Home » News » Unable to agree on fiscal-intensive changes, coalition talks “frozen” on tax changes | The news

Unable to agree on fiscal-intensive changes, coalition talks “frozen” on tax changes | The news

Riga, July 8, LETA. With the new conservative party (JKP) insisting on raising the non-taxable minimum to 500 euros from 2021, five coalition parties have suspended negotiations on the planned tax changes indefinitely, according to information at the disposal of LETA.

When interviewing the representatives of the parties forming the coalition, the agency LETA found that the JKP has a different vision of changes in the tax system from the other coalition partners. According to the JKP, the non-taxable minimum should be raised to 500 euros from next year, while other coalition partners consider this offer to be too fiscally large – in the 2021 budget it would require an additional 120 million euros, which would make it difficult to meet commitments such as raising salaries for doctors and educators. The coalition partners are ready to discuss raising a more moderate non-taxable minimum from next year. In the JKP, this was one of the pre-election promises in the “3×500” program, the failure of which the party tends to blame opposition politicians.

JPP politician Gatis Eglītis admitted that negotiations on tax reform have subsided. He recalled that the coalition had conceptually agreed on the need for additional resources for the health care sector. “There is no objection that we need more money for health. But we do not like the approach that almost nothing is being taken forward from the tax reform work we have been doing since last summer, except for health and minimum social contributions,” said Eglītis. , emphasizing that the working group chaired by Ata Zakatistova (KPV LV), Parliamentary Secretary of the Ministry of Finance (MoF), discussed, inter alia, the non-taxable minimum.

Eglītis believes that raising the non-permanent minimum to 500 euros would allow to protect citizens who work in alternative tax regimes. “We want it resolved in tax reform, and then we can start talking about the 2021 budget,” the politician said. He is not satisfied with the position of the Ministry of Finance on the issue of raising the non-taxable minimum, because the ministry emphasizes that the said amount is too large and the budget cannot “pull” it.

“We see a good opportunity to do that now, because Brussels does not have budgetary control now. If we want to fix something in the budget before strict control resumes, we must do it now and in full. We do it all at once,” he said. Eglītis said that the JPP has been very active in all negotiations related to tax reform, but he believes that other partners should also be able to listen to what is important in the JPP.

It also follows from the Minister of Finance Jānis Reirs (JV) that the work on tax reform has actually stopped due to the increase of the non-taxable minimum proposed by the JKP. He noted that in response to the situation regarding the necessary funding for educators and health professionals, as well as the need to provide social protection for those working in alternative tax regimes, it was suggested to discuss the redistribution of labor tax and social contributions to create stable funding for health care. without increasing the burden of taxes and social contributions. The second way would be to simplify the seven existing working regimes by ensuring that employers do not employ workers without providing social protection.

“In the current situation, this has been put on hold or on the brakes, as some additional requirements are also being discussed. As a result, negotiations are currently on standby,” the minister explained. Commenting on the JPP’s call for an increase in the non-taxable minimum, Reir argued that it would be “unbearable” for the budget, as all financial gains so far would be “reduced to zero” and the state would have no additional resources to fund health care without taxpayers.

Zakatistov also admitted that the negotiations on tax changes have been suspended due to the JKP’s requirement to raise the non-taxable minimum to 500 euros from next year. The politician believes that in this way the JKP ignores the government’s commitment to raise the salaries of doctors, teachers and those working in the internal affairs system from next year, as well as to increase the subsistence level.

“The feeling that the JKP’s vision is to secure the banks of the milk river and the jelly at the expense of the budget deficit. But it is fiscally irresponsible. People’s wages are a higher priority than rapidly raising the tax-free minimum. But the JKP is in a position,” said KPV LV. that the fiscal impact of the JPP proposal is € 120 million, thus reducing the funds available for other needs in next year’s budget.

Eglītis agreed that raising the tax-free minimum to 500 euros will have a great impact on the state budget, however, in his opinion, by reducing the tax burden on labor, people will have more money to spend, so the real impact is less than 100 million euros. “Now there is a good opportunity, and other countries in Europe are also supporting their economies. We have problems with generosity, for example, downtime benefits were not adequate. Yes, there will be a bigger budget deficit in 2021, but the salary issue will be resolved,” Eglītis said.

Zakatistov said he did not know when political talks on tax changes could resume. The politician also admitted that negotiations on tax changes could take place at the same time as negotiations on the 2021 budget, however, in Zakatistov’s opinion, such a step would not be correct, as the negotiations would be doubly difficult.

MP Daniels Pavļuts (AP) explained the suspension of tax change negotiations by the fact that not all coalition partners have a common understanding of how to constructively address issues that are important to everyone.

“The salaries of doctors and teachers, funding for the health care system, social guarantees for those working in different tax regimes – these are issues to be addressed by the coalition and the government. But in addressing them, a balance must be found between party ambitions and needs,” Pavluts said.

Ilze Indriksone (VL-TB / LNNK), a politician of the National Union, admitted that after several talks, during which the coalition partners failed to reach compromises, it was decided to pause the process. However, she sees an opportunity to continue the discussion by focusing separately on the review of tax rebates and supporting the socially vulnerable.

Indriksone agreed that at present, due to lighter fiscal discipline, an attempt could be made to raise the non-taxable minimum, but not so quickly. Taking into account the complicated discussion process, Indriksone predicts that negotiations on the 2021 state budget will not be easy either. “If we cannot agree on tax changes, as well as the salaries of teachers and health care workers, then the budget negotiations will be even more difficult,” the politician said, stressing that politicians are aware and want to address the issue of medical salaries.

Pavluts is convinced that although negotiations on tax changes are currently suspended, they will resume soon, because without resolving the tax issue, it will be more difficult to start negotiations on the 2021 budget. He acknowledged that the changes in taxes should come into force in 2021 with the new budget. “In the context of the budget, it would be better if the tax changes came into force in January 2021, because the tax changes could affect the budget framework,” Pavluts said.

Zakatistov added that if political negotiations on tax changes are delayed and decisions are made too late, the politician will support the idea that tax changes will take effect not in January, but in March.

Eglītis agreed that it is not easy for the five partners to agree on a common vision, but he believes that tax reform should be agreed first and then a budget. “It should not be confused now,” the politician said.

Prime Minister Krišjānis Kariņš (JV) currently refrained from commenting on the progress of tax change negotiations.

As reported, in February the government reviewed the informative report prepared by the Ministry of Finance “On Directions for the Development of the State Tax Policy Guidelines for 2021-2025”, which included a summary of proposals of political parties forming the government coalition to improve the Latvian tax system.

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