Latvia Announces Plans To Cut Spending, Maintain Flat Tax

by Lorys Charalambous, Tax-News.com, Cyprus

03 September 2009

Latvian Minister of Finance, Einar Repse recently announced new austerity measures, revealing that the government is aiming to negotiate further savings of LAT500m (in excess of USD1bn) next year.

According to Repse, the government is eager to find the required sum through retrenchment measures rather than implementing a progressive income tax system, as advocated by the International Monetary Fund, the organization at the forefront of negotiations.

Suggesting that taxes on labour in Latvia are "already high", the Finance Minister revealed that the government instead intended to revise its expenditure downward to find LAT400m, while the additional LAT100m would be obtained from previously announced approved, and forthcoming, tax measures.

Latvia has already hiked the tax on capital gains, closed loopholes in personal income tax legislation, and is investigating expanding the property tax base.

Minister for Agriculture, Janis Duklavs however has proposed that instead of a general increase taxes on buildings or land, that a new tax on idle agricultural land should be introduced to encourage farmers to produce more exportable products.

Repse underscored, according to reports in the national media, that cutting expenditure, not increasing taxes, is the most favored method of consolidating the budget, and that the government does not plan to raise increase taxes further unless such a measure is "extremely necessary".

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