Tax reform discussion hits dead end in Latvia

The parties' talks on changes to the tax system have stalled, according to several politicians, Latvian Television reported on July 8.

The reason was the New Conservative Party's requirement that the untaxed minimum should be raised next year to €500, as promised in the Party's program. Other parties say that Latvia cannot afford it.

With the beginning of next year, the government hopes to introduce a 5% health tax, shifting some social contributions and reducing income tax. It also wants to simplify alternative tax regimes so that more people are socially protected. But now the talks have halted. Reason: The New Conservative Party insists that the differentiated non-taxable minimum should be increased to €500 from next year.

“The Prime Minister and Finance Minister are basically destroying the micro-enterprise tax regime, the self-employed tax regime without offering anything in place. What we are offering is this €500 non-taxable minimum. This is essential for people to migrate from these alternative tax regimes to the standard regime,” NCP politician Gatis Eglītis said.

According to the Ministry of Finance, NCP's proposal would increase the government deficit by EUR 115 million. According to Eglītis, Latvia can afford it:

“Good tax reform also costs something. [...] Now is the perfect time to do this.”

Coalition partners do not agree with the offer. They believe that, although Latvia is not prevented from growing deficits next year, budget spending in 2022 is likely to have to be cut.

"Their vision is all flowers: cut revenues and increase spending and do it all at the expense of deficits. […] It can be described as a dead end. The next sitting is not scheduled, "commented Atis Zakatistovs, head of the parliamentary faction of KPV LV.

“We cannot afford to take additional steps that have a huge financial impact,” added “Development/For” Head of Saeima faction Daniels Pavluts.

Minister of Finance Janis Reirs (“New Unity”) said that the redistribution of labor taxes in favor of health care and the elimination of low tax regimes is intended to deliver on the promises already made to medics and educators on raising wages. What to do if the talks fail, the minister doesn't know yet.

Now the parties have taken a break from the tax negotiations. In individual consultations with members of the coalition, the Prime Minister Krisjānis Kariņš (“New Unity”) will seek a solution. He has previously indicated that the agreement on tax changes in the coalition should be reached by the end of the month.

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