A stronger economy allows more to be taken in and more to be spent. Estonia is the champion of the Baltic states both in terms of tax revenues and expenditures per capita, because its economy is more powerful than in Latvia or Lithuania, which are richer in population.
A/s BDO Latvia study shows such a picture. Basically, these data are just another stark reminder of how important the economy is, because only businessmen are the ones who, paying taxes, maintain the infrastructure and services necessary for society.
Joint start
The Baltic countries have a common past over the last 100 years, and the time of regaining their independence from the USSR is also the year 1990, which was the starting point for changes in the national economy and being masters of their own land. Also, all three Baltic sisters were admitted to the European Union and NATO at the same time, while joining the Eurozone already showed visible differences, as Estonia had the opportunity to do so from 2011, Latvia - from 2014, and Lithuania from 2015. In terms of last year's inflation, the Baltics are the European champions - in January 2023, Latvia's inflation rate reached 21.5%, which was the highest among the Baltic countries, in Estonia it was the lowest - 18.6% - and in Lithuania it reached 20%.
Order "on the run" today
It is interesting that the tax revenue per capita in Latvia only in 2022 reached the level of income that Estonia collected per capita in 2019, but for Lithuania this indicator is almost two times lower than in Estonia. It is undeniable that not only the population of each country, but also the size of the national economy plays a big role in this indicator. According to BDO Latvia's senior tax consultant Svetlana Nesinova, in contrast to Latvia, both Estonia and Lithuania's population has grown in recent years. "This means that even in a situation where the national economy is not growing and tax revenues remain at the same level - stagnant - but the population is shrinking, the amount of taxes collected per capita will have increased during the year. On the other hand, for a country with an increasing population, in order to achieve an increase in the amount of collected taxes, the growth should be faster than the increase in the population," says S. Nesinova.
She also points out that tax revenue per inhabitant in 2020 shows a decrease in both Estonia and Lithuania, but an increase in Latvia, albeit only in the amount of four euros. "These are the consequences of the Covid-19 pandemic," said S. Nesinova. She draws attention to the fact that in Estonia, where more taxes are collected, the rates for several taxes are essentially even lower than in the other two Baltic countries. "In Estonia, the standard rate of value added tax is 20%, while in Latvia and Lithuania it is 21%, in addition, the personal income tax rate in Estonia is also 20% and it is equivalent to the lowest rate in Latvia," analyzes S. Nesinova. She points out that the excise tax rates are higher in Estonia than in Latvia or Lithuania, and it was not for nothing that once upon a time, Estonian residents used to travel directly to Latvia to buy alcohol, thereby essentially increasing the amount of consumption taxes in the Latvian state purse.
They spend the most in Estonia
Although tax revenue is the main source of income for all national governments, from which to finance the common needs of all citizens, it is not the only one, because there is still income from the use of state capital, but in the European Union, along with the mentioned financial sources, there are EU structural funds, and even if with it is not enough, then countries borrow money. In fact, there are not that many countries in the world that can do without borrowing. "And again – calculating how much the country spends per capita per year on average, it must be concluded that last year Estonia spent the most (11,314 euros), but Lithuania spent more than twice as much (only 5,357 euros), and Latvia, of course, is in the middle ( with 8383 euros)," explains S. Nesinova. She draws attention to the fact that, judging by budget expenditures per capita per year, Latvia spent the same amount in 2022 as Estonia did in 2019. It is interesting that, contrary to the decrease in tax revenues per capita in 2022, state spending per capita not only did not decrease at the same time, but on the contrary - increased.
Not enough for everything
"Although the amount of budget expenses increases every year, still, in order to solve all the painful problems, there is never enough money, and the period of "raising" the borrowing ceiling during the pandemic is over, so we will just have to increase our own income," predicts S Nesinova. She points out that there is no magic wand in increasing state budget revenues, unless politicians think of seeing an increase in tax rates or partial or complete cancellation of their benefits in excel tables. "In life, this forecast may not come true, and then a choice must be made between two scenarios - lower spending or higher tax revenues, which is best implemented by improving the business environment," explains S. Nesinova.
She emphasizes that it is the business environment that can be the only solution that would allow Latvia to approach the level of tax revenues and, therefore, the much higher amount of expenses that Estonia currently has. "Unfortunately, several "capital repairs" have been carried out in Latvia over many years, as a result of which there are higher, often even exaggerated requirements for entrepreneurs, which do not exist in either Lithuania or Estonia, but this fact in turn does not promote the interest of entrepreneurs to work in Latvia," emphasizes S. Nesinova. She reminds that as a result of the capital overhaul of the financial system, an account may not be opened in a bank in Latvia, an EU member state, but an account will be opened for the same company, perhaps even a bank of the same name in an EU member state in Lithuania and an EU member state in Estonia. "And in which country will the potential investor invest, even more so if his country of residence is outside the European Union? Most likely, not in Latvia, but it does mean jobs and taxes in the state's pocket," explains S. Nesinova.
She admits that only because of this factor, not a single potential foreign investor has invested in Latvia, and not only from the so-called third countries. "At one time, Latvia was involved in the fight for IT smart heads who fled Belarus, and some of them really chose to link their future with Latvia, but already in 2022 it turned out that these people "don't have the right passports with which to live here", to the request to mention another example, answers S. Nesinova.
According to her, Latvia's actions do not really match the wishes of the country we want to live in. "If we want to reach the level of Estonia in Latvia, it only means that we should look at businessmen not as potential crooks and before making a positive decision for business, we should request countless opinions from all kinds of officials and controllers, the receipt of which takes months and in some cases even years. in which even sometimes business ideas simply "drown", but the green light must be given with favorable business environment conditions, constantly asking entrepreneurs of each industry what the state should do in order for them to expand, build new production plants, create new jobs and pay more and more taxes ," advises S. Nesinova. According to her, it will not be possible to finance the services needed by the entire society for a long time on the basis of the increase in the national debt, and a choice will have to be made between two scenarios - lower spending or higher tax revenues, which is best implemented by improving the business environment, rather than increasing the tax burden.
Source: Dienas Bizness
