RIGA — The Latvian government agreed Monday on a budget proposal for next year, but question marks still remain over a minuscule property and non-progressive income tax.

Finance Minister Einārs Repše admitted Tuesday in an interview to Latvijas Radio that there are “very serious discussions ahead,” but still thinks that the current proposal is “the best possible.”

If Latvia succeeds with this budget it could be, according to Repše, the last tough budget for years to come. Although the budget has been consolidated by 500 million lati (€714 million), as demanded by Latvia’s international lenders, it still needs approval from International Monetary Fund and other international lenders — only then would it be turned in to Saeima for the approval.

Joaquín Almunia, European Commissioner for Economic and Financial Affairs advised the Latvian government to introduce progressive tax during his recent visit to Latvia.

Latvian politicians disregarded Almunia’s progressive tax suggestion, instead opting to lower the minimum tax threshold opting to take more from the lowest income earners in society. Under the proposed budget the threshold for non-taxable monthly income would decrease from 35 (€50) to 25 lats per month. This is regressive taxing, a policy opposed by the IMF.

The Free Trade Union Confederation of Latvia and the Employers’ Confederation of Latvia have also criticized this move. Employers’ Confederation head Vitālijs Gavrilovs told Diena newspaper that reducing the non–taxable income threshold would reduce people’s purchasing power causing wider problems in the economy.

The People’s Party’s leader in Saeima Vents Armands Krauklis has confirmed that his party is working on a proposal how to avoid reduction of non-taxable income.

Another government coalition party, Civic Union, claims to have proposal for progressive property tax. Opposition party Harmony Center have their own budget proposal without any raised taxes.

According to the government’s proposal, the new property tax will be at a flat rate of 0.1 percent. Repše admitted to Latvijas Radio that property tax could be progressive, though this is deemed impossible in the “current political situation.”

The planned budget income for 2010 is  3.78 billion lati (€5.3 billion), falling short of expect expenses by around 13 percent. According to the agreement with international lenders, the budget deficit for the next year should be under 8.5 percent of GDP.

The budget is scheduled to be approved in Saeima by the end of November.