RIGA — Latvia’s economy ministry has recommended introducing a progressive housing tax as a means to increase income in next year’s budget.

The ministry said the tax should be “socially just” and that owners of small apartments and homes would pay a fixed, minimal fee, while large homeowners would pay a larger tax that would depend on both the size of the residential property as well as its cadastral value.

“If this would be implemented, then for example a person living in a 45 sq. meter apartment on Valdemāra Street in Riga would have to pay 30 lats (€42) annually, or 2.5 lats per month,” Minister of Economy Artis Kampars said in a press release Monday.

Economists at the ministry calculated that the tax could bring in 25 million to 40 million lats (€35 million to €56 million) next year. Businesses and taxpayers have strongly criticized the idea of next taxes at a time when the government, in their opinion, should be trying to stimulate the economy.

“Unfortunately we are in a very complication situation. The government must fill revenues, and we must take account of the fact that in many European countries such a tax already exists,” the minister said, “and that introducing this tax is part of the agreement with international lenders.”

Earlier this month the People’s Party balked at introducing a residential property tax, which immediately created problems for the government of Prime Minister Valdis Dombrovskis in talks with lenders such as the IMF and the EU. However, after the lenders pushed back and insisted that Latvia honor its commitments to the agreement signed last summer, the People’s Party caved in.

Still, the measure, if it is approved by the government, will have to be voted on in the parliament. On Friday the government agreed to reduce next year’s budget deficit by 500 million lats (€700 million) by cutting expenditures 322 million lats and raising 178 million in additional revenues. Many of the cuts involve infrastructure projects such as the border crossing at Grebneva, Riga International Airport development and the National Library project. But without the consolidation, Latvia won’t receive more financial support from lenders, which will force the country to make even harsher fiscal consolidation measures.