What made Latvia grow until now – and what will not make it grow in the future

Latvia’s productivity increase via population factors is not likely to be expected.

Hence productivity must be allowed to increase via increased efficiency in the economic machine.

As it stands, the tax system in Latvia is not designed to bring more money into government coffers by increasing

business productivity, but by squeezing every last cent it can get from business, with no consideration

for how destructive, such an ill considered approach to tax collection is of the economic fabric of Latvia.

After all, VID is charged with filling coffers, not making the economy grow.

Until the disconnect between VID and economic growth is repaired, one can only expect the worst of developments

in Larvia’s economy.

Perhaps economics and finance should sit under one minister, who is charged with growing the tax base?

Tātad gaidāms darbaspēka deficīts, pieaugs par apmēram 4000 gadā. Tas neizbēgami novedīs pie straujākas algu celšanās. Arī tuvākajos gados gaidāmie “treknie gadi” celtniecībā cels algas. Lielākas algas nobremzēs aizbraukšanu un stimulēs daļu aizbraukušo atgriezties – tas pozitīvi. Jau tagad privātās firmas piesaista darbaspēku no piemēram Bulgārijas zivju konservu ražošanā un Ukrainas viesstrādniekus sezonas lauksaimniecības darbos, ogu lasīšanā. Pie lielākām algām sagaidāms, ka to skaits pieaugs. Īsāk sakot, ekonomikas augšanu stimulēs viesstrādnieki, Latvijai ir izredzes pārvērsties no darbaspēka eksportētājas par importētāju. Par to, ka 5% IKP pieaugumu diez vai izdosies sasniegt piekrītu, bet arī strauja bremzēšanās nav gaidāma.

How this article comes together with automation, man-machine interaction, Moore’s Law, climate change, resource availability, opening markets, also labour and service markets, and other developments that just cannot be ignored for any decent foreward looking analysis or study?

If resource efficiency and productivity is way to low to compete with Bavaria or Baden, and labour taxes too high, say just like in Danmark, why not just say so?

Thanks for this blog, Morten! Indeed I agree that 5% GDP growth target is hard (if reliable at all) to achieve. Perhaps Latvia should aim at 5% productivity growth target (whether implementation of all theoretically possible structural reforms will result in such a growth upswing – I will try to estimate that in the coming months).

One addition – participation rate currently is historically high, but this partly reflects “demographic dividend” – small 15-24 olds share (age group with the lowest participation), that is transitional in nature. In a few years, the impact of changing age structure on participation rate is likely to become negative (here is my estimation how this will look like – see Figures 1 and 2 – https://www.macroeconomics.lv/employment-figure-will-remain-close-900-thousand ). Therefore, your point 4 (demographics) is likely to have a negative impact on point 3 (participation) and this is an additional drag on growth. Perhaps, participation rate in particular age groups have some room for increase, but I’m not sure whether total participation rate will increase (due to negative impact of age structure changes).