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Latvia mulls raising social tax to provide funding to health sector

Xinhua, April 10, 2017 Adjust font size:

Compulsory social security contributions might be raised in Latvia in order to provide funding for the Baltic country's ailing health sector, local media reported on Monday.

Representatives of the Welfare Ministry and the parliament's social and labor affairs committee proposed the tax hike at a meeting of the steering group for tax reforms, arguing that the measure is necessary to ensure the sustainability of the Latvian social budget.

The steering group on tax reforms on Monday discussed the possibility of allocating 1 percent of social security contributions to the health budget. Finance Minister Dana Reizniece-Ozola did not rule out an increase of the social tax rate in this context, but warned about risks to Latvia's competitiveness.

The tax reform proposed by the Latvian Finance Ministry calls for cutting the personal tax rate to 20 percent from the current 23 percent, but the reduced tax rate would only apply to annual income that does not exceed 40,000 euros (42,416 U.S. dollars). The tax rate on annual income surpassing that amount would be left at 23 percent.

The proposal to hike the social security contributions starting in 2020 has caused concerns among Latvia's entrepreneurs, notably the Latvian Employers Confederation.

"Taxes on labor are the highest, so, unless we want to increase shadow economy, we cannot support this measure by any means," said the organization's director general Liga Mengelsone.

The Latvian Chamber of Commerce and Industry also raised objections to the tax initiative, saying that it contradicts the main purpose of the planned tax reform, which is to stimulate economic activity by easing the tax burden on labor.

Reizniece-Ozola, however, promised to come up with compensatory solutions in case the social tax hike cannot be avoided.

"It is necessary to strike a good balance here. If it comes to raising the social tax rate, we have to consider another measure that we could offer to the entrepreneurs so they can stay competitive," the minister said.

Negotiations on the proposal will continue also on Tuesday, but at any rate, more sources of funding will have to be sought for the health budget as the 1 percent from the social budget alone will not be enough, Reizniece-Ozola said. Endit