Analytics, Financial Services, Latvia, Legislation, Markets and Companies, Taxation

The minister indicated that during the outgoing year the government has been closely cooperating with its social and other partners as it worked on and adopted the sweeping tax reform. “It is like vitamins intended to strengthen our economy, and a historic step towards a stronger and more competitive Latvian state. It is also one of the major gifts on Latvia’s centenary,” the minister said.

In her words, effects of the tax reform will be felt by households and businesspeople alike, as labor costs for low-paid employees will drop and the income gap will decrease. As a consequence, higher wages will improve life quality for many people across Latvia. The adoption of the reform will ensure a predictable tax system at least until 2021.

“The tax reform will reduce labor costs, promote regional competitiveness, motivation to start businesses, invest in business development and to pay taxes dutifully. Paying taxes will be made simpler. It will also help entrepreneurs balance wage growth and productivity. By implementing the reform, we will be building strong businesses and speed up Latvia’s economic growth,” Reizniece-Ozola said.

The minister added that work will continue next year to eradicate unreported activity or shadow economy in sectors where it is most widespread, for instance, construction and services.

Reizniece-Ozola noted that the tax reform provides not only for legislative changes but also a number of measures aimed at reducing the shadow economy and encouraging tax compliance. “A smaller shadow economy increases budget revenue, which can be used to improve people’s overall life standards and promote the development of healthcare, education, infrastructure,” the finance minister said.

The minister said that thanks to a favorable situation in external markets and a faster inflow of EU funding Latvia’s economic growth significantly accelerated in 2017. As a result, Latvia showed the fastest growth rate in six years. During the first nine months of this year, Latvia’s GDP expanded by 4.7%, showing an exceptionally strong performance in the third-quarter when growth reached 5.8%.

“Thanks to the strong economic growth, average wage growth reached the fastest rate in the post-crisis period, climbing 7.5% over the first three quarters of the year. The unemployment rate dropped more quickly than in previous years and business and consumer sentiments were the most optimistic since 2007. Lending by banks increased as the inflow of EU funding picked up, ensuring an additional basis for investment growth. This, along with the favorable situation in the global economy, provides good prospects for Latvia’s growth also in 2018,” Reizniece-Ozola said.