Fiscal Council stresses the need for transparent estimates of the fiscal impact  9 May 2017

The Fiscal Discipline Council agrees that a tax reform is necessary, and the Council will address this issue in detail on 17 May when additional information will have been obtained regarding the quantitative estimates. The Council stresses that it will monitor whether there are non-conformities with the stipulations of Section 9 of the Fiscal Discipline law.

The discussion regarding the proposed tax policy reforms continued during the Cabinet meeting on 9 May 2017. The meeting was attended by Council member Andžs Ūbelis who presented the Council’s opinion and the need for additional clarification regarding the reform proposal.

The Council supports attempts to develop a thorough and predictable medium-term tax policy, reduce economic inequality and the tax burden on labour. However, the Council has concerns that the available information does not establish that the government’s objective of a tax-to-GDP ratio of 1/3 will be achieved, and the impact of the reforms on the reduction of inequality is low, while the costs are high, argues Andžs Ūbelis.

The Council’s position will be framed at the meeting of the fiscal risks working group scheduled for 17 May. Several representatives of the Ministry of Finance have been invited to participate.

A transparent and detailed description of the calculations regarding the impact of the reform measures on tax revenues, supplemented by analysis of the impact in the case of a cyclical downturn, is required for the Council to express an informed opinion. It is also necessary to reassess Latvia’s position in the economic cycle to ensure that the principle of countercyclical fiscal policy is observed. In view of the fact that the reform plans envisage deficit increases in the coming years, the Council will closely monitor whether there a non-conformities with the stipulations of Section 9 of the Fiscal Discipline Law, stresses Andžs Ūbelis.