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Tuesday 22.08.2017 | Name days: Rudīte, Everts

Taxes to be raised if structural reforms are not implemented

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU, Janis Endzins

Janis Endzins

A more realistic consolidation source for the next year’s budget is structural reforms, so the government should carry them out when formulating the 2012 budget. If no reforms are undertaken, this may result in tax increases further undermining the competitiveness and the business environment in general, considers Jānis Endziņš (Endzins), the Chairman of the Latvian Chamber of Industry and Commerce (LCIC) Board.

He points out structural reform processes are moving slowly; however, there is some progress – if last year the Prime Minister Valdis Dombrovskis’ reform management group’s meetings were held irregularly and inconsistently, this year, meetings are taking place monthly and structural reforms are always on the agenda.

Some signs are visible; however, a structural reform plan with clear objectives and outcome, time-limits, persons responsible for their implementation, etc has not been drafted yet. It is necessary to have a plan showing the state’s vision. It is clear that structural reforms might be the key tool for carrying out the next year’s budget consolidation. If reforms do not take place, taxes might be raised, further hampering the competitiveness and the overall business environment, warns the Head of the LCIC.

As for the next year’s budget consolidation, Endzins says no red lines should be drawn in the 2012 budget formulation, as it happened with the 2011 budget draft, otherwise it is not possible to manoeuvre. Fortunately, the coalition has promised not to draw red lines in the first stage, so the consolidation options have to be sought everywhere – in the social budget, education, health care, state administration, by merging, centralizing or gradually reducing something. There is not a single tool that could help solve all the budget problems, because the necessary 2012 budgetary consolidation will take place by combining 50 to 100 measures, he says.

At the same time, he recognizes before reducing something in a particular sector, the potential risks should be assessed, not to run into a ditch again.

According to Endzins, until now it was considered large savings can be obtained at state institutions, ministries, etc. However, these areas have already been cut significantly. 45 million lats has been allocated for politics and there are ongoing discussions on the necessity to reduce the expenditure at the extent of 290 million lats; thus, even if all ministries were liquidated, dismissing all public officials, still there would not be enough money, Endzins emphasizes.

To curb the public spending, the LCIC Head recommends two options: to reduce public spending, which is an unpopular decision, because wages would have to be cut; or to boost revenues by raising taxes or creating conditions to provide enough revenue with the existing taxes. Tax raise has already been utilized, and, hopefully, there will be no further increases. So now it is necessary to think how to collect taxes without raising rates, while combating the shadow economy, attracting investments etc. And it is the matter of business environment development, Endzins notes.

Asked whether the LCICI warnings are still topical – if the government does not pursue structural reforms, the Chamber will stop cooperating with it – Endzins informs the threats are no longer realistic, because the government has considered some of the LCIC’s recommendations, for example, to start drafting the 2012 budget timely and address the issue on the reverse value added tax application to the construction sector.

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  1. Nelle says:

    That’s a mold-beraker. Great thinking!

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