Latviski English По-русски
Sunday 19.11.2017 | Name days: Liza, Līze, Elizabete, Betija

Swedbank: lower labour taxes should be compensated by increasing other taxes

(No Ratings Yet)

Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULatvia’s economic growth remains rather good. It is expected to remain strong in the next couple of years as well. The current weakness of exports is temporary; it is not expected to have significant impact on the job market and private consumption, as mentioned in Swedbank’s latest economic outlook.

Economists note that the political cycle is not reform favourable, undermining the medium-term growth potential and raising risks of labour market and price pressures building up towards the end of the forecast period. Swedbank economists advise politicians and entrepreneurs to act and continue investing on development.

Latvia’s tax revenue forms nearly 28% of GDP, which is one of the lowest levels in the European Union (EU) – average 39%. The central government’s and municipalities expenses are estimated at 38% of GDP, where those in the EU are 49%. The goal of the Finance Ministry’s recently approved tax policy is to have tax revenue reach 33% of GDP in 2016. The proposals for next year’s budget provide for a reduction of labour tax without compensating the reduction with increasing rates of other taxes. This means that the total tax burden will not increase on GDP. It is possible that it will reduce, as reported by Swedbank’s economists.

According to Swedbank’s economist Mārtiņš Kazāks, labour tax should be reduced. But this step needs to be balanced with an increase of some other tax. Otherwise there will be no way to increase funding for healthcare, social security, defence (which is still under NATO’s advice of 2% of GDP). Swedbank economist believes the best option is to increase the real estate tax – it would impact shadow economy and has the least serious impact on economic growth. This would bring the budget considerably more money to combat social inequality and more rapidly reduce the general labour tax.

Meanwhile developing countries remain the global economy’s main engine. However, their growth rates have become slower and their risks – larger. Economic growth of developed countries is gradually becoming stronger. It seems the worst is over. Nevertheless, the economic situation and political action differ from country to country. This creates uncertainty for exporters. Eurozone’s recession seems to be over; the situation is slowly improving. Economic growth, however, will remain weak for the time being, because demand is low, unemployment high and problems remain within the banking sector.

Latvia’s GDP growth outlook remains the same – 4.3%. The main engine will be households’ consumption – it will grow more rapidly than investments and exports this year. Exports and investments growth will become stronger next year. This also applies to GDP (4.7%).

According to Swedbank’s economists, Latvia’s exporters are swimming in the stormy waters of the global economy. On top of that, their sailing speed has dropped. Aside from other obstacles that are guaranteed to impact exports growth in 2014, the main reason for the reduction is low foreign demand. This includes the problems of Liepājas metalurgs, reduced flow of cargo export to Afghanistan, smaller exports of grains due to lower yields and lower prices. Nevertheless, exports of other industries continue to grow and Latvia’s export companies continue to gain ground in other markets.

Swedbank’s senior economist Lija Strašuna says it is hard for Latvia’s entrepreneurs to gain market shares because competition is becoming more and more fierce. The same applies to the job market: unemployment reduces and the pressure on salaries and prices gradually grows. In order for Latvian exporters to continue to increase their exports and market shares, they need investments in order to improve productivity and increase capacity.

It is expected that the global economic situation will improve and companies will become more optimistic about their growth potential. Investment activity will increase in the second half of 2013. The financial situation in companies is rather good – obligations have reduced, the ratio between loans and deposits has dropped below the level of 2005. Export growth in 2014-2015 is said to be more rapid. The currently stagnating export of services is growing in strength. Tourism and other related industries’ increase could be more rapid as Riga becomes the European cultural capital in 2014 and Latvia taking on the presidency over the EU in 2015.


Leave a reply

  1. J. says:

    The charlatan economists at Swedish banks blew up our economy once. Why do we still listen to them?

    Thumb up 0 Thumb down 0

NAF: Russia’s attitude remains unfriendly towards Latvia

So far Russia’s demonstrated attitude has remained unfriendly towards Latvia, said Commander of Latvian Armed Forces Leonīds Kalniņš in an interview to LNT.

Lembergs’ turn to testify before parliamentary committee has come

Aivars Lembergs, who is accused of serious crimes and is suspended from performing duties as chairman of Ventspils City Council, has been invited to come to a meeting of the Saeima’s Investigative Committee and answer questions associated with so-called oligarchs case.

How Latvian communities around the world plan to celebrate Latvia’s birthday?

«Celebration of independence of the Republic of Latvia is an important tradition that allows members of Latvia’s diaspora to maintain ties with their homeland – this year’s event will be even more expansive and inclusive than ever before. This is because events associated with the country’s hundredth birthday will be organized all around the world,» says manager of World Federation of Free Latvians office in Latvia Jānis Andersons.

European Parliament triggers punitive procedure against Poland

Members of the European Parliament have passed a resolution requesting for the application of the so-called «nuclear option» for Poland, Article 7 of the EU Treaty, because of the threat to the rule of law in the biggest Eastern European country.

Wage rules violations most often associated with envelope wages

To promote public awareness and improve commercial environment, honest competition and honest compliance with taxes, Latvia’s State Revenue Service intends to expand its database with new information about taxpayers, BNN was told by SRS.

