RIGA - Estonia is the only Baltic country where the government can promise residents that the tax burden will not increase; the governments of Latvia and Lithuania can make any promises they want, but it is clear that the tax burden in these two countries will increase in the coming years, Nordea bank chief economist Andris Strazds said during a video press conference on Aug. 30, reports Nozare.lv. Strazds stressed that neither Latvia nor Lithuania are able to sustain their large budget deficits in the long term, and both will have to alter their tax policies. If they do not do this, they will be unable to deal with their government debts, whereas borrowing on international markets will be impossible.
The economist said that, although budget reductions are to be decided by politicians, the most likely scenario for Latvia is that the reduced value-added tax rates will be lifted, property taxes will be raised, subsidies for state-run companies will be cut, and payments into the second-pillar pension level will be suspended.
Commenting a suggestion by the political union For A Good Latvia to reduce taxes substantially, which the party believes will convince all residents to pay their taxes and reduce the shadow economy, Strazds said that this would lead to an even larger budget deficit, and it is perfectly clear that such a suggestion would never be approved.
Strazds believes that none of the political parties that will compete in the Saeima elections wish to reveal their actual plans regarding tax policy changes that will take place on Jan. 1 next year.
Commenting the economic situation in the Baltic countries, Strazds said that the Latvian economy was the weakest one in terms of household budgets and the state budget. Households are better off in Lithuania, because Lithuanian residents have borrowed the least across the Baltic countries, whereas Estonia has the best situation regarding the state budget, the economist said.