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Sunday 24.06.2018 | Name days: Jānis

Social partners not to support 2011 budget draft

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Vitalijs Gavrilovs un Peteris Krigers

The National Tripartite Cooperation Council’s meeting ended without reaching any compromises – the social partners will not support the government’s prepared 2011 budget draft.

According to the social partners’ opinion, the joint budget expenditure reduction measures have are not carried out, and this will have a negative impact on the medium-term development, reports LETA.

The President of Employers’ Confederation of Latvia (ECL) Vitālijs Gavrilovs acknowledged at the meeting that his proposed suggestions on the budget were not taken into consideration, and only a political decision has been taken on which the parties Unity (Vienotība) and the Greens and Farmers Union (Zaļo un zemnieku savienība) had agreed on.

The draft budget does not focus on the expense reduction, and will leave a negative impact in the long term, believes the ECL.

The Chairman of Free Trade Union Confederation of Latvia (FTUCL) Pēteris Krīgers also points out there is no other choice but to regard the budget as either the unwillingness to carry out the work, or as the lack of political will.

During the meeting, the representatives of government also did not offer any compromises, emphasizing that the currently reached agreement provides all the possible compromises, as presently it is not possible to find alternative budget deficit reduction measures.

The FTUCL put forward to government a number of requirements: to maintain the reduced value added tax (VAT) rate of 10% for medicinal products, electricity and heating, to increase the real estate tax (RET), to apply the untaxed minimum per each member of family, and to retain family benefits during the crisis period. The FTUCL categorically opposes to the increase of the employee’s compulsory social insurance payment rates by 2%, without consulting the social partners.

After examining the state budget draft for the year 2011, the Confederation expresses the view that 2011 state budget consolidation measures affect the inhabitants of Latvia and lower their solvency, especially in the case of families with children; therefore, the FTUCL is against the adoption of such budget.

Even though before the elections the government regarded state expenditure cuts as the main priority and promised to create a progressive tax system, shifting the tax burden from labour to other areas; unfortunately, in reality new expenditure is scheduled for workers – for 2011 budget consolidation it is planned to raise tax revenues by 70% and reduce expenditure by only 30%. This clearly shows that the government has refused to carry out structural reforms and does not reduce the state administration expenses, the FTUCL emphasizes.

The changes will mostly concern the VAT tax raise. Trade unions are up in arms about the VAT rate increase for electricity from the present 10% to 22% – regarding this proposal as increasingly severe and half-baked.

Moreover, the Free Trade Union Confederation disagrees with the VAT rate increase for heating, because as of October 1 the outstanding debts to the local governments for heating comprised more than 15 million lats. This indicates that the inhabitants of Latvia are already unable to pay the existing bills for heating. Consequently, the increase of other reduced VAT rates, such as for natural gas, books, newspapers, or medicines would drastically reduce the population’s prosperity level. Inhabitants’ RET debts to local governments already exceed 30 million lats; therefore, raising this tax for living areas without applying untaxed minimum would amplify the residents’ indebtedness to local governments.

Along with raising VAT rates for medicinal products, the government is not shy to cut off funds for compensatory medicinal products and medical services. Despite the fact that population’s co-payments for health care services are the highest in Europe, due to which the medical care has become inaccessible for the majority of patients, the government intends to continue worsening the situation in healthcare also in 2011, believe the trade unions.

Moreover, despite the World Bank and the World Health Organization’s recommendations to refrain from healthcare budget cuts, and politicians’ promises to improve the accessibility to medicine, the healthcare budget will be cut by 12.5 million lats. Also, after increasing the VAT for medicinal products and electricity, the medical services will also become more expensive and the patients’ co-payments will not reduce. This implies that the government has distanced from its pre-election promises on improving the healthcare’s quality and accessibility, considers the Confederation.

Starting from 2011/2012, the government also plans to reduce state-paid places for students, and cease funding the studies of Social science students.

Moreover, tax changes for workers – the small decrease in the individual income tax (IIT), and increase of the untaxed minimum and minimum wage – would not be able to cover the expenditure created by the above-mentioned VAT rate changes; thus, such tax policy will undoubtedly leave a hole in every families’ budget. Also the increase of compulsory social insurance payment rates by 2% (from 9% to 11%) at the expense of workers has never been on the agenda of the government and social partners. A similar twist is the decision on family allowance removal for each child. Such decisions clearly prove that the biggest burden in 2011 will be shouldered by the already insolvent Latvia’s population.

Few weeks before the formulation of 2011 state budget, the Free Trade Union Confederation signed agreements with the political associations represented in the government on the support of maintaining the reduced VAT rates during the 10th Saeima mandate. However, the signed memoranda were ignored, proving government’s inability to make precise calculations, emphasizes Krigers.

Although an extensive shadow economy combating plan has been drafted, the government expects to obtain only 15 million lats from these measures, while at the same time it is intended to gain 14 million lats from VAT rate raise. The Confederation believes shadow economy prevention should bring more funds in the state budget.

It was also pointed out that these tax changes and other consolidation measures would not promote legal economic growth, and will even more propel the shadow economy growth and emigration.

When drafting the 2011 budget, the government makes another mistake by not performing the medium-term – three years – state budget formulation, which would ensure balanced tax policy and foster more rapid economic and employment growth, states the Confederation.


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  1. Ren says:

    So, they should, probably, insist more on convincing the parties.

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