LEC: Latvia risks be­com­ing a coun­try with low qual­ity of life

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2016 is best de­scribed by events whose in­flu­ence on the busi­ness en­vi­ron­ment and em­ploy­ers will only be pos­si­ble to as­sess af­ter some time, ac­cord­ing to Lat­vian Em­ploy­ers’ Con­fed­er­a­tion’s out­look on pos­i­tive trends of 2016.

Maris Kucin­skis’ Cab­i­net of Min­is­ters be­gan its work this year. Even be­fore his ap­proval in his new post, Kucin­skis and his part­ners agreed on com­mon pri­or­i­ties. LEC urged the govern­ment to en­sure the coun­try would be able to achieve pos­i­tive re­sults next year that would con­trib­ute to GDP growth and se­cure qual­ity of life stan­dards equal to 70% of the av­er­age level in the EU. The lat­ter has no turned out so well, un­for­tu­nately. It is likely Lithua­nia and Es­to­nia will do bet­ter in this re­gard, LEC notes.

One of the year’s most im­por­tant de­vel­op­ments was Latvia’s join­ing of OECD. Join­ing this or­ga­ni­za­tion pro­vided spe­cific ben­e­fits and im­prove­ments – it was the main driv­ing force be­hind the cap­i­tal as­so­ci­a­tions’ man­age­ment re­form and served as a stim­u­lus for state in­sti­tu­tions to com­bat bribery in in­ter­na­tional busi­ness trans­ac­tions.

At the same time, it should be em­pha­sized that join­ing OECD will not pro­vide the re­sults ex­pected for the coun­try’s na­tional econ­omy if in­tro­duc­tion of OECD rec­om­men­da­tions is not fin­ished in a timely fash­ion, LEC notes.

To ex­press com­mon views and ob­jec­tives, co­op­er­a­tion and so­cial di­a­logue prin­ci­ples, LEC, as one of the govern­ment’s so­cial part­ners, signed an agree­ment with the Prime Min­is­ter, Lat­vian As­so­ci­a­tion of Lo­cal Govern­ments, Lat­vian Cham­ber of Com­merce and In­dus­try and Lat­vian Science Academy on 9 Au­gust on con­di­tions nec­es­sary to en­sure na­tional eco­nomic growth. It of­fers op­ti­mism and pre-con­di­tions for nec­es­sary re­forms and chang­ing un­favourable em­i­gra­tion ten­dency, as well as in­creas­ing se­cu­rity of res­i­dents, says LEC direc­tor gen­eral Liga Men­gel­sone.

«By putting off or avoid­ing nec­es­sary re­forms, Latvia risks be­com­ing a coun­try with av­er­age level of qual­ity of life be­low that of the av­er­age in the EU, re­sult­ing in peo­ple leav­ing it in favour of look­ing for a bet­ter life else­where,» – Men­gel­sone con­tin­ues.

It is planned to reach an agree­ment on one of the points next year, specif­i­cally in the con­text of tax pol­icy – re­view of sol­i­dar­ity tax rate, as this year’s data showed what con­se­quences sur­faced as a re­sult of the in­tro­duc­tion of this tax.

«Rushed and poorly con­sid­ered sol­i­dar­ity tax’s in­tro­duc­tion has changed the be­hav­iour of tax­pay­ers and has cre­ated losses for the state bud­get,» – Men­gel­sone said. She adds that data for the tax showed that even though it had pro­vided ad­di­tional funds for the state bud­get, the num­ber of large wage re­cip­i­ents has de­clined.

This means the long-term im­pact on the state bud­get will be neg­a­tive. It does not con­trib­ute to growth. It also makes the tax sys­tem more com­pli­cated for medium and large tax­pay­ers.

One of the ob­jec­tives LEC had pro­posed for the new govern­ment was work­ing on im­prov­ing in­dexes in Do­ing Busi­ness rat­ing. In au­tumn, LEC came to the con­clu­sion that this goal was suc­cess­fully reached, as Latvia climbed to the 14th place among 189 coun­tries.

Un­for­tu­nately, not much progress has been achieved. On top of that, not only no progress has been reached in this rat­ing, Latvia has also dropped to 49th place in it. «Latvia’s rat­ing is sig­nif­i­cantly lower. This is be­cause of the level of bu­reau­cracy in the coun­try’s state ad­min­is­tra­tion, the level of de­vel­op­ment of the coun­try’s in­fra­struc­ture, qual­ity of health­care and ed­u­ca­tion pol­icy, as well as tax rates and reg­u­la­tions as­so­ci­ated with taxes. Be­cause of that, Latvia’s com­pet­i­tive­ness as­sess­ment, com­pared with last year’s re­sults, is five places worse,» – Men­gel­sone ex­plains.

LEC men­tions Saeima’s de­ci­sion for amend­ments to the In­sol­vency Law as one of the pos­i­tive ac­com­plish­ments of 2016. New reg­u­la­tions are but part of many mea­sures on the road to­wards sort­ing out in­sol­vency process. Busi­ness­men ex­pect work will con­tinue to cre­ate le­gal and safe busi­ness en­vi­ron­ment for in­vest­ments.

In spite of cer­tain ex­cep­tions, the year can be de­scribed with the word ‘co­op­er­a­tion’. Although LEC be­lieves re­cent de­ci­sions in bud­get and tax af­fairs are not very good, busi­ness­men em­pha­size that it has been pos­si­ble to es­tab­lish ac­tive, mu­tu­ally ben­e­fi­cial di­a­logue with Kucin­skis’ govern­ment.

It is highly im­por­tant to con­tinue the di­a­logue, find com­mon ground and reach agree­ments on the tax pol­icy strat­egy next year. Re­sults will demon­strates whether or not in­ter­ests of busi­ness­men have been taken into ac­count and whether or not govern­ment rep­re­sen­ta­tives un­der­stand tax pol­icy is a good tool for de­vel­op­ment of the na­tional econ­omy.

LEC and LCCI have al­ready pre­pared their pro­pos­als for the medium-term tax pol­icy to en­sure the cre­ation of a great busi­ness en­vi­ron­ment and ac­com­plish eco­nomic break­through. Some of the most im­por­tant prin­ci­ples are sta­bil­ity and pre­dictabil­ity.

In the con­text of a bet­ter tax pol­icy, it is im­por­tant to re­solve the mat­ter re­gard­ing em­ploy­ees’ so­cial se­cu­rity, as keep­ing this mat­ter un­re­solved could po­ten­tially cause very un­pleas­ant con­se­quences in the fu­ture and in­crease pres­sure on res­i­dents’ so­cial pro­tec­tion. LEC be­lieves it is also im­por­tant to add manda­tory health in­sur­ance com­po­nents in the cur­rent so­cial tax rate.

In the con­text of na­tional econ­omy de­vel­op­ment, one of the most im­por­tant ob­jec­tives for next year is re­view­ing the manda­tory pro­cure­ment com­po­nent for elec­tric­ity, con­sid­er­ing the cur­rent MPC for large pro­ducer com­pa­nies is cur­rently too high. This does not con­trib­ute to over­all com­pet­i­tive­ness of those com­pa­nies and only serves to re­duce the abil­ity of in­dus­try par­tic­i­pants to in­vest and en­sure wage in­crease.

Au­thor: Zane Bitere/LETA

LEC direc­tor gen­eral Liga Men­gel­sone

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