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Monday 19.02.2018 | Name days: Zane, Zuzanna

Lenders consider major budget cuts in social sector

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The published recommendations by the World Bank (WB) and the International Monetary Fund (IMF) on the budget expenditure cuts suggest that the lenders expect the main reduction to be carried out in the social sector, reports LETA.

The government is to review these proposals when working on the budget; however, the already published ministries’ conclusions regarding such hard decision implementation are in general quite negative.

The WB has carried out an assessment and made proposals on the consolidation measures with the total potential savings ranging from 274 – 345 million lats in 2011, and from 193 – 199 million lats in 2012.

It was offered to lower the wage scale in the state administration and reduce other administrative expenses, maximally limiting the amount of remuneration at the state capital companies that receive subsidies; reduce the staff in the public administration, especially in the subordinate institutions and local governments.

Similarly, the WB suggests: the state regulatory function consolidation, the abolition of direct subsidies for losses-generating companies at both state and local government levels, the reduction of central government budget subsidies for transport, leaving the subsidies only for individuals with low income or for rural routes; as well as the reduction of subsidies in culture sector, radio, television, and sports.

Moreover, increasing the surveillance of state budget fund utilization at state capital companies and agencies, and augmenting revenues from state corporations and other public assets was also proposed.

In this way the total possible savings in 2011 would be from 80 – 89.5 million lats, and in 2012 from 42 – 44.5 million lats, the WB estimated.

As regards the social sector, it was put forward to reduce the pension part that is not chargeable with the individual income tax, revoke premiums for pensions above 140 lats, carry out the pension indexing in line with the changes in consumer price index, increase the retirement age, granting family benefits only to the destitute families with children, replace the parental allowance, which is based on the income, with a fixed childcare benefit at the extent of 100 lats. Also various measures have been offered with the aim of improving the efficiency of employment promoting actions.

Thus, the total potential savings in 2011 would range from 179 – 240 million lats, but in 2012 – 132 million lats.

Considering the secondary vocational education, it was suggested to cancel scholarship for students that have recently entered vocational training schools. In the field of higher education and science it was offered to reduce the number of state-financed places, granting state funding only to students from families with insufficient financial means. Moreover, it was proposed to cancel scholarships for university students, revoking subsidies for issuing study loans.

If these measures are implemented the total possible savings in 2011 would be 1.83 million lats, but in 2012 – 3.53 million lats.

In the health sector, it was proposed to: close down several hospital buildings and reduce the number of beds, reduce specialized health care services, review patients’ co-payments and relief determination depending on the patient’s income, to improve health funding and long-term health care.

According to the experts at the WB, these measures would generate savings at the total extent of 13.5 million lats in 2011, but 13.5-18.5 million lats in 2012.

The IMF has also carried out an assessment and put forward proposals for the consolidation measures with the total possible savings of 303 – 332 million lats in 2011.

In the social insurance sector, it was offered to review the conditions for granting pension premiums, where the savings depend on the conditions. It was also suggested that the pension part, which is exempt to the individual income tax, is reduced to 140 lats, while the pension income that exceed 225 lats could be charged with additional 10% duty. Likewise, it was proposed to adjust the pension amount in accordance to the consumer price index, and align the 1st Tier pension scheme capital increase estimates.

In this way, the total potential savings in 2011 would range from 123 –143 million lats.

The IMF also proposed changes in the social benefits, setting fixed maternity, paternity, paternal and sickness benefits, and interment benefits at the extent of 100 lats. It was also recommended to replace the state social benefits and social assistance for families with children with a family benefit that is increased by 50%, and appointing income adequacy test to recipients of different child benefits. Thus, the total possible savings in 2011 would be from 98 million to 107 million lats.

The IMF also offered to: reduce subsidies for ensuring public transport services, airport security, delivery of periodicals in rural areas; cut subsidies on diesel used in agricultural, assessment of farm animal genetic quality, productivity, cadaver collection, transportation, processing and disposal.

According to the IMF experts, the subsidies could also be reduced for biofuel production, energy-auditing, arts, literature, the Latvian National Opera, cinema, radio, and television. The experts believe it is possible to minimize the local government budget subsidies for public transport services.

By reducing the subsidies, the total potential savings in 2011 are estimated to be 82 million lats.


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