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Sunday 22.04.2018 | Name days: Armanda, Armands
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Finance minister still believes tax reform in Latvia has brought results

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU«The tax reform has given us the results we had expected, especially in regards to combating envelope wages,» said Latvia’s Finance Minister Dana Reizniece-Ozola in an interview to 900 seconds programme of LNT.

She dismissed the concerns voiced by the European Commission in regards to the possible negative influence of Latvia’s tax reform on healthcare and social assistance. «The first couple of months have passed since the adoption of the tax reform. The first results are now visible. Tax revenue has grown by EUR 6.4 million in two months,» said the minister, emphasizing in particular the increase associated with PIT and social fees.

Reizniece-Ozola also said that one of the most important goals of the reform was combating grey economy. Efforts, she says, have borne fruit. The number of people who are paid wages below the minimum has declined by 22.7%. This proves that the number of people paid envelope wages has declined in Latvia.

She also added that the result of tax reform will be seen after two years. Still, it is already a benefit to businessmen.

As for criticism from the European Commission, the minister explained that work will continue to explain the positive sides of the reform. «We have yet to see any negative consequences. Everything is going well and we are satisfied with the reform,» added Reizniece-Ozola.

In a report about Latvia, European Commission mentioned that the intention to preserve the current tax policy for the next three years would limit available resources for healthcare and social assistance.

The commission admits that Latvia has realized a comprehensive tax reform and continues realizing reforms in other important fields, such as healthcare, education and state administration. However, although the goal of this reform is solving multiple serious problems, its efficiency is questionable.

The commission also notes that increase of funding for healthcare will likely satisfy part of the needs. However, certain recently introduced access restrictions threaten with the risk of impacting public health.

«Poor public health index in Latvia is due to the small funding for healthcare and its efficiency, which is below the level of other countries. With that, the situation is expected to improve in 2018 and 2019, because healthcare is mentioned as a priority for allocation of state funding. Nevertheless, the state expenditures plan for 2020 remains behind the average index in the EU,» EC reports.

EC believes that in spite of several recently introduced improvements, the level of inequality and poverty remains high and demonstrates a weak social security, taxes and benefits system.

«Although labour force tax progressiveness has been improved recently, it is expected that its effect on reducing inequality will be insignificant. Poverty and inequality remain high. This is especially because of low social protection expenditures, which is in turn associated with low tax revenue,» EC continues.

The commission also mentions that fact that this massive tax reform does not provide many options to increase expenditures in other fields. «Expenditures in relation to tax reform will likely affect the fiscal space in 2018-2019. However, budget deficit is planned to be preserved at 1% of GDP. At the same time, the intention to keep in place the existing tax policy in the next three years would limit state resources available to healthcare and social assistance,» as concluded by EC.


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