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Tax level in Latvia insufficient; state debt may increase

Fiscal Discipline Council has concluded that the current tax revenue level in Latvia is insufficient for the state needs and there are risks the state debt may increase in a long-term perspective.

A discussion was performed in cooperation with European Commission’s representation in Latvia about fiscal longevity and the role of the public sector in improving economic growth and social welfare.

Council Chairman Janis Platais said during the discussion on 6 June: «The current tax revenue level limits the country’s ability to provide high-quality public services and adequate social protection. As the quality of life increases, it is expected that there will be higher requirements for public services.»

He continues: «Clarity is needed for the range of services and social protection measures provided by the public sector in order to develop an appropriate income policy. Financing more expenses at the cost of the state debt is unacceptable.»

In the first part of talks, European Commission’s Economic and Financial Affairs General director Manfred Bergmann provided his opinion. Information was also provided by representatives of Latvian Chamber for Commerce and Industry, Latvian Free Trade Unions Association and Citadele Bank.

Platais concluded that fiscal longevity details a country’s ability to fulfil its financial commitments. Working on the fiscal longevity report, it is important to evaluate the influence the current expenses policy could have on the state debt, considering the ageing of the population and expenditures associated with that.

He also says: «Although multiple organizations have found Latvia’s pension system and healthcare system as fiscally sustainable, it is also noted that low income level of pensioners and insufficient state support for healthcare could create a number of social and political risks.»

Discussions helped look at longevity in a more complex manner with consideration of different factors and their influence. It is necessary to look for compromises for the division of financial resources, in regards to the tax burden, economic growth rates, public services and social guarantees, as concluded by FDC Chairman.

The council also reports that the discussion included participation from experts of different field and opinions that were voiced will help with the development of the longevity document currently in the works by FDC to include factors that will likely affect the country’s financial stability in the next twenty years. 

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