Latvian public sector is frugal as compared to other European welfare states. General government expenditures stood at 37% of GDP in 2017, with a minute deficit. Government debt remained low, and slowly decreasing, standing below 35% of GDP in 2017. Economic growth picked up again, reaching 4.5% in 2017, due to increasing investments, rise in domestic consumption and exports. Legally, there are big six joint companies that cannot be privatized, in sectors of energy and mining, transportation, postal services and forestry. The number of SOEs in the country is not high - the state fully owns 69 companies, but there are many more where it is a minority shareholder. Total employment in SOE sector slightly exceeds 6% of the total employment, which is broadly in line with the EU average. Some
of these companies, such as the national air carrier Air Baltic, continue to pose significant fiscal risks to public finances. However, private companies are mostly able to compete with SOEs on the market under the same terms and conditions. Latvia became a fully fledged OECD member in July 2016, which was expected to increase accountability and management practices of SOEs in the country, through implementation of OECD rules in this area. The year 2018 started with big changes in the taxation regime. The corporate tax rate was increased from 15% to 20%, but the tax was waived for all reinvested profits. There is a special preferential tax treatment of micro enterprises (up to 5 employees and 40 000 euro in revenues). The previous flat income tax of 23% was changed with a new progressive system 3 tax brackets: 20% (up to 20 000 euro), 23% (20 000 - 55 000 euro) and 31.4% above the 55 000 threshold. The ‘’solidarity tax’’ (social contributions paid above the maximum cap) will be split to cover the increase of the tax rate while the smaller amount will be allocated to the pension fund. VAT rates remain 21% and 12% respectively and tax wedge on labour is above the OECD average.