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Wednesday 08.04.2020 | Name days: Dana, Dans, Danute, Edgars
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Fiscal Discipline Council opposes increase of state budget deficit

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budget deficit, budget 2020, discal disipline, FDP, doctors, wages Latvia’s Fiscal Discipline Council (FDP) objects to the proposal to use budget deficit as a funding source to help increase healthcare workers’ wages, as the council reports.

Budget deficit cannot be considered a source of funding to cover costs, because Section 66 of the Constitution states additional costs are allowed to be covered only through increase of budget revenue or reduction of other expenditures, stresses FDP.

Council chairman Jānis Platais stresses that in addition to this restriction it is not allowed to increase budget deficit for 2020 because of considerable worsening of the state budget balance, which is also against requirements of the Fiscal Discipline Law and creates risks of breaching European Stability and Growth Pact. Consequences for such violations would include the requirement for rapid reduction of budget expenditures and deficit, as well as penalties from EU structures. Sanctions may take away EU funding for industries in which Latvia’s fees are several times below payments.

FDP stresses the budget was prepared based on optimistic economic development outlooks made in June. Since then, however, since then most outlooks have been reviewed and downgraded. GDP in 2020 may be 1% below outlooks made in June, which could reduce tax revenue by approximately EUR 100 million, the council explains.

2020 may turn out complicated for Latvia’s economy and the state budget – external uncertainty is up, economic growth is slower, tax revenue is below expectations, and at the same time requests to increase budget expenditures are on a rise, FDP stresses.

International economic and political environment continue becoming more and more unclear: the main reasons for concern include no-deal Brexit, possible international trade wards, slower global economic growth, budget problems in Italy, council members say.

Aside from that, FDP and European Commission found when viewing the 2020 budget that expenditures are growing more quickly than the rate allowed by Fiscal Discipline Law and European Stability and Growth Pact. Regulations outlined in the law state that increase of expenditures is not allowed to exceed potential GDP growth so that no serious budget consolidation is needed in the event of economic decline, FDP explains.

Labour pay in healthcare in Q2 when compared to 2018 has increased 13%, whereas the average increase in the national economy is 8%. A comparison of several state-finances sectors shows that in the previous two years wage growth in healthcare in healthcare has been one of the more rapid in the country, the council explains.

Rapid wage increase in healthcare sector will help increase labour pay differences in the state budget sector and increase pressure on the search for additional budget funds for wage increase in other sectors. Budget deficit