Honourable Speaker of the Saeima,
Honourable Members of the Parliament,
I hope that you all had the opportunity to acquaint yourself with the annual report on the work of the Cabinet of Ministers this year and planned future activities. It is a voluminous document; therefore I will not repeat the text, which is at your disposal, in an abridged form. I call on you to perceive everything I say as the Prime Minister's remarks on the margins of the government's report.
In the light of priorities set forth in the Government's Declaration, let me begin with economic development. When assessing the dynamics of economic growth in 2016, we face the range of views. On the one hand, we have positive statistics, which is indicative of the fact that economic growth continues. It is not as fast as we hoped for at the end of 2015, however, it has not stopped, and it is expected that growth will continue over the years to come. A few days ago, the opinion of the major banking experts was voiced in the public domain that next year the wage growth in Latvia will accelerate, and I most directly associate it with the decisions taken by the government and the state budget for 2017 that was approved by the Saeima.
The data of the latest World Bank’s Doing Business study show that Latvia has reached historically highest ranking in the Doing Business index. The only parameter where we are lagging behind the European Union average is the termination of entrepreneurship, which is often insolvency proceedings, while in the Global Competitiveness Index that is based on the data obtained in business surveys, Latvia has fallen behind the other two Baltic countries. In the opinion of entrepreneurs, tax rates and inefficient, bureaucratic public administration pose major problems. These are the areas where the government should continue to work closely with all business and investor organizations.
In addition to positive assessments, the concerns about the possible stagnation or even a new crisis, which might also affect Latvia, are increasingly being voiced in both expert and business environment. The concerns are associated with uncertainty that prevails in people's minds, alarming changes in Europe and the world. They are related to Brexit, the US election results, the possible wave of populism in the old EU Member States, local military conflicts in the world and their possible escalation, the refugee crisis and more, and more ...
'Uncertainty' is currently the most commonly used word as soon as we start talking about economic development. Of course, it does not make the government's work any easier, however, it puts more focus on the issues, which fall within the competence of the government and the Saeima. Expectations of global changes and potential risks do not annul the goals defined in the Government Declaration.
The principal objective remains the same – in the coming years, we have to ensure sustainable development of the country with a GDP growth of 4 to 5% annually. It will not be a utopia if we precisely fulfil the tasks set in the Declaration and the Action Plan of the Government. These are well-known tasks – the creation of a competitive and even excellent business environment, the establishment of favourable investment climate, setting the directions for strategic investments etc. We all agree that we have often heard and are even fed up with these words. So to say - we hear and forget. I will try to tell you what it means when we talk about it specifically. In the Brexit context, it has often been argued that many UK registered companies will look for other countries of residence within the European Union.
Let's imagine a foreign investor who wants to register a company in Latvia. He /she must be granted the opportunity to register a company by completing all the documents in e-environment in English, he/she needs to have assurance that all financial reports can be completed in English. The investor has to be sure that he/she will be able to transfer all taxes to a single account. Finally – there must be no doubt that, in case of insolvency, he/she and the property will be provided with protection that complies with the best European Union standards. He /she has to learn all this information about the company's operations in Latvia on the Internet, by sitting in his/her office in London, Liverpool or any other city where maybe some Latvian is playing in the football club. In English, of course.
Moreover, as regards the excellent business environment, why should we deny entrepreneurs the opportunity to pay taxes in other currencies, not just the euro? I do not see any problem here.
I think it is no secret that a customer can pay in the Russian rubbles in the Helsinki Stockmann department store when paying in cash. Who is a winner? The customer, the entrepreneur and the Finnish state - hence its residents. We also need to consider these options.
It is not a utopia; I believe that the current administrative and intellectual resources of public institutions allow for the implementation of such models within a relatively short period. Of course, some changes to laws and regulations are required. Of course, we need the support of the Saeima. Political commitment is needed to change the paradigm of the public administration! We need decisions and the subsequent action.
Grey head and tortuous biography is not a vice, if you - Members of the Parliament, have the courage to go ahead! I am convinced - you can! And I say it also to myself.
As regards economic development, another problem to be mentioned is most directly related to the education sector. It is a disproportion between the labour market needs and specialists prepared by educational institutions – the overproduction of graduates from faculties of humanitarian and social sciences in contrast to lack of graduates from engineering science.
