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Monday 16.07.2018 | Name days: Hermīne, Estere

Rimsevics: tax rise – gravedigger of economy

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The Bank of Latvia President Ilmars Rimsevics

The Bank of Latvia President Ilmars Rimsevics (Ilmārs Rimšēvičs) in a press conference of September 9 emphasizes that further increasing of taxes would be a grave digger of Latvia national economy. It would deem Latvia to long-term stagnation.

Rimsevics is convinced that qualitative development of the budget will be of decisive importance for the recovery of economics. The Bank of Latvia considers that budget consolidation conducted on the basis of tax increasing should not be allowed. The only way out is cutting the still existing excessive budget spendings.

After calculations of the Bank of Latvia experts, 2011 budget consolidation must be done in amount of 400 million lats instead of publicly available information – 350 or even 200 million lats. The President of the central bank reminded that next year’s budget in volume of 6% is just the minimum the state should do, in order «not to be included in the unsuccessful states list». However, to his mind, hope for rapider growth than currently possible, on the basis of budget consolidation, should not be allowed.

«One must not risk with the future of the state according to a principle – it might not be too bad. That way we can loose the fragile stability we have achieved so far,» told Rimsevics underlining that faith in the processes taking place in Latvia is the main thing the national economy could develop. However, at the moment he has come to a conclusion that there is still no clarity about the future decisions.

Rimsevics especially pointed out that if taxes are risen, Latvia national economy will be deemed to long-term stagnation, which means that unemployment rate is to grow, shadow economy to extend; and revenue derived form tax to decrease instead of increasing. The residents and companies of Latvia will suffer the most.

The President of the Bank was also certain that successful development of the next year’s budget, when consolidation is conducted on the basis of spendings reduction, enables Latvia to repay debts in, in case of necessity, it could refinance in the international markets at favorable interest rates.

The fact that the hopes to promote the economic activities with the help of budget deficit were not fulfilled was given by Rimsevics as a reason why budget consolidation should be done. Such approach has fastened stagnation even more. He considers that obscurity regarding state finances is one of the main reasons why banking sector is slow to resume crediting. The low state credit ratings, which are affected by the high budget percent, do not make Latvia more attractive in the eyes of investors thus the economics does not benefit from that.

«The residents and entrepreneurs, seeing that the state continues to spend money that has not yet been earned, are not sure about their future and are not quick to spend their own money,» explained the President of the Bank of Latvia.

«If the government developed a qualitative 2011 budget, then no difficulties, not even in the whole world, would be able to to leave a destroying effect on the national economy,» Rimsevics was convinced.

As it has already been announced the Prime Minister Valdis Dombrovskis has stated that, in case, ministries cannot find any possibilities to reduce expenditures, budget revenue will be increased on the basis on tax rising.

«What is clear – not doing anything will not be an option,» the Prime Minister told in an interview to LNT morning news broadcast 900 sekundes.

«Government expenditures will have to be reduced in any case – in what areas and to what amounts – it will still be discussed. The less we reduce spendings, the more we have to receive from revenue derived form tax,» explained Dombrovskis.

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