European Commission urges Latvia to cut taxes for poor people

In its latest recommendations European Commission (EC) urges Latvia to reduce the tax burden for people with low income, resolve problems of social exclusion, increase housing and transport accessibility, as well as perform other important improvements.

EC recommends reducing tax burden for people with low income by diverting it to other sources, specifically capital and property and improving compliance with tax commitments.

EC also reminds that Latvia needs to adopt an effective money laundering enforcement and monitoring system.

The second batch of recommendations is associated with the social sector. EC recommends Latvia to resolve the problem of social exclusion by improving minimum income benefit, minimum retirement pensions and income equality for people with special needs.

On top of that, European experts say Latvia should improve the quality of education, especially for unskilled labourers and unemployed people. This includes increasing their inclusion in vocational education and life-long education programmes.
Other recommendations in this field include better accessibility, quality and cost-efficiency of healthcare.

The third batch of recommendations provides for focusing investment-related policies on innovations, housing accessibility and transport, especially their longevity, resource and energy efficiency, energy inter-connections and digital infrastructure with respect to regional differences.

Describing Latvia’s current economic situation, EC concluded that budget deficit and state debt indexes meet medium-term budget goals. However, there are certain indexes that point to the possibility of this year’s deviation from budget norms could exceed acceptable deviations that accommodate structural reforms. This is why EC believes Latvia should be prepared to perform steps to comply with requirements of the Stability and Growth Pact this year.

European Commission Vice-President for the Euro and Social Dialogue Valdis Domborvskis says for nine years Latvia’s economy continues maintaining growth, adding that it is necessary to continue reducing budget deficit to further enhance the resistance of Latvia’s economy against potential economic shocks in the future.

Latvia’s income ratio to GDP is low when compared to the average in the European Union. This partially limits public services, especially in healthcare and social inclusion. EC states that capital and property in Latvia is applied with relatively low taxes and value stifling used in tax calculation reduces budget revenue even more. European Commission also criticizes the large tax burden put in small wage recipients. There is also the major presence of grey economy in the country, which exceeds that of Lithuania and Estonia.

Experts say Latvia has significantly cut down the risks created by non-residents’ deposits on the finance system, and that the country has started developing solutions to better combat money laundering. Nevertheless, Latvia should also focus on increasing the output of the law enforcement of judicial system to ensure better results.

«EC urges Latvia to improve regulations and compliance to furthere reduce money laundering risks, which is why EC supports the reforms initiated by the Latvian government in this field,» says Dombrovskis.

EC is not entirely satisfied with what Latvia has done to reduce social inequality, saying that poverty level in the country is high, especially among the elderly and people with special needs. Accessibility of social care and social housing is also weak.

Dombrovskis also stresses that Latvia should perform measures to reduce income inequality and the risk of poverty.
Although accomplishments of Latvia’s education system are considered good, the quality remains dependent on students’ place of residents and type of school they attend, EC notes. Experts admit there have been improvements noted in vocational education but it remains unable to secure the interst of students or provide graduates with quality employment opportunities. EC especially underlines the need for Latvia to improve re-qualification and life-long education options.

‘A small healthcare budget and unhealthy lifestyle are the two main reasons why public health in the country is generally poor,’ EC notes, suggesting more rapid reforms in healthcare. The two-basket healthcare system is also criticized as a system that limits equal healthcare accessibility for all, which only further impacts public health.

EC also points to the low amount of funding Latvia allocates towards innovations and research. Funding for these fields comes almost exclusively from EU funds. Latvia does have some strengths in certain innovation sectors, such as IT, communication and technology infrastructure. However, the country does fall behind with investments in human resources, public and private sectors’ cooperation and intellectual property.

«Latvia is advised to invest in innovations and digital infrastructure, transport and energy, including their longevity and efficiency, as well as accessibility of affordable housing,» says Dombrovskis.
Regional inequality is another point in which EC offered criticisms to Latvia. The country should invest in a way that would help reduce regional development differences, EC says.

Although Latvia’s recently adopted Whistle-blower Protection Law and several scandalous corruption cases help improve public trust, «it is still believed the government’s decisions remain dependent on favours, procurement processes remain under risk of corruption because of the lack of transparency, especially in municipal and sate companies,» EC report details.

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