The statistics also reveal that a large number of young people enter the labour market without any professional skills, thus lack any competitiveness. It seems that more active involvement of employers in the educational process and planning of the number of learners and students in state funded specialities are required. Finally, the academic isolation needs to be eliminated. The employers should engage in the curriculum development and teaching process, and should stop ridiculing the performance results of the education system. It is our common business. It applies to all specialities, also the social sciences.
About demography. A natural process that can be influenced by a variety of instruments, also political - benefits, social services, kindergartens, health care, the quality of education, finally – by providing a sense of security. Something has already been done in this area, although rather modest progress has been made. In my opinion, it is very important to build relationship between the employer, state and potential mother of a small child who refrains from pregnancy because is afraid of losing the job. Therefore, I place the state in the middle. Here we still lack solutions and clear protection from the state. We have to look for!
On the other hand, the demographic situation in Latvia has a direct impact on all sectors. The deficit of the labour force, for example, in construction, will soon become a real problem because the funding the European funds will soon come to an end. This problem will inevitably collide with the desire of the nationally oriented part of the society to restrict the arrivals of foreign nationals to Latvia. However, the labour market dictates its own rules - we will have to invite migrant workers, because I am not convinced that the biggest construction companies in Latvia intend to increase wages for local workers. This is just a small illustration of how the demographic challenges affect the economy, education and national policy.
A few other comments about the processes in the education sector.
The first great step has been made - the teachers' salary reform has been implemented. Of course, there was confusion, frustration, even protests, but they confirmed once again the well-known truth – the maintenance of the Latvian school network is inadequately expensive in relation to the number of students and can ensure neither adequate quality nor appropriate remuneration for teachers. Unfortunately. The next step is also clear – the number of schools has to be reduced. Here the ability of local governments to cooperate is crucial, because everything focuses on the financial relationship. These are the national interests, the interests of all taxpayers; there is no room for selfishness. We have to learn to cooperate. The quality assurance system is an important direction of the educational policy at all levels. Any pupil up to the secondary school should be able to obtain education that would grant access to university. The disparities in the quality of education at the regional level are inadmissible.
Reforms in the health system. The main direction has been set - the funding of the national compulsory health insurance scheme is planned in the long term in order to ensure the funding of 1,000 euros a year for each resident of Latvia. I call on the Ministry of Health to assess responsibly the optimisation of the hospital network in Latvia, and to do it in consultation with the political and social partners. It is important to explain to everyone the essence of reforms, what will be the benefits and when will they materialise. Failure to do so will leave room for speculations and lobbying of various interests.
I have no comments on the margins of the report about two sectors – culture and national security. There is hardly anything to add about the relevant sections of the government report. The plans of the proposed measures and their descriptions are accurate and specific. I urge to read them over. I only have to admit that national security - both internal and external - was one of the building blocks for the creation of the coalition. The second was, and still is the strengthening of national identity and building a cohesive society. We are a nationally conservative government, which is aware of the need for reforms, and goes the path of reforms!
In conclusion, a few words about the issues which, over recent weeks, have thoroughly thrilled a large part of the Latvian society. It is the minimum social payment and micro-enterprise tax. Both issues are inherited from the previous government.
As to the first one, I have had conversations with entrepreneurs who employ a fairly large number of people only a few hours a month. These people receive a salary for the work done, and it is well below the minimum. It is clear that the entrepreneurs are not ready to pay social tax from the minimum wage for these employees, because their services will become more expensive and they run the risk of losing competitiveness. I suspect that most of them can go to the direction of "shadow business". In order to avoid these risks and respect the interests of both employers and workers, we are working hard in the parliamentary committees.
I am convinced that the result will be clear in the coming days and will satisfy the interests of all stakeholders. The question of the micro-enterprise tax is more complicated, however, because the initially good idea, in a short time, became an instrument for tax optimization. Grains disappeared in chaff. However, we are looking for solutions also here, which would allow to preserve this business model in a transformed form.
Finally – let me thank the Saeima for the support, thank you for critics.
I think we know how to work together! I look forward to understanding and successful cooperation in the future. All together - for the benefit of the country and the people!
Thank you!