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Wednesday 18.10.2017 | Name days: Rolanda, Rolands, Ronalds, Erlends

Economic Diary. Taxes will be increased

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUHalf of Latvia’s state roads are in either poor or very poor state. Such is the conclusion of road construction experts. Transport Ministry is doing its best to resolve this situation.

Either a ditch or a hole

Statistical data is merciless: out of 943 bridges in Latvia 383 are in poor state and 148 bridges – in a horrible state. Authorities now raise the matter of limiting overall traffic on some of them. Transport Ministry presented its plan to overcome this problem earlier this week. A full report was presented during the review of the matter regarding the funding of road construction.

In the end the government declined the ministry’s request to allocate EUR 7.9 million from the reserve fund. This decision was explained with Latvia’s current financial state due to the ‘aggressive behaviour’ of its eastern neighbour. Officials said it is necessary to be more careful in expenses.

On the other hand, however, the ministry’s report was more or less approved by the government. This allows the ministry to sign agreements in regard to procurement projects and repair works and their funding from European Funds. The problem is that work with suppliers can begin in spite of the fact that the 2014-2020 European funds plan has yet to be approved by the European Commission.

In any case, Transport Ministry is already making plans on how it may be possible to reduce the proportion of roads that are in a poor state. The plans include the reduction from 46.3% to 10% by 2020.

It is planned that the state budget will provide EUR 40 million for this initiative in 2014. The total funding to finish repairs in 2015 will be EUR 27.4 million. In 2016, it is planned to allocate EUR 16.5 million.

A toast to stabilization!

Meanwhile, experts of the Latvian Finance Ministry performed a seminar for members of the government. Officials of the ministry presented their Stabilization Programme for 2014-2017. This document was compiled in accordance with the European Stabilization and Development Pact. Its main purpose is to be presented to the European Commission. Minister Andris Vilks notes that the document is the first step towards the compilation of the next year’s budget.

The main thought of the programme is the importance of taking into account geopolitical risks related to the conflict between Russia and Ukraine and the lack of clarity in this matter. In regard to this, the Finance Ministry believes it is necessary to review the economic development outlook and the latest expectations that economic growth will be 4% in 2014-2016, not 4.3%, as it was assumed earlier.

At the same time, experts admit the ministry only has information on the economy’s development until February 2014. On top of that, this information does not accurately reflect the impact of events that currently transpire in Ukraine. A more accurate picture of the situation will be available this summer.

According to Finance Ministry, the government had included certain stabilization measures for the future when the budget for 2014 was being compiled. The measures include additional funding for 2015 and 2016. The most notable amounts of funding will be provided to the following sectors: healthcare – approximately EUR 50 million annually; welfare – EUR 60 million annually; economic development – EUR 50 million annually; transport – EUR 47 million and EUR 66 million annually; education and science – EUR 28 million and EUR 35 million annually. In addition to that, the government has also supported the initiative to index pensions, which will be carried out starting with Q4 of 2014.

Review of tax priorities

Along with outlooks about economic growth, Finance Ministry’s representatives have also announced that the matter regarding the increase of VAT rate is not among the most important matters on the agenda. However, due to the previously undertaken responsibilities to reduce labour taxes, the government predicts there will be a dip in tax collection in regard to GDP in the next couple of years. Experts believe Latvia’s index may fall down to 25-26% of GDP. This will be the lowest index in the EU, where the average rate is 30-40%.

The dip in tax collection in regard to GDP allows the Finance Ministry to raise the matter about the need of applying compensation mechanisms (increasing taxes). Unpopular measures will be applied in spite of the improving discipline among taxpayers and work of the State Revenue Service.

Despite care in predictions, Finance Ministry notes that Latvia’s economy retains a good position among the most rapidly growing economies in the European Union.

Budget deficit is within acceptable deviations

Latvia remains an example for the rest of Europe in terms of budget discipline: according to the latest data from the Central Statistical Bureau of Latvia, budget deficit in Latvia was EUR 223.8 million (1% of GDP) in 2013. It is one of the lowest indexes in Europe.

Compared to 2012, last year had a 0.3 percentage points dip. According to Finance Ministry, this dip took place largely thanks to economic growth, which was followed by growth of collected taxes on consumption and labour force. Furthermore, the fiscal situation improved in spite of developments at Liepājas metalurgs. The overall fiscal picture was not ruined even by deficit growth of municipal budgets, as explained by Finance Minister Andris Vilks.

The outlook of the general budget, which has already been compiled as part of the aforementioned programme, includes deficit expectations set within 1.0% of GDP. The index is somewhat above what is mentioned in the Medium-term Budget Law. The reason for the recalculation was the change of the outlook for municipal budgets and the negative correction of expenses of the construction of the Latvian National Library.


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  1. mike walsh says:

    Yea gods, they are now blaming Latvia’s potholed roads on the unfortunate Russians now. All could be put right if it wasn’t for those pesky Russians. Whatever next? The poor harvest, too much / little snow… blame those ‘eastern neighbours’. Do you laugh or do you cry?

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