The Fiscal Discipline Council: The Results of UK’s Referendum May Affect Tax Revenues in Latvia 2 September 2016
During the meeting that took place on 2 September 2016, the Fiscal Discipline Council discussed the budget planning process, the changes in the macroeconomic environment as a result of the referendum to leave the European Union held in the United Kingdom on 23 June, and the impact of the result on the macro-fiscal environment in Latvia.
"The consequence of the referendum is uncertainty – firstly, uncertainty over how the UK will leave the EU; secondly, uncertainty regarding how long the exit process will take; thirdly, what this will mean for the economy – what will be the new cooperation model between the United Kingdom and the EU, including Latvia," says Council member Morten Hansen. "It can be expected that this uncertainty will impact the economic environment in the EU, affecting investment activity and private consumption by encouraging caution in investors and consumers. This will be reflected in slower economic growth."
On 10 June 2016 the Council approved the macroeconomic forecasts for 2017-2019 prepared by the Ministry of Finance. These forecasts are used as the basis for drafting the medium-term budget framework. Increased uncertainty in the EU exacerbates the risk that tax revenues may be lower than planned. The Council approved the forecasts for real and nominal GDP growth, potential GDP growth, the output gap, inflation and the GDP deflator.