Today, after long discussions, the parties forming the government have agreed on the outlines of the 2021 state budget and the planned tax reform.
After meeting with the coalition’s partners, Prime Minister Krišjānis Kariņš (JV) told reporters that one of the longest meetings had ended today and that it had a positive result – the coalition had agreed on the budget framework for next year.
“After a long debate over several months, we have agreed on a framework for the 2021 budget,” the politician said.
Kariņš explained that next year’s budget deficit will be 3.9% of the gross domestic product related to the Covid-19 pandemic, while the total amount of the budget could be known on Tuesday, when the government plans to review next year’s state budget framework.
It stipulates that from January 1, the minimum wage will be 500 euros. A total of 183 million euros will be dedicated to the increase in physicians’ salaries, “in full compliance with the previous decision of the Saeima”. There will also be an increase in the salaries of teachers and academic staff, Kariņš said.
A decision has also been made to increase it from 64 euros to 109 euros in compliance with the decision of the Constitutional Court on the reform of the guaranteed minimum income.
It is planned to allocate less than nine million euros for the exit of the public media from the advertising market, while from 2022 it is planned to reform the family state benefit system.
At the same time, it is planned to reduce the social tax by 1% from January 1, as well as to raise the threshold of the differentiated non-taxable minimum from 1,200 euros to 1,800 euros. In turn, from July 1, it is planned to introduce a minimum mandatory social contribution, while continuing to work on the details of how it will work, promising to clarify it in the near future.
The Minister of Justice Jānis Bordāns (JKP) acknowledged that some uncertainties remained regarding the regulation applicable to the self-employed. The new Conservative Party (JPP) would support a business income account that would be introduced for tax purposes.
“This could lead to simplified tax payments. It is very important for us that the government starts working on reducing the administrative burden on taxpayers,” Bordan emphasized.
Member of the Saeima Ilze Indriksone (VL-TB / LNNK) emphasized that the reform of family benefits is a positive decision, at the same time emphasizing that budget seats could be guaranteed for young people in accordance with certain criteria from 1 September 2021.
Bordāns expressed hope that tomorrow at the government meeting it will be possible to adopt a document that will be “desirable and progressive for Latvian society”. He also acknowledged that uncertainties remained about the real estate tax reform, adding that the partners had agreed to make progress on this issue by spring next year, so as not to postpone the approval of the new cadastral values for an indefinite period.
The parties forming the government have agreed to maintain the reduced rate of value added tax (VAT) on fruit and vegetables typical of Latvia.
After the meeting of the coalition parties, Saeima deputy Ilze Indriksone (VL-TB / LNNK) told reporters that a solution has been found so that VAT on vegetables and fruits should not be increased.
“I don’t think anyone would be happy if the tax rate had to be increased in these circumstances,” the politician said.
Without specifying a specific amount yet, Indriksone revealed that the financing for this was found from the dividends of JSC “Latvija Valsts meži”.
It has already been reported that on September 2, the Cabinet of Ministers supported the proposal to make changes in taxes from 2021 with the aim of promoting social protection of the population.
On 2 September, the ministers reviewed a report prepared by the Ministry of Finance (MoF) on the directions of tax policy development for the promotion of the country’s social sustainability and economic competitiveness. The report summarizes proposals for tax changes, which have been discussed in various formats among coalition parties, in negotiations with the government’s social partners and non-governmental organizations.
The report emphasizes that fairness and simplicity are key objectives of tax policy, and that tax changes are intended to address the issue of the social protection of citizens highlighted in the Covid-19 crisis.
Excise duty rates on tobacco products will be gradually increased at all stages, and vehicle taxes will be indexed in line with environmental objectives.
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