RIGA - The new property tax proposed as part of the government's efforts to bridge a yawning gap in next year's budget will most likely be set at 0.1 percent of the cadastral value of the residence, reports news agency LETA. Finance Ministry estimates show this new rate would add about 6.5 million lats (9.2 million euros) to the national budget.
The government agreed today that property tax would be applied to all apartments and private homes starting next year. The government needs to cut next year's budget deficit by 500 million lats, as agreed with international lenders as part of its 7.5 billion euro bail-out plan.
Prime Minister Valdis Dombrovskis expressed his pleasure that the coalition parties came to agreement and have taken another step forward in drawing up the 2010 budget. The People's Party, who had previously spoken out against the tax, ultimately agreed to it, so that the new budget is expected to be passed. The People's Party however still opposes such a tax, says MP Vents Armands Krauklis.
Civic Union's Saeima leader Anna Seile had walked out of the meeting in protest, saying that she "was perturbed over the People's Party's conduct in haggling over the tax. She opined that the party apparently is trying to protect its financial backers, who have bought up large properties."
The People's Party, led by so-called businessman Andris Skele, and other wealthy individuals are against implementation of a real estate tax, as they have accumulated through various methods substantial amounts of property in Latvia and don't want to impose a tax on themselves, say analysts.
At an extraordinary meeting last week, the government reached agreement on the key measures to reduce spending and increase revenue in the 2010 state budget. The budget revenue is to be raised mostly through increasing the base rate of the personal income tax and expanding the property tax base.
Finance Minister Einars Repse (New Era) said that next year the state consolidated budget's revenue, excluding local government budgets, is planned at 3.7 billion lats and expenditures are planned at 4.3 billion lats.
The 2010 state budget will undoubtedly be a crisis budget, however; it will make it possible for Latvia to continue to receive money from the international lenders, stabilize the situation in the country and move on to revive the national economy.
Last week's discussions included the Economy Ministry's proposal to differentiate the property tax, where the owners of smaller apartments and private homes would have to pay smaller tax, with wealthy people, who own villas and larger properties, would have to pay more, as Economy Minister Artis Kampars (New Era) recommended. The Economy Ministry essentially suggested for a progressive property tax, which would depend on the area of the apartment or private home as well as the property's cadastral value.
Kampars said that, for example, the owner of a small apartment would pay from 5 's 20 lats a year; the tax on middle-sized apartments and private homes would be 0.2 percent of their cadastral value, that is, 20 's 40 lats a year; whereas villas and similarly sized structures of more than 100 square meters would be applied with a tax of 0.4 percent of cadastral value, which would require a tax of approximately only 400 lats a year.
With the government's decision, ministries will now begin work on budget allocations. It is expected that the budget bill will be submitted to Saeima by Oct. 28.