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Sunday 17.12.2017 | Name days: Teiksma, Hilda
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Fiscal Discipline Council concerned about budget’s planned budget deficit

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUFiscal Discipline Council supports the goal to improve the tax system. Nevertheless, the institution is concerned about the planned budget deficit level, BNN was told by representatives of the council.

The council mentions the need to assess if the reform’s planned measures for ensuring the necessary income level.

Fiscal Discipline Council’s work group met with Finance Ministry’s leading experts on 17 May to discuss tax revenue changes in relation to the government’s intended tax reform.

«The council supports the goal to improve the tax system to reduce the tax burden for wage recipients, equalize rates for different forms of income and simplify the tax system. The proposed reform should improve the business environment, raise economic growth potential and reduce grey economy’s proportion in the country,» says council chairman Janis Platais.

At the same time, the council’s fiscal risk group also mentions several risks associated with the tax reform’s realization.

«It is important to realize the reform without negative long-term effect on the budget balance. We need to assess if the reform’s measures increase growth potential, because short-term growth at the expense of budget deficit does not comply with fiscal policy principles. We also see that reform’s measures reduce the tax revenue level. Estimates show that the planned goal of 1/3 of GDP will not be reached in the next four years,» comments Platais.

He adds the reform does not secure a sufficient reduction of inequality and certain measures are relatively expensive. «Realization of the tax reform could take away government’s resources from quality public services and support for poor residents.»

Work on the tax system reform will continue. FDC expects detailed calculations of macroeconomic prediction indexes to assess the justification of the planned GDP growth.

«Communication about the tax system’s reform and its influence on economic growth has been unclear lately. Council members still have many questions. It is necessary to create clear and detailed explanations for effects of the reform. For example, we still do not know the reform’s effect on cyclic decline in a situation when one of the assumptions is not realized. Making sure laws are clear and simple for realization plays an important role here,» Platais explains.

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