Latvia: Where to get money?
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.