Can the weather be related to tax revenues? Absolutely! In January, there were severe frosts, and the sale of vegetables and fruits from street stalls at the Central Market became unbearable — neither the sellers could stand, nor could the goods be preserved. Therefore, for example, our family did not shop there even once. All the money went to the stores.
And at the auto service, where I had to make two visits in the first month of the year — all due to winter breakdowns, I paid with a card. Here’s another source of the country’s VAT!
The Saeima's Committee on Public Expenditure and Audit is chaired by Gatis Liepiņš (New Unity). Member of the Board of the State Audit Office Inga Vilka presented a report titled "Is the government's approach to limiting the shadow economy effective?" on Wednesday.
"It Cannot Be Completely Eliminated"
This conclusion — against the backdrop of an illustration showing two hands, one holding a bundle of banknotes — was made by the state auditor. The shadow economy, in turn, is complemented by the "grey economy," "unaccounted economy," and "informal economy." All of this:
- Reduces tax revenues that the state could allocate for various needs;
- Recipients of "envelope salaries" are exposed to risks regarding social guarantees and labor safety;
- Destroys the principles of fair competition and distorts market activity;
- Delays economic development.
Despite the fact that the shadow economy, according to the State Audit Office, is a "widespread, global, and natural phenomenon" — the higher the GDP per capita in each country, the smaller the share of the "shadow."
Estimates of the share of this part of the national economy, of course, vary — the most pessimistic is that regularly conducted by Professor Arnis Sauka from the Stockholm School of Economics in Riga. According to his data, in 2025, 21.4% of Latvia's GDP went "off the books." That’s not all — in the crisis year of 2010, this share was as high as 38.1%!
On the other hand, Friedrich Schneider (Austria), a professor collaborating with the Ministry of Finance, sees this segment of the economy as not reaching 20% of GDP. The most optimistic view comes from the Central Statistical Bureau under the Ministry of Economics — in its view, "shadowers" account for up to 7%.
Authorities Take on the Problem
And it cannot be said that nothing is being done: for over 15 years, the shadow economy has been mentioned in all government declarations. In 2017, a separate structural unit was established under the Ministry of Finance, and since 2023, a special subcommittee on combating the shadow economy has been created in the Saeima.
Academia is also not standing aside: in 2025, fundamental and applied research was financed — for 300,000 euros!
Currently, the Plan to Limit the Shadow Economy for 2024-27 is still in effect, which aims to reduce it to... 18.9 percent. "The specific goal is not ambitious," notes the State Audit Office in this regard. The auditors assess the plan as "a document more focused on processes than results." Of the 56 activities outlined in the Plan, 36 do not have any impact.
Studying the motives behind shadow economic activity, auditors found a connection between its growth and: increased taxes; greater state regulation; low quality of administrative structures; low tax morale; high unemployment and self-employment. "The higher the level of freedom, the smaller the volume of the shadow economy," concludes the State Audit Office.
Interestingly, among sectors, the first place in the shadow economy is held, by a large margin, by the sector "wholesale and retail trade, repair of motor vehicles and motorcycles." However, for some reason, construction and healthcare were chosen as priority areas for eradicating the shadow economy.
Regarding medical activities, the State Audit Office suggests:
- Establishing a special register for telemedicine service providers;
- Limiting the use of the word "clinic" in the names of enterprises;
- Requiring treating physicians renting premises in medical institutions to register their business activities with the State Revenue Service or the Register of Enterprises and the Register of Medical Institutions.
As for builders, although from 2017 to 2023, the added value (gross) not recorded in reports decreased from 29.7 to 17.4 percent — overall, "the activities mainly do not address the main causes of the shadow economy but only increase the administrative burden and load on state institutions."
In Addition to the Committee
Let’s recall: in the fall, the deputies of the Riga City Council, where the Committee on Security, Order, and Corruption Prevention is already working, also decided to create an updated Commission for Combating Corruption and Ensuring Good Governance — and approved its charter. This institution will continue the work of the previous anti-corruption commission — but "with an expanded focus on implementing principles of good governance."
Compared to the previous model, which mainly focused on managing corruption risks, preventing conflicts of interest, and reporting violations, the new commission will have broader powers — particularly in management. In addition to monitoring the implementation of the anti-corruption strategy, it will also:
- Evaluate the procurement structure, improving transparency mechanisms;
- Promote the implementation of good governance principles in interest representation processes;
- Assess and improve the municipality's digital solutions to ensure greater transparency;
- Promote the strengthening of ethical standards and integrity in administrative work and the performance of autonomous functions;
There will also be an assessment of public opinion and communication to involve residents in the process of reducing corruption risks. The commission includes representatives from all factions of the Riga City Council, the executive director of the city of Riga, as well as the head of the audit and control department of the municipality's central administration, the deputy head of the legal department, and the head of the human resources department.
Meetings will be open, except in cases where access to information is restricted, and their materials will be published on the municipality's official website. This step is part of the Riga City Council's efforts to improve governance quality in response to public demands for greater transparency and efficiency.
In reality, however, in January, during the budget discussion, the topic of painting 12 changing rooms on the beach in Vecaki for 36,000 euros came up — of course, against the backdrop of the capital's total spending of 1.7 billion euros, this is a small fraction. But, as they say, the aftertaste remains...
FIGHTERS
In total, in Latvia, the fight against the shadow economy is the responsibility of: 15 ministries, 12 other state institutions, 43 municipalities, and 2 non-governmental organizations.
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