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Wednesday 18.10.2017 | Name days: Rolanda, Rolands, Ronalds, Erlends
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FM: planned tax reform will create conditions to reduce grey economy

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUAfter the publication of specific recommendations for EU member states, the European Commission admits that tax guidelines help resolve last year’s recommendations on reduction of the tax burden for residents with low income.

It is also noted that labour tax reduction is not fully compensated with tax transition on consumption.

Finance Ministry agrees with EC’s opinion and emphasizes that the planned tax reform will create conditions for the reduction of grey economy and permit the transition of a smaller burden on consumer taxes. FM also welcomes EC’s recommendations for structural reforms, emphasizing that structural reforms create conditions for productivity and potential growth of GDP.

FM is generally positive about EC’s recommendations and states that the commission’s evaluation of Latvia’s stability programme mostly complies with the ministry’s view. EC notes that predictions generally state that Latvia’s 2017 public finances fit EU’s fiscal discipline requirements.

In relation to fiscal recommendations, EC notes that Latvia’s 2018 budget policy has to be realized in accordance with requirements of the Stability and Growth Pact.

EC has also noted that it is important to reduce tax burden for small wage recipients by diverting it to other sources that do not reduce economic growth and instead improve tax collection.

The nominal deficit of the stability programme is planned at 1.6% of GDP. EC, on the other hand, plans the nominal deficit at 1.8% of GDP. FM notes the difference does not exceed planned income growth from grey economy combating measures.

EC also admits the structural deficit included in the stability programme fits EU’s fiscal discipline requirements. EC does note that a recalculation of structural deficit using EC methodology shows that deficit reaches 2.3% of GDP, which is 0.6% above the allowed level.

FM also agrees with EC’s recommendation that the 2018 structural deficit is allowed to exceed the medium-term goal only for pension and healthcare reform. The ministry plans to compile the 2018 state budget in accordance with recommendations.

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