Budget, Financial Services, Latvia, Markets and Companies, Taxation

Janis Endzins.

Endzins pointed out that the structural reforms are being carried out at a slow pace. "The ice has begun to move, however, the government has still not come up with the structural reform plan that would include all expenditures, deadlines and officials responsible for their implementation. Such a plan is much needed, as it would reflect the state's vision. It is clear that the structural reforms could be the main instrument for next year's budget consolidation."

Endzins emphasized that there must be no "red lines" in 2012 budget, which would prevent austerity measures in several areas. Endzins lauded the rulling coalition's promise not to draw any "red lines" during the first phase, therefore budget cuts are now possible in social budget, education, health care, and state administration. There is no single instrument to solve all problems, 2012 budget consolidation may include 50 to 100 various austerity measures, said Endzins.

At the same time the LCCI chairman pointed out that the government must also be aware of the possible risks when carrying out budget consolidation.

A common misconception is that austerity measures in ministries and other state institutions can save significant amounts of money in the state budget. Currently, LVL 45 million are allocated from the state budget to political activities, while the total amount budget consolidation that is being discussed now is LVL 290 million. Therefore even if all ministries would be closed and there would be no civil servants, it would still not be enough, emphasized Endzins.

Endzins suggests two possible solutions to limit the state's expenditures. The first one would be to reduce expenditures, which would be highly unpopular, because it would include reduction of wages. Another solution would be to increase the budget revenue by additional tax proceeds, which could be achieved without increasing the rates, but by combating shadow economy, attracting investments, and developing the business environment, pointed out Endzins.