The tax reform submitted to the Saeima for approval is one big disappointment that will not improve competitiveness, said head of the Monetary Policy Office of the Bank of Latvia Uldis Rutkaste.
According to him, the tax reform will not resolve the main problems of Latvia’s tax system.
“The tax reform will not improve competitiveness because labor tax decline will be below of what was initially intended. This means it will be more expensive to employ people than it is in Estonia and Lithuania,” explains Rutkaste.
He adds that the positive effect from labor tax decline will be neutralized by excise tax increase for different products, as well as increases of social tax and minimal wage.
“As it stands, the tax reform is not aimed at improving competitiveness,” says the expert.
He admits that poor residents will feel inflation increase the most in spite of the expected wage rise. Excise tax rise will be felt by people who consume energy resources in large volumes.
According to the bank’s representative, tax reform’s impact on economic growth will be minimal – the effect will be negative in the first couple of years. In the third year after the reform’s realization the positive effect on economy will be only 0.4%.
“We have lost the goal we wanted to achieve using this reform. On top of that, goals tend to change all the time. This is why the offer of the current tax reform will not resolve problems of the tax system. Of course, there are areas in which tax reform will help progress forward, but this work if far from done,” Rutkaste says. (BNN/Business World Magazine)