Latvia: Where to get money?

The Baltic Times - - FRONT PAGE - Karlis Streips Karlis Streips is a Lat­vian jour­nal­ist and com­men­ta­tor of US des­cent

Latvia’s gov­ern­ment is cur­rently go­ing through con­nip­tion fits in re­la­tion to fill­ing the cof­fers of state with more money so as to ad­dress grow­ing needs for new spend­ing. One key is­sue is the fact that Latvia’s gen­eral physi­cians have all gone on strike over pay is­sues. Their col­leagues at hospi­tals have be­gun to refuse to work over­time, the re­sult of which is longer queues for ser­vices and, in at least some cases, post­pone­ment of oper­a­tions and other pro­ce­dures that have been sched­uled for a long time.

The Min­istry of Health has put to­gether a home­page on the In­ter­net that lists ser­vices that are avail­able, de­spite the strike and the de­ci­sion not to work over­time. This is as­sum­ing that pa­tients have In­ter­net ac­cess, which, in the case of el­derly and im­pov­er­ished peo­ple, is by no means cer­tain. It is also true that this new sit­u­a­tion comes on top of the fact that there have al­ways been long queues for var­i­ous med­i­cal ser­vices in Latvia, with quo­tas of state-fi­nanced ser­vices in some cases ex­pir­ing within the first few weeks of each new year. The en­tire sec­tor, it seems, re­quires acute hos­pi­tal­i­sa­tion.

One spe­cific el­e­ment in find­ing more money for the health­care in­dus­try is that the gov­ern­ment is plan­ning, be­gin­ning at the start of next year, to raise the so­cial tax by one per­cent, half of that sum be­ing con­trib­uted by em­ploy­ers, the other half by em­ploy­ees. If rev­enues from this reach the level that has been fore­cast by the gov­ern­ment, then they will still not come any­where close to cov­er­ing the to­tal need. That means that a fur­ther search for fund­ing will be nec­es­sary. Health care has al­ways been the poor lit­tle or­phan of Latvia’s econ­omy.

Ef­forts to find proper fi­nanc­ing for the sec­tor have al­ways come up against other needs such as rais­ing de­fence spend­ing to the 2 per cent of GDP that NATO re­quires, and that the clown to many who is cur­rent pres­i­dent of the United States has in­sisted upon, even though he does not have the slight­est idea about what NATO is and how it op­er­ates.

And so, the gov­ern­ment has been cast­ing around for other sources of rev­enues. For a while there was talk of rais­ing the value added tax (VAT), but that would be most re­gres­sive in that VAT is paid by ev­ery­one, rich or poor, at the same rate, thus hav­ing, it goes with­out say­ing, a dis­pro­por­tion­ately more se­vere ef­fect on the lat­ter, not the for­mer group. In­stead of that, the gov­ern­ment has fi­nally turned to some­thing that is com­mon in coun­tries with an ex­ten­sive and rel­a­tively lav­ish health care sys­tem – pro­gres­siv­ity in in­come taxes, though in Latvia’s case, not in full. The cur­rent plan is to ap­ply a tax rate of 20 per cent to in­comes up to and in­clud­ing 20,000 Eu­ros an­nu­ally. Any in­come above that rate, but be­low 55,000 Eu­ros, would face a 23 per cent rate. Not the whole sum, just the sum that is above EUR 20,000. Above 55,000 Eu­ros, an even higher rate would ap­ply to the sum that is above that level.

This is not a truly pro­gres­sive sys­tem of tax­a­tion. In a truly pro­gres­sive sys­tem of tax­a­tion, those who earn more sim­ply pay more on all of their in­come, not just the part of it that is above some more or less ar­bi­trar­ily de­fined level. In wel­fare states, the top rate can be truly dizzy­ing.

It is per­haps an apoc­ryphal story, but it is said that one year the fa­mous Swedish chil­dren’s book au­thor Astrid Lind­gren ac­tu­ally paid more in tax than she had earned dur­ing the tax­a­tion year. Whether that is true or not, it is a fact that in coun­tries with a truly pro­gres­sive tax sys­tem, those who earn more pay more, amen. Peo­ple in Latvia have long since yearned for the same, but ours is a coun­try in which there is a rel­a­tively small group of rich peo­ple and a vast num­ber of peo­ple who are at best mid­dle class and of­ten quite poor, in­deed. That is not a sys­tem in which much higher taxes on the rich would en­sure much at all, sim­ply be­cause the rich are so few in num­ber.

Taxes are al­ways a hot potato, be­cause no­body re­ally wants to pay taxes, even if peo­ple un­der­stand what the rev­enues pay for (and don’t want any spend­ing cuts that would harm them).

In Amer­ica right now, the Re­pub­li­cans who con­trol Congress are busily try­ing to slash the taxes of the coun­try’s bil­lion­aires by tak­ing away health in­sur­ance from tens of mil­lions of peo­ple who aren’t bil­lion­aires. This is due to the cu­ri­ously per­sis­tent, but to­tally non­sen­si­cal idea that if you cut taxes on the rich, wealth will some­how mag­i­cally trickle down to ev­ery­one else.

That didn’t work back when Ron­ald Rea­gan tried it (and ac­tu­ally raised taxes more than he cut them), and it won’t work now, but there you have it. In Latvia’s case, what is ac­tu­ally needed is eco­nomic de­vel­op­ment to raise every­body’s wel­fare. Alas, in­vestors are wary of a coun­try that changes taxes and reg­u­la­tions more fre­quently than we change our un­der­wear. As long as that is true, pro­gres­siv­ity in tax­a­tion in this coun­try will largely re­main fic­tion.

Karlis Streips

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