Dombrovskis defends policy choices

  • 2013-01-23
  • From wire reports

ON TARGET: Valdis Dombrovskis says the income tax has to drop to attract high quality labor.

RIGA - The personal income tax rate was reduced in Latvia to improve the country’s competitiveness in terms of labor taxes, reports LETA. In regard to attracting a labor force, Latvia’s position is the weakest among all of the Baltic States, says Prime Minister Valdis Dombrovskis, commenting on the European Commission’s latest report.
Dombrovskis points out that the personal income tax is at 21 percent in Estonia and at 15 percent in Lithuania. It is important to attract a highly qualified labor force to ensure economic development. Latvia, however, trails behind the other Baltic nations in this regard, Dombrovskis’ press secretary Martins Panke said.

Normally, when planning a labor tax policy, it is necessary to observe a balance between both needs, says Dombrovskis.
The prime minister also commented on the Commission’s notes on salaries, pointing out that the government is aware that, when exiting the crisis, first and foremost it is necessary to improve the living standards of needy residents. Therefore the 2012 budget amendments and the 2013 budget envisaged salary increases in the public sector.
Raising the income of low-paid workers will be prioritized in the medium term, says the prime minister.
Regarding the 2014 budget, Unity is ready to discuss raising the monthly untaxed minimum.

The European Commission has an overall positive opinion of Latvian politicians’ performance since the conclusion of the international aid program; however, the Commission is also seeing some complacency in the government’s move to its original goals, and criticizes tax reductions in Latvia.

This according to Latvia post-monitoring mission’s second report. The report says that better economic and budgetary results, coupled with the end of close surveillance, have led to some complacency, a relaxation of efforts and a lack of steadfastness, resulting in several policy steps that go against commitments made in the last Memorandum of Understanding, warns the Commission.

This in particular concerns tax cuts decided in May, which were not included in the Convergence Program submitted only shortly before, the announcement of the 3-year strategy to lower the personal income tax rate while postponing plans to raise personal income tax non-taxable thresholds to help the lower-paid, planned reductions and decentralization of financing of the guaranteed minimum income from 2013, and others, says the Commission.