Latvian Prime Minister Valdis Dombrovskis announced on June 9 that his government would ditch the country’s flat-rate tax system in favour of a form of progressive tax. Speaking after his coalition government met with a range of politicians and union and business representatives, Dombrovskis told reporters: We agreed that in Latvia we conceptually move towards the introduction of a progressive income tax, which is planned to be accomplished by 2010. High earners would have to pay a special high rate of income tax under proposals still being worked on by the finance ministry. The meeting also agreed to slash 500 million lats (USD one billion) from the national budget through several measures, including reducing the minimum monthly wage from 180 to 140 lats (USD 281) and more pay cuts in the public sector, which has already seen wages shrink by 20 percent. However, Dombrovskis went out of his way to deny reports that pensions would be cut. I can already say that information about reduction of pensions by 15 percent is not true, he said. All the cost-cutting measures were set to be put to a vote in the Latvian parliament on June 17 and were part of efforts to qualify for a 7.5 billion Euro (USD 10.6 billion) economic aid package brokered by the International Monetary Fund (IMF) last December. To get access to the money, Latvia must limit its budget deficit to five percent of GDP and introduce a range of structural reforms. Latvia has already missed out on a 200 million Euro payment after a previous IMF team judged that reforms were not moving fast enough, and in Dombrovskis’ own words, failure to secure the next tranche would send the country to the edge of bankruptcy. The flat-rate tax regimes in the Baltic states of Latvia, Estonia and Lithuania played a crucial role in attracting investment during a decade long boom and were held up as models. Estonia was the first country in Eastern Europe to introduce flat-rate tax in 1994. Its Baltic neighbours quickly followed suit and today Russia, Serbia, Ukraine, Slovakia, Georgia and Romania all have flat-rate tax systems.