Management of Unity’s Saeima faction to change in December

«Political consultations with all of Unity’s partner parties that are represented in the Saeima’s faction have concluded. An agreement has been reached to perform management change before the end of Saeima’s autumn session – around 21 December,» says Unity’s chairman Arvils Ašeradens.

EP prepared to commence talks with EU governments on reforming asylum system

The European Parliament is prepared to commence talks about reforming Dublin Regulation to ensure every member state is able to resettle a portion of asylum seekers.

Estonia to pour into Finnish-Estonian cultural fund 700 000 euros

Estonian cabinet of ministers has decided to attribute 700,000 euros to the Finno-Estonian Cultural Fund, an organisation working since 2015 aimed at fostering cooperation between the two states in culture, creative economy and training both for individuals and organizations.

Russia in UN vetoes extension of Syrian chemical attack investigation

At the UN Security Council, Russia has used its veto powers to block a resolution with which it would be allowed to continue the international investigation into a chemical attack this spring in Syria, which prompted the U.S. to launch missile strikes on a Syrian airbase.

Latvia’s birthday expected to be windy

A precipitation zone will reach Latvia from the west on Friday, 17 November. The precipitation zone will, however, pass over Latvia quickly, making rainfall short and periods of clear sky more frequent and longer. Air temperature is expected to stay within +5° C… +8° C, as reported by State Environment, Geology and Meteorology Centre.

State of emergency in force in flood-hit Greece

Rescue services in Greece are looking for no less than five people, who have gone missing following unexpected and disastrous floods on Wednesday, November 15, that killed 15 people; however, bad weather is still expected.

Laupīšanas 101 director: Latvia’s film industry has yet to reach its potential height

There is sufficient evidence to prove that Latvia’s film industry is capable, but at the same time many films are directed basically the same way. There is a lack of creativity, which means very slow development for the industry, said Kaspars Marhlevičs, director of short comedy Laupīšanas 101, in an interview to BNN.

Medical cannabis bill paves way in Lithuanian legislature

Otherwise conservative Lithuania has made a big stride forward legalising cannabis for medical use with 92 Lithuanian parliamentarians voting Thursday, November 15, to open the bill draft on medication containing cannabis. The law draft should go back to the parliamentary floor for deliberations on December 12.

Latvian sentenced to ten years in prison for fighting on the side of ISIS in Syria

On Thursday, 16 November, Latvian citizen Mārtiņš Grīnbergs was sentenced by Riga Regional Court to ten years and three months in prison for fighting on the side of Islamic State terrorist organization.

European Parliament: Africa’s development requires a new stimulus

To resolve economic, social and migration-related problems, which usually accompany lasting crises, better African-EU cooperation is needed, European Parliament members say.

Latvian Chamber for Commerce and Industry proposes preventing new MPC reforms

Increase of mandatory procurement components cannot be allowed. Exactly the opposite – this cost should be dropped entirely for end electricity prices in an attempt to improve international competitiveness of companies, BNN was told by council members of Latvian Chamber for Commerce and Industry.

Matīss: LDz cannot raise tariffs and perform rail electrification under cargo anti-record

Because Latvijas dzelzceļš has set an anti-record in cargo transports in the first ten months of this year, Saeima deputy and member of the National Economy Committee Anrijs Matīss says raising the fee for the use of infrastructure cannot be allowed. He adds that the intended railway electrification project should be considered very carefully.

Lithuania and Latvia placed in top 10 in climate policy index

In the annual Climate Change Performance Index, where climate policy action in 57 countries has been evaluated, on a scale from «very high» to «very low», 11 EU member states have been evaluated with as having been highly active, with Sweden showing the best results ahead of Lithuania, the UK, Finland and Latvia.

Bite Latvija buys Stream Networks and Latnet

Mobile commutations operator Bite Latvija has signed a purchase agreement for 100% of shares of Stream Networks and its subsidiary Latner Serviss, as BNN was informed by Bite manager in Latvia Kaspars Buls.

airBaltic carried three million passengers in first ten months of 2017

In the first ten months of 2017, airBaltic carried a total of 3,007,034 passengers to destinations in Europe, Scandinavia, Russia, CIS and the Middle East, BNN was told by the company.

Kaljulaid sees African opportunities to outplace EU in digitalisation

During a visit to Ethiopia, Estonian President Kersti Kaljulaid has discussed African-EU relations with the African Commissioner for Trade and Industry and recommended investing into digital development that would be beneficial for the continent itself.

Most employed people in Latvia are satisfied with their jobs

More and more often employers experience lack of qualified labour force, as well as increase of employees’ confidence about their competitiveness on the labour market and their openness for better job offers.

Estonian railways operator happy about increasing freight volume

Freight carried on the infrastructure of the Estonian state railway company Estonian Railways in October amounted to one million tons, which is a 10.4% hike compared to October 2016.

European Parliament: rule of law in Malta should be monitored more closely

Malta should strengthen the rule of law and the European Commission should follow the situation in the country more closely to ensure objective protection of rights, members of the European Parliament say.

Greece hit by sudden, disastrous floods

Towns in central Greece have suffered severe damages as unexpectedly heavy rain caused floods on Wednesday, November 15, taking the lives of no less than 15 people.

Newest comments