An urgent issue is facing political elites and academic community: i.e. the need to “compose” a strategic plan for a stable and resilient political economy in the post-pandemic period. The plan shall be discussed and finalized now, when all the challenges are clearly seen.
The Covid pandemic will sooner or later will come to an end, most probably in a couple of months. And while the government is “fiercely combating” to divide available financial resources to mitigate the crisis, the academic community should “compose” a resilient economy’s plan, which could be the background of Latvian perspective growth. The participants in the “composition” shall be from all spheres of socio-economic development; in an optimal way –the wide public shall be involved, may be even through a national referendum?! Why not, the country’s future is at stake, as well as the trust to the governing elites, isn’t it?
Composing a resilient economy’s plan shall be the most urgent government’s obligation for the after-Covid period. Among most pressing issues is a government’s vision and practical attitude to SMEs and the entrepreneurship, in general. The latter is the most urgent issue, as only the corporate spirit and stable, loyal and optimal entrepreneurship shall be the backbone of the national perspective growth.
As to the present issue of financial support, the following remark shall be made: for the first time in modern history, the present crisis has appeared as a health threat followed by a consequential economic crisis (usually, it was the other way round). The latter is the result of a temporary closer of about 80 per cent of corporate activities; the rest sty idle.
That means, that the most optimal solution is an so-called “quantitative easing, QE”, to which the EU institutions actually turned to at the second phase of the previous financial crisis a decade ago. In this way the EU, other international and private donors saved several member states from a complete collapse (including, by the way Latvia with €7,5 billion bailout, which was at that time about half of the country’s GDP).
The present crisis shall not be exception in such a QE’s approach: it’s true, the business has not been ruined, it’s just “having a vocation”. If the government can support businesses to survive during a couple of months (which is what the government is to do!), most of commercial activities will go on as it used to be (probably with some changes due to digitalisation). Isn’t it that simple?!
Most countries are already doing this by devoting about 20-30 per cent of their GDP to “salvation”; some states are giving even more, e.g. Italy -50 per cent. Though in Latvia it is, if the € 4 billion is taken into account, about 15 per cent; isn’t too little?
How much is “small business”?
So called “small business” in Latvia (commonly known as SMEs) isn’t really so small: the “group” according to Latvian employment office’s ranking includes micro-companies, self-employed people, individual enterprises and owners. There are minimum 50 thousand people in these groups, though taking into account that in most SMEs there are about five people employed, the total number could be about 150 thousand. According to the Latvian state revenue service and Lursoft (March 2020) there were over 37 thousand micro-companies registered as the taxpayers, 11,5 thousand individual enterprises and 11,2 thousand self-employed people, i.e. about 60 thousand big, middle and small companies. The turnover of small and micro-companies equals to about half (45 per cent) of all Latvian enterprises’ turnover with the same share in the total national revenues (if the Latvian budget is about € 10 billion, the SMEs share is about four billion).
These figures might suggest some evident ways and means out of the dramatic situation towards resilient national economic affairs both during the crisis (which will go on for at least a month or so) and afterwards. Additionally, as the government officially acknowledged in April, there are sufficient financial reserves to cover the existing downfall, in the amount of four billion euros! What a notorious figure this four billion: does that means that the taxes the Latvian business pays the budget equals to that of the “salvation’s amount”? That’s a good question to be addressed to the Latvian economists and decision-makers…
For the SMEs support most important are two things: reduced renting payments (may be completely abolished for a while) and no taxation whatsoever (until a certain ceiling) up to the end of 2020, rather than any temporary “tax holidays”! Actually all these and other measures to save business are within the existing government’s competences.
A small part, a little over 9 thousand from 1734 companies registered in Latvia and 71 individual entrepreneurs has already received financial support in April for a “temporary closer”. If the total government’s support/allowance is four billion euros, it means that on average, each businessman/SMEs or entity (about 150 thousand totally) can get about 26.000 euros (!). In fact, business needs only half on the “promised” four billion in order to survive. However, the state employment office even didn’t care to reveal how many of such companies are “really small” and how many are still working! Reference to O. Pavuk’s article in:
What shall be done…?
The present approach to the “business salvation” rotates around, e.g. “obtaining tax postponement” and not paying interest on late payment (with a stipulated tax debt of up to one thousand euros; if the debt is over that sum, the rule is not applied?!). In this way a debtor might be “punished” for activities and transactions which took place long before the crisis occurred.
Such an approach to coronavirus effect makes the whole ideas of entrepreneurship spirit and support of business activity evaporated.
Personal self-isolation has nothing to do with “self-eliminating” from a truly national and patriotic “unification” in dealing with an extraordinary situation. The trust to political elites is not earned that way…
What happens presently in governing elites is a sort of a storm of empty promises, which afterwards have to be filled in with new approaches and ideas, new practices and maybe be just new enthusiastic people? Otherwise, business people and just the ordinary citizen would lose their individualities, their families and their culture (the elites have to keep in mind the entrepreneurship culture cherished in some states for decades), looking at the ways the government and municipal civil servants are (hardly) tackling the present crisis.
Some references to:http://www.baltic-course.com/rus/good_for_business/?doc=155200
Note. Something on terminology: generally, the word resilience has two meanings: a) the ability to return to the original form/position after being compressed, stretched, etc. and b) the ability to recover from depression, critical situation or the like. It seems that the both meanings apply perfectly well to the present Latvian economic affairs!