In the first seven months of 2016, the surplus of Latvia’s state general budget was EUR 207.6 million, which means an increase of EUR 76 million in comparison with the same period of 2015. The surplus consists of the surplus from the municipal budgets worth EUR 108.6 million and the state budget surplus of EUR 99 million.
In spite of the increased revenue from the tax plan and non-tax revenue increase in the first seven months of 2016, this year’s increase of state general budget revenue of EUR 34 million is considered moderate.
Low growth rate can be explained with a major decline in revenue from foreign financial aid, where a decline of EUR 222.9 million or 30.4% was noticed in the seven-month period of 2016. This is because investment turnover of the 2014-2020 planning period of European Funds has not yet reached the level of intensity in order to receive payments equal to previous planning periods.
The general state budget’s tax revenue plan for the first seven months has been completed by 100.4%, exceeding planned revenue by EUR 18.1 million. Compared with the same period of last year, tax revenue has increased by EUR 218.6 million or 5.4%, where the largest contribution was secured by labour tax, VAT and excise tax revenue.
Revenue form PIT, on the other hand, has declined 1.7% in comparison with the plan. The main reason for the failure to meet the plan’s expected goal is related to significantly increased repayments based on annual income declarations. EUR 68.5 million was repaid in total in the first seven months of 2016, which is EUR 39.5% more in comparison with the same period of 2016. The increase of repayments can also be explained with the partial automation of the PIT repayment process. Nevertheless, in spite of the major increase in repayments, revenue from PIT has increased by EUR 40.6 million or 5% in comparison with the same period of 2015.
Expenditures of the state general budget were EUR 42 million less in comparison with the same period of 2015. Lower expenditures were noted in all budget levels, except for the state special budget, where expenditures for social benefits remain on a higher level in comparison with the year before. The biggest influence on the reduction of expenditures was caused by state budget service of EUR 55.1 million or 20.8%. Reduction of expenditures on goods and services by EUR 14.2 million or 2.2% is related to bigger expenditures related to Latvia’s presidency and XI Latvian school song and dance celebration last year.
This year, it is also planned to allocate an additional amount of EUR 19.2 million to enhance Latvia’s National Armed Forces.
The biggest rise in expenditures in the seven months of 2016 was noticed in grants and subsidies – by EUR 125.8 million or 12.9%. The state budget’s expenditures on social benefits had increased by EUR 67.4 million or 4.5% in the seven months of 2016. As birth rates gradually improve in the country, the country’s state budget expenditures for child care benefits and family benefits.
The state budget’s expenditures for social benefits increase more rapidly, which can be explained with larger expenditures for sickness and unemployment benefit, as well as parent benefits. This can be explained with an increase in the number of benefit recipients. Since 2015, when amendments were added to the legislation, cancelling the cap on size of benefits, the average size of benefits continued to increase, which was also affected by the rapid rise of minimum wages in 2014. The trend for the increase of the number of recipients of sickness and unemployment benefits continued in the first seven months of 2016. In spite of the gradual reduction of the number of the level of unemployment, the proportion of unemployed people who receive benefits continue to increase. While at the end of 2012, the proportion of unemployed people who receive benefits was 24%; their proportion in the middle of 2016 has increased to 50%. In addition, state budget expenditures on state pensions were higher in the first seven months of 2016 had been higher in comparison with the year before. At the same time, the increase of expenditures was also affected by the increase of the average monthly pension payments. This is related to pension indexation that was performed on 1 October 2015.
Finance Ministry reports that the general state budget deficit is estimated to be around 0.9% of GDP for 2016. Lower budget deficit is provided by lower interest rates, payments to the EU budget and lower capital expenditures on EU fund projects (especially for municipal budgets).