RIGA - Latvia's biggest governing coalition member, the People's Party, in getting its populist rhetoric in gear, has said it opposes tax increases as a means of shoring up the budget and has called on the government to cut administrative spending instead, reports Bloomberg. "This is the last opportunity to stop actions that are based on mechanical and shortsighted thinking," the party noted on its Web site. The party criticized what it called "a possible repetition of the delays in budget decisions that preceded the adoption of budget cuts in June."
The People's Party, which has 21 seats in the 100-member parliament, said it won't support increases in the value added and corporate taxes or the introduction of a progressive income tax. The party said that it is opposed to implementing a real-estate tax as the economy struggles through a slump, adding that it will only consider a capital gains tax after discussions with industry.
Latvia is currently under the intensive care of international aid agencies to support its finances as it has been hit hard by the current global economic downturn. The European Commission and the International Monetary Fund, and others, are extending a loan package of 7.5 billion euros to keep the government afloat.
As part of its loan agreement, Latvia must get its budget deficit under control, by cutting spending and raising revenues by a collective 500 million lats (714 million euros) a year until 2012, when the budget gap is expected to fall below 3 percent of GDP. The economy contracted by a preliminary 19.6 percent in the second quarter. Moody's Investors Service has warned that a breakdown in talks with the EU and IMF that would disrupt continued transfers of the loan could lead to Latvia losing its investment grade rating. Moody's added that "We would caution that such an event - though deemed unlikely - would probably lead to the loss of Latvia's investment-grade status.
Rating agencies Standard & Poor's and Fitch have both cut Latvia's credit rating to below investment grade.
