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Latvia GDP per capita is significantly lower than the upper half of OECD countries due to relatively low productivity. Catch up to high-productivity countries continues, although at a slower pace than before 2008. Income inequality has declined somewhat, but remains higher than the average of OECD countries. The income share of the poor remains low. Greenhouse gas emissions per capita are below the OECD average, owing to the high share of renewable energy, but have been stable over the past two decades. The government introduced several measures to reduce regulatory burdens to business, namely the “Consult first” initiative where authorities first provide advice on compliance, before sanctioning businesses. It also passed several laws to promote e-government services and a one-stop shop for administrative procedure for starting a business. The personal income tax system was made more progressive by lowering the rate on low and medium incomes and introducing a higher, income-dependent tax allowance. Public health expenditure is being increased from a low level to improve access to services. The labour market relevance of vocational education has been increased and modular courses were introduced, facilitating access for adult learners. Integration of the electricity and railway networks with EU neighbours is ongoing. Reducing labour taxes on low wages, strengthening minimum income support and financial assistance for low-income students would strengthen formal employment and productivity, while lowering poverty. Improving access to housing and investing in low-emission transport and energy efficiency would strengthen internal mobility, equality of opportunity and environmental outcomes. Growth performance, inequality and environment indicators: Latvia A. Growth Average annual growth rates (%) GDP per capita Labour utilisation of which: Labour force participation rate Employment rate1 Employment coefficient2 Labour productivity of which: Capital deepening Total factor productivity Dependency ratio
C. Convergence in GDP per capita continues Gap to the upper half of OECD countries5
2002-08 8.6 2.5 1.5 0.9 0.0 5.7 3.0 2.6 0.3
2012-18 4.1 2.2 0.8 1.4 0.0 2.5 0.8 1.7 -0.7
Level
Annual variation (percentage points)
-40
2016 34.6 (31.7)*
2013-16 -0.2 (0)*
-50
6.4 (7.6)*
-0.1 (0)*
-60
2016 5.3 (10.9)* 0.2 (0.3)* 0.0
Average of levels 2010-16 5.1 (11.3)* 0.2 (0.3)* 0.0
Per cent 0 -10 -20 -30
B. Inequality and environment
Gini coefficient3 Share of national disposable income held by the poorest 20%
4
GHG emissions per capita (tonnes of CO2 equivalent) GHG emissions per unit of GDP4 (kg of CO2 equivalent per USD) Share in global GHG emissions4 (%) * OECD simple average (weighted average for emissions data)
GDP per capita -70
GDP per hour worked -80
Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases. StatLink 2 https://doi.org/10.1787/888933955123
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Policy indicators: Latvia A. Low-income earners face comparatively high labour tax wedge
B. Few low-income households rent their homes
Percentage of total labour compensation,¹ 2018
Share of rental housing, low-income households, 2016
40
50
Rent - private Rent - subsidised
38
40
36
30
34
20
32
10
30
LATVIA
Advanced economies
LATVIA
Advanced economies
Nordic countries
0
Source: Panel A: OECD, Taxing Wages Database; Panel B: Preliminary Data from the OECD Affordable Housing Database, https://www.oecd.org/social/affordable-housing-database.htm. StatLink 2 https://doi.org/10.1787/888933955997
Beyond GDP per capita: Latvia A. Inequality is higher than in most advanced economies Gini coefficient, 2016 or last available year¹ LATVIA, 34.6
SVK, 24.1
ZAF, 63.0
Advanced economies median, 29.7
Emerging economies median, 46.2
B. Exposure to fine particulate matter is higher than in advanced economies Percentage of population exposed to PM2.5, 20172
% LATVIA
Advanced economies
< 10 μg/m³ 10-35 μg/m³
Emerging economies
> 35 μg/m³
World 0
10
20
30
40
50
60
70
80
90
100
Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database. Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter. StatLink 2 https://doi.org/10.1787/888933956871
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Latvia: Going for Growth 2019 priorities Strengthen vocational education. Skill shortages constrain formal employment, productivity growth and inclusiveness.
Actions taken: In cooperation with social partners the government modernised curricula, defined new training programmes and developed modular courses, with implementation starting in the 2017/18 school year. It invested heavily in the modernisation of school infrastructure. The government together with social partners is rolling out an adult education plan until 2020.
Recommendations: Provide more generous grants for students attending vocational schools who are from low-income families and strengthen work-based training. Make it more attractive for vocational schools to offer adult training by lifting limits on own earnings and improve awareness of low-income workers regarding adult learning offers.
Lower labour taxes, increase property and green taxes and strengthen the tax administration. High taxes on low wage incomes contribute to informality, high unemployment and poverty. Better tax compliance would help finance minimum income support and other social policies.
Actions taken: The government lowered labour taxes on medium and low incomes and increased the income-dependent tax allowance in 2018. However, a new social contribution for health expenditure increases labour taxes on low-wage earners. The revenue loss is partly compensated by stricter VAT administration and increases in excise taxes.
Recommendations: Reduce the labour tax wedge on low earnings. Raise more revenues from the taxation of real estate and energy. Make better use of information and communication technology for tax law enforcement.
Strengthen social protection. Social benefits are low and not targeted to the poor. High out-of-pocket payments limit access to healthcare especially for the poor.
Actions taken: The government increased the Guaranteed Minimum Income by 6% in 2018 and took some measures to increase pension adequacy. Healthcare spending is being increased from a low level.
Recommendations: Implement the minimum income reform abandoned in 2017. Reduce out-ofpocket payments especially for the low-income population. Develop key service quality and performance indicators for health care providers to improve efficiency.
*
Strengthen access to housing. Access to affordable decent housing is poor, especially in the Riga region with the best employment opportunities.
*
Recommendations: Improve legal certainty in rental regulation and encourage out-of-court procedures. Simplify the administrative process for obtaining a building permit. Provide more funding for low-cost rented housing in areas of expanding employment. Expand the mobility programme, which provides temporary support for relocation and transport.
New policy priorities identified in Going for Growth 2019 (with respect to Going for Growth 2017). No action can be reported for new priorities.
191 Strengthen infrastructure. Energy and transport infrastructure are underdeveloped, isolating Latvia from the EU electricity markets and constraining productivity growth and regional development.
Actions taken: In 2017, the Intergovernmental agreement on the creation of the Rail Baltica, a EUR 6 billion railway transport project which aims to integrate the Baltic countries within the European railway network, was signed and ratified. In 2018, Latvia signed with other Baltic countries the Political Roadmap which aims at the synchronisation of the electricity networks with the Continental European Network by 2025.
Recommendations: Further increase the connectivity to EU electric networks. Enhance the quality of transport infrastructure, especially on roads. Make use of the latest technologies to favour demand-responsive collective road transport services tailored to the needs of customers in rural areas.