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Prime Minister: Latvia’s economic growth is not as fast as it was expected in 2015

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU«Looking at national economy’s growth dynamics in 2016, we have noticed drastically different ratings. On the one hand, there are positive statistics that prove Latvia’s economic growth continues. It is not as fast as it was expected in 2015. It is expected that growth will continue in the future. A few days ago opinions of multiple banking experts appeared in the public space, saying that wage growth in Latvia will speed up next year. I would associate that with the government’s decisions and the Saeima’s approved budget for 2017,» – said Prime Minister Maris Kucinskis.

«World Bank’s latest Doing Business survey shows that Latvia has achieved its historically highest place in the index. The only parameter in which we are behind average EU indexes is discontinuation of business, which is often carried out through insolvency processes. In the Global Competiveness Index, Latvia has dropped down, falling behind its Baltic neighbours. According to businessmen, the main problems include tax rates and the ineffective, bureaucratic state administration. Those are the directions the government should develop in close cooperation with business and investor organizations,» – the prime minister told Saeima deputies in his speech on Thursday, 1 December.

«Concerns about a possible stagnation and even a new crisis coincide with positive conclusions from experts and businessmen. Uncertainty and worrying changes in Europe and elsewhere in the world are at the heart of people’s concerns. This includes Brexit, results of presidential elections in USA, the possible rise of populism in old EU member states, local military conflicts around the world and their possible escalation, the refugee crisis, etc… Uncertainty is the most common word used in relation to economic development. This does not make the government’s work. But it does force members of the government to concentrate on things within their competence. Expectations for global changes and possible risks do not cancel goals defined in the government’s declaration.

The main goal remains unchanged – it is vital to ensure sustained state development with GDP growth of 4 to 5% every year. It will not be utopia if we accurately fulfil objectives stated in the government declaration and action plan. Objectives are well-known: establishment of competitive and excellent business environment, creation of a favourable investment climate, development of strategic investment directions and others. We can all agree that those words have been said many times – heard and forgotten even. I will try and explain what this means. In relation to Brexit, it was mentioned that many British-based companies will start looking for new locations in the EU. Let’s imagine a foreign investor who wants to register a company in Latvia. He would require an opportunity to register the company, filling in all forms in English. He would require certainty that all of the company’s financial reports can be completed in English. The investor has to know that all tax payments can be transferred to a single account. Finally – the investor should have no doubts that in the event of insolvency he and his owned property will be provided with protection in full accordance with the best EU standards. All the information regarding business activity in Latvia should be made available on the internet, so that people can consider their options while sitting in an office in London, Liverpool or any other city. Naturally, this information should be available in English,» – said Kucinskis.

«On the topic of improving the business environment – why should be deny businessmen the option to pay taxes in currencies other than euro? I see no problems there. I believe it is no secret that customers in Stockman supermarket in Helsinki can pay for their purchases in Russian roubles when paying in cash. Who benefits from this? The customer, the businessman and the state of Finland. We should consider such an option ourselves.

Yes, it would require changes in laws and regulations. Yes, it would require the parliament’s support. There has to be political will to change the established state administration paradigms! It requires decisions and actions.

Continuing the topic of economic development, it is necessary to mention the problem that is directly associated with education. It is the disproportion between the needs of Latvia’s labour market and specialists prepared by education institutions – the overproduction of humanitarian and social science graduates and the deficit of graduates in engineer sciences,» – added the prime minister.

«About demography. It is a natural process that can be influenced with different instruments, including political ones – benefits, social services, kindergartens, healthcare, education quality and the general sense of safety. This and that has already been done in this field. But progress has been negligible so far. I believe it is very important to form relations among employers, the state and potential mothers who shy from giving birth because of the fear of losing their jobs. This is where the government should look for solutions and provide state protection.

The demographic situation in Latvia directly impacts all industries. Lack of labour force in construction sector will soon become a real problem, because EU funding will soon end. This problem will undoubtedly coincide with the desire of Latvia’s society to limit the arrival of foreigners in Latvia. The labour market dictates its own rules – the market will invite guest workers. I am not certain that Latvia’s largest construction companies are prepared to increase wages to local workers. It is one small illustration for how demographic problems can effect national economy, education and national policy,» – Kucinskis said.

«The first great step has been made – teachers’ pay reform has been performed. Yes, there have been uncertainties, dissatisfaction, and even protests. But they once again demonstrated an important fact – maintenance of Latvia’s school network is inadequately expensive and it is unable to secure education quality fitting modern requirements or appropriate teachers’ pay. Unfortunately. The next step is clear – we have to optimize the school network. Let’s be honest – it is necessary to reduce the number of schools. This is where cooperation between municipalities is incredibly important, because everything is focused on financial relations. It is in the interest of the state and all the tax payers; there is no place for egoism. We need to learn to cooperate. Securing quality on all levels of the education system is an important political direction to explore. Education inequality on a regional level is unacceptable.

About reforms in healthcare. The main direction is clear – state mandatory health insurance system’s finding is to be planned in a long-term perspective with a goal to provide funding of EUR 1,000 to each Latvian resident. I ask Healthcare Ministry to responsively review the optimization of Latvia’s hospital network and do it in cooperation with political and social partners. It is highly important that everything about reforms is clearly explained to everyone. Without doing that, there will be room for speculations and lobbying of other interests,» – Kucinskis added.

«I have no cliff notes about two industries – culture and national security. It is hard to add anything to the general government report’s sections. Intended action plans and their descriptions are clear. The only thing I have to add is that national security was one of the founding principles of this coalition. The other principle is enhancement of the national identity and social cohesion. We are a nationally conservative government that understands the need for reforms!

A few words about matters that have been worrying Latvian residents lately. This includes minimal social fees and micro-enterprise tax. Both of these matters were left from the previous government. About the first. I have had multiple conversations with businessmen who employ some people for only a couple of hours every week. These people are paid a salary for their work, and it is much smaller than the minimal amount. It is clear businessmen are not prepared to pay social tax from minimal wages for those employees, as this would make their services more expensive and potentially put them at risk of losing competitiveness. I expect some of them could end up in the grey economy. To prevent such a risk and respect the interests of employers and employees, Saeima committees have commenced serious work. I am confident the result will become clear in the coming days and will satisfy the interests of all involved sides. The matter regarding micro-enterprise tax is more complicated, because the initially good idea has turned into a tax optimization tool in a very short period of time. We have to search for solutions to help preserve this business model in its transformed form,» – the prime minister concluded.

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