The rapid growth in the cost of servicing the national debt calls for an immediate increase in tax revenue, which in turn requires creating favourable conditions for business development.

The Ministry of Finance's forecast that the cost of servicing the national debt will exceed 507 million euros in 2025, compared with just under 167 million euros in 2022, is comparable to a red warning light coming on in the dashboard. This very steep rise in debt servicing costs can, of course, be written off as a defect caused by the geopolitical situation, but in the long term such an attitude will not get us very far, because sooner or later we will have to learn to live on what we earn ourselves rather than constantly increasing the national debt. Latvia's eastern border remains where it has always been, and the European Central Bank's raised base interest rates have not only made servicing the national debt more expensive, but have at the same time seriously dampened economic activity in the largest export markets of Latvian (and not only Latvian) producers. The sums paid collectively by the creators of wealth – the taxpayers – are impressive, yet they cannot cover every need. What is more, society's need for funding to ensure essential functions – national security, health, education, science, infrastructure – keeps growing. That leaves the only solution the government has known so far – to budget for a deficit. What makes the situation more worrying is the fact that a substantial share of state expenditure (or of its deficit) is covered by European Union structural funds money that is still available, and without it the situation would be truly critical.

A favourable environment, but…

The growth of the national debt and of the cost of servicing it is unavoidable, and there is little scope to reduce it through measures that can be implemented quickly. In essence there are only a few options that the politicians in power must be able to make use of – to cut (review) public administration spending, which can be achieved by revising regulatory requirements; the other, parallel direction, which entrepreneurs have been talking about and calling for year after year – to create a favourable (compared with our neighbouring competitor countries) and competitive business environment, which, as the experience of other countries shows, in time results in higher tax revenue. New jobs, growing economic activity, residents with greater purchasing power – that is the path to greater overall prosperity and to more substantial tax payments. The formula appears clear and simple; only one question remains – why has putting it into practice not really succeeded year after year? That Latvia has failed to seize so many opportunities that could have created new jobs both in towns and in the countryside is an indisputable fact, and one could write very thick, detailed volumes about why, where and which investor abandoned their plans, but the most important thing would be to understand why those plans never came to fruition.

Were the investors building castles in the air, or were they counting on enormous concessions from the state, or have we in Latvia created conditions and bureaucratic requirements that a potential investor sees as excessive, so that they prefer to realise their plans in Lithuania, for example? Estimates have been voiced that the total "lost" investment from unrealised projects runs into many tens of billions of euros, to which must certainly be added the new jobs that were never created and the absence of the taxes that would have come with them. Yes, there are success stories in Latvia too, but there could certainly be many more of them. Perhaps the government's attention should be focused on a single question – how to build, how to attract potential investors, how to create ever more new jobs? Essentially it is clear that Latvia needs a thorough audit of all bureaucratic procedures, together with a change in the attitude of state institutions towards investors; otherwise we will have to forget about significant growth, and as a result our Baltic neighbours will pull even further ahead of Latvia in economic development. Right now there is a debate under way about creating a Green Corridor for large exporters, which could become general practice within a couple of years, but alongside it some are already proposing to turn this corridor into a paid service for everyone and straight away, thereby attempting to degrade a good idea entirely.

A veto on cutting industries back

There is another important nuance, namely the production plants closed down in Latvia – or let us say it plainly, destroyed – whose equipment is now working successfully in other countries. The question is: why were they unable to operate on an economically sound basis in Latvia? Was it the owners' unwillingness, or their lack of skill, or did it happen because of the direct or indirect influence of state policy? Over the years, has this shortfall in goods produced, in export earnings, in jobs and in taxes paid been made good by newcomers? Is the plague of job losses in the commercial sector a ghost of the past? In my view, no! In the land-use industries there is still talk of fears about new restrictions and prohibitions that sooner or later will lead to a fall in production volumes, which in turn means fewer people in work and smaller tax payments. In a situation where the state budget deficit is at almost the maximum possible level, yet there is still not enough money to meet society's needs, introducing new prohibitions in these industries is unacceptable. The loss of jobs in Latvia's regions will drag with it a fall in the population and a smaller number of taxpayers. One can, of course, restrict or "accidentally" wipe out yet another industry in Latvia and then be surprised that several tens of millions of euros have vanished from the national economy; it would be wiser to impose a veto on closing industries down.

Work is the basis of everything

Everyone must clearly recognise that the prosperity of any society rests on human work. That means the primary basis for development is a paid job. In the base case it does not matter what kind of job it is, and only gradually, as people become better educated, do jobs deliver greater added value, the tax base grows and society becomes wealthier. As we move towards production with ever higher added value and better-paid jobs, there is no reason to become arrogant and belittle the base, the very foundations, or simple work where education matters less. That would be rather like saying that only a person's head matters and their legs no longer count. Every employee, in buying goods and services on the market, pays consumption taxes, which in turn generate revenue for the state budget from which the services society needs can be financed. In other words, what matters is the size of the economy, and that is made up of every possible job. Creating jobs requires investment – capital, which domestic companies often lack, so its availability (the terms, the interest rates on loans) will also determine the pace of growth and development. The Latvian state urgently needs to think about the well-being of its creators of wealth, because they are the ones who produce goods capable of competing on export markets or who increase the number and availability of the services they provide, thereby creating favourable conditions for business development and reducing the bureaucratic burden imposed by the state, and consequently reducing public administration spending too – rather than doing the opposite, raising taxes and the budget deficit and thus increasing the national debt.

A shift of paradigm from borrowing and living on debt to producing value and self-sufficiency is the most important question on today's agenda.

If we have creators of wealth, in time additional taxes will also appear to cover the services society needs; but if new potential wealth creators fail to emerge in Latvia while the existing ones disappear, we will soon be dreaming about even the chance to borrow. Who cares about that?