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The most noteworthy economic events for Latvian households in 2014

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUResidents believe the main economic events to have affected their family finances in 2014 include the growth of consumer prices, rise of real estate property tax and decline of labour taxes.

Compared to last year, there has been an increase of the proportion of residents who believe their financial state has improved this year. The majority of Latvian households expect the situation will either stay the same or improve, as concluded in Swedbank Private Finance Institute’s annual report on Major Financial Developments in Households.

Inflation was mentioned by 44% of interviewed residents as one of the main developments that had an impact on their family’s budget this year. 20% of respondents mentioned the growth of real estate property tax and 16% mentioned the decline of labour tax.

According to Swedbank Private Finance Institute expert Evija Kropa, even though the rise of consumer prices is insignificant this year, residents see inflation as a major development for their family budget. This can be explained with every person’s different preferred range of products. It is unquestionable that the adoption of a new currency has had a major impact on residents’ shopping habits.

Real estate property tax has become a major expense for Latvian households over the years. Although no significant changes have been noticed, households are more sensitive toward changes to family budgets. According to data published by the State Land Book, the largest changes with cadastral value were noted for arable land on municipal territories. In Riga the average change in cadastral value on land was 5% and 4% for buildings.

In 2014, there was an increase on residents’ tax-free allowance and dependants’ benefits. The social tax rate was also reduced in 2014.

In general, a trend has been noticed this year: households are now more sensitive toward developments that have a negative effect on their family budget. Respondents rarely mentioned factors that had a positive impact on their financial state, which includes the reduction of natural gas tariffs, loan interest rates and increases of different benefits.

Starting with autumn 2014, the order to paying child care benefits was changed. It has now been made more attractive for mothers who choose to stay with their children until they reach the age of 1.5 years. Monthly benefits for small wage recipients have become slightly larger than their actual wages. Because parents started to feel actual benefits from the new order only starting with October 1st, the positive effect does not appear in the survey.

When asked about 2014, 37% of residents mentioned they have not felt any significant changes to their family budget. 30% of respondents mentioned the situation has improved and the same proportion of respondents has said the situation has become worse. Compared to the report of 2013, there has been an increase in the proportion of residents who believe the situation has improved.

The situation is the same in regard to next year as well. 28% believe the situation will improve next year. The same proportion of respondents believes the situation will not change in the coming year. In 2013, 27% of respondents believed the situation would improve in 2014 and 31% of respondents believed the situation would become worse. This means the overall mood has improved in 2014.

72% of respondents expect their electricity expenses to rise in 2015 as a result of the rise of prices, tariffs and rates. 57% expect their expenses on food products to rise next year. 48% of respondents expect a rise in their housing expenses. «Food and housing are two main priorities for households, as they allocate the most of their money for these areas. It is logical that price changes in these areas would have the biggest impact on residents’ finances. Their expectation for the rise of electricity prices points to the fact that they are well-informed about the market’s liberalization on January 1st, 2015,» – says Kropa.

Ref: 102.109.109.2342


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