Prime Minister stung by critique of tax reform plans

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Prime Minister Maris Kucinskis launched a surprisingly strong critique of the European Commission's representative office in Riga May 24, suggesting that it had in effect gone rogue.

Speaking after a meeting with President Raimonds Vejonis, the PM said there has as yet been no official statement from the European Commission about the planned tax reforms -  which made him wonder about information released by the European Commission Representation in Latvia.

"There cannot be two different European Commissions - one in Brussels and one in Riga," he said. 

Negotiations with the Commission about tax reforms continued and any official findings could be expected no sooner than the fall, he insisted.

Meanwhile Vejonis refrained from making any conclusions based on the information released by the European Commission Representation in Latvia, saying that he wanted to see an official document first but it did not yet exist.

"If the Commission has any objections, we have to see them," he said, adding that the Commission was unlikely to have already reviewed Latvia's new tax policy guidelines which had been adopted in principle just two weeks ago.

As reported, the European Commission Representation in Latvia announced on May 23 that the Commission's analysis of Latvia's tax reform had concluded that there was a significant risk of deviation from the Stability and Growth Pact requirements for 2018.

The document is available to view online HERE and is published under the 'Brussels' dateline. "This document complements the Country Report published on 22 February and updates it with the information included in the stability programme," it clearly states.

According to the European Union's fiscal discipline rules, Latvia's structural deficit in 2018 may not exceed 1.7 percent of gross domestic product. Latvia's Stability Program estimates headline deficit at 1.6 percent of GDP in 2018. However, if no effective compensatory mechanisms are agreed upon to make up for the effect of the tax reform measures, Latvia's structural deficit may amount to 2.4 percent of GDP, and that would be a significant deviation, the document warns.

"Overall, Latvia is assessed at a risk of significant deviation in 2018," it says.

Martins Zemitis, economic advisor at the Commission's Representation in Latvia, said that the Commission had found the tax reform justified, and many of the measures therein necessary, however, these measures were costly and potentially might compromise Latvia's fiscal discipline.

"The reform is pro-cyclic, it offers an additional stimulus to the economy at a time when lending is gathering pace and EU funds are being invested in the economy. The economy is warming up already, and it will get even warmer because of the tax reform. The Commission doubts whether now is the right time for such stimuli," said Zemitis.

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