OECD: Latvia has 'room to raise tax revenue'

The Organization for Economic Cooperation and Development (OECD) said April 25 that Latvian policymakers should consider increasing revenues by raising taxes, shifting the burden from labor to real estate and assets.

As part of the presentation of the OECD's Economic Survey of Latvia for 2024 (see attachment), it is pointed out that policymakers have considerable room for maneuver when it comes to public finances.

"Financing rising spending needs in defense and health care and reducing old-age poverty will require raising tax revenue and spending efficiency and reallocating spending. The tax burden should be shifted from labor to other income, property, and environmental taxes," recommends the OECD.

Latvia should "Raise recurrent taxes on immovable property based on regularly updated market values, while continuing to provide tax reductions for the primary residence of poorer households," it suggests.

Latvia tax revenue
Latvia tax revenue

Low wage earners bear a disproportionately large tax burden, which is turn leads many people to accept non declared 'envelope payments'. Despite plenty of official rhetoric on the need to tackle the gray economy, it "has not decreased since 2012" the OECD points out, urging more to be done. 

"Reducing the labor tax wedge for lower incomes while financing the reform through general tax revenue should be a priority. Further strengthening tax enforcement and the fight against corruption and money laundering can do much to reduce the shadow economy and broaden the tax base," it advises.

The OECD expects to see GDP growth of 1,8% this year and 2.9% next year. Inflation is expected to pick up slightly from 1.4% to 2.4% over the same period but unemployment will remain stable at 6.7 to 6.6 percent.

"Accelerating structural reforms is key to raise productivity and living standards. Reducing informality and barriers to competition and firm growth, particularly in services, would help strengthen business dynamism and innovation," the global organization says.

The report contains numerous other recommendations such as increasing the use of digitalization in public services, fostering more competition in the financial sector, listing parts of state-owned enterprises and giving more financial support to university students. The full report can be read at the OECD website here

The full presentation of the report and a discussion about its content can be watched in our earlier story.

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