the centre of the highest concentration of Latvia’s population (and economic activity) is “Big Riga”. Regional centres cannot keep up with competition. The trend is made even worse by business activity outside of the country’s central area, insufficient development of the transport infrastructure and the lack of different goods there. This, unfortunately, contributes to the outflow of population to more developed territories. The process is becoming autonomous. The development of distant regions is delayed more and more.

The solution lies in a pragmatic investment policy. By liquidating the imbalance in favour of the capital, it is necessary to put an emphasis on regions: coastal areas, Eastern Latvia and traditional agricultural territories.

There have been some proposals as well. For example, it is proposed to allocate LVL 207 million for the development of entrepreneurship and modernization of infrastructure.

Furthermore, the new plan proposes the restoration of the support programme aimed at the development of entrepreneurship. It is planned that a total of LVL 89 million could be allocated with the help from EU funds in the next six years. There is also a possibility of target subsidies for the development of municipal projects.

It is also planned to hold discussions among ministries. This will result in the development of a universal consumption basket for all regions. The report also mentions the development of ports and work for the tightening, restoration and development of new government border crossing checkpoints.


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