LEC: Latvia risks becoming a country with low quality of life
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.
LEC director general Liga Mengelsone