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Ceturtdiena 27.10.2016 | Name days: Lilita, Irita, Ita

Latvians remain pessimistic in spite of growing welfare

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULooking at changes to their financial situation in comparison with previous years, Latvian residents have concluded that it has become worse. 24% of respondents say their financial situation has worsened only slightly. 8% of respondents say the financial situation of their household has worsened significantly.

20% of respondents say the financial situation of their household has become better this year. Only 2% say the financial situation has become significantly better. 44% of respondents say their household has not experienced any major changes this year.

When asked about factors that have impacted their household’s welfare in a positive way, 17% of respondents mentioned the decline of heating and gas tariffs. Other positive factors related to warmth include the uncharacteristically warm autumn and winter weather. Another 17% of respondents mentioned the reduction of PIT from 24% to 23% as a positive factor. This practically means that recipients of average wage in Latvia (EUR 808 on paper) gained approximately EUR 6.5 monthly or EUR 78 annually, as reported by Swedbank.

The third most important factor mentioned by 15% of respondents is wage rise. Compared with average gross wages in the first three quarters of 2014 (EUR 758), wages of the same period of 2015 have grown 6.6%. Residents’ purchasing power has been growing more quickly than wages lately – average wages have grown by 7.4% while consumer prices remained largely unchanged (annual inflation was 0.2% in the first nine months of 2015). With that, residents’ actual income has grown 7.2% this year. Nevertheless, residents still consider their expenses very carefully.

«One of the most positive tendencies worth mentioning in the context of careful consumption habits is the growing level of savings of Latvian residents across the country. This even exceeds the country’s economic growth rate. More and more people start making savings for different reasons – financial security, retirement, children, etc. The largest savings are currently formed in the form of bank deposits and money left on bank accounts. The total estimated volume of savings across the country has already exceeded EUR 5 billion. A significant increase has also been noted on the 3rd pension level, which the total volume of savings exceeding EUR 314 million,» – says head of Swedbank’s Financial Institute Reinis Jansons.

Other positive factors mentioned by respondents include the increase of minimum wages from EUR 230 to EUR 360 (15%), free lunches for schoolchildren up to 4th grade, reduction of prices on consumer goods and services (8%), finding a job (7%) and lower interest rates for loans (5%).

When asked about negative factors, respondents most often mentioned inflation (38%). 37% of respondents said their financial situation was negatively impacted by unplanned household expenses (car repairs, technical problems, etc.). The third most often mentioned factor is the liberalization of the country’s electricity market (30%). According to the estimate by Swedbank’s Financial Institute, electricity costs of a family with two children that is not considered poor and which consumes 350 kWh every month have increased since the liberalization of the electricity market.

«In spite of statistical data that shows the non-existence of inflation and growth of income, growth of certain expenses, according to residents, eats away wage growth. Even legislative amendments, including minimum wage rise, does not compensate for other financial benefits. This can be explained with the fact that residents with low or medium-low income still feel a heavy burden in the form of everyday expenses. At the same time, it is worth mentioning that this year has brought many positive changes to families with children – larger benefits, a support programme for purchasing housing and other positive things,» – said expert of Swedbank’s Financial Institute Evija Kropa.

Predictions for 2016

36% of respondents believe their family’s financial situation will remain unchanged next year. 6% of respondents predict their financial situation will become worse. 19% expect it will become slightly worse. 22% of respondents are optimistic about 2016 – 19% expect the financial situation of their family will improve and 3% expect significant improvements.

Looking at upcoming changes that are expected to affect Latvian households next year, it is worth mentioning the decision of the government to maintain PIT rate at 23%. Employed people can also expect a EUR 10 rise of minimum wages (from EUR 360 to EUR 370) and the increase of benefits for dependents by EUR 10 (from EUR 165 to EUR 175).

It is also planned to introduce differentiated tax-free allowance: small wage recipients will receive a bit more and large wage recipient will receive a bit less.

The increase of house management costs is expected to cause a slight increase in expenses for residents. This is because it is planned to apply VAT (21%) for house management costs starting with 1 July 2016. For example, if a household previously paid EUR 35 a month, starting with summer 2016 households will have to deal with a nearly EUR 8 increase of their monthly expenses.


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