According to Latvia’s Minister of Finance Arvils Ašeradens, Latvia is a developing country that has entered the stage of good development. In similar countries the tax burden in not 29% or 30%, rather 34%, like it is in Estonia. «In regards to the review of the tax system – I will be very happy if we succeed in increasing the mass of taxes. Currently it is about 29-30%.
If we entered 31-32% corridor, it would mean a successfully completed period,» the politician said about his plans.
Ašeradens reminded that parties of the ruling coalition have agreed to review taxes once every four years, and parties have started tackling this task. «We need clarity in regards to which tax level we need in order to properly finance state functions,» said the minister. «Defence means significant changes – it is the first year of war, the government has respondent adequately, and budget priorities will focus on the army, troops and technological capabilities. Domestic security means establishing crisis centres, equipment, vehicles for fire fighters and rescuers, as well as providing residents with necessities in the event of a crisis. There are sectors that are well-financed – culture and education. But welfare and healthcare are not. This is why it is important to keep in mind the size of taxes we will need to secure everything we need. We will audit all of it – we will look at which of them are dysfunctional. We will look at proposals from political and social partners and we will discuss the tax scenario.»
The politician refused to comment which tax changes he wants to see. He only mentioned that «the needs of the state are currently larger than we think».
When asked about the possibility of reducing labour taxes without increasing other taxes, Ašeradens said this it’s not possible.
According to the minister, when it comes to healthcare and welfare in Latvia, they are not properly financed when compared with other EU member states. «We have to find a way to finance healthcare. One of the alternatives, which is employed by our neighbours, is paying 13% of the social tax to the healthcare budget. This ensures access to the healthcare system. We currently pay 1%,» added the minister.
«Compared with other EU member states, healthcare in Latvia is not financed well, neither is welfare,» the politician continued. He disagreed that the government plans to take away money from healthcare – only the bonus pay for doctors imposed during the covid pandemic have been taken away so far.
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«Funding of healthcare is close to 4% – it should be higher, but as inflation goes up, percentage goes down. It is clear we need more funding, but, at the same time, like education sector, healthcare requires a sustainable and confidence funding model. Currently we have no clear idea where the money goes to – the system itself does not show convincing results. For us to move towards higher funding, we have to implement a model that will, and this means exacting tax changes. One option is using Estonia’s state health insurance model. If the ministry proposes something else – we will look at the offer and analyse it. This should happen this year,» Ašeradens continued.
As for taxes on capital, the minister said other EU member states and neighbouring countries collect more of those taxes. «We should look in this direction and change the situation. Countries pick different strategies. As for corporate income tax, Latvia picked letting [businesses] keep profits and accumulate their capital to make them more competitive. This was the main objective of the reform. Because one of the complaints from banks is that companies have no home capital, no safety, and loans are very risky. We will look if the reform helps improve the situation,» said the minister.
When asked if the existing tax level is enough to satisfy Latvia’s needs, Ašeradens said: «I don’t think it is. We have new needs now – domestic and external security. We are moving towards allocating 3% of GDP towards the defence budget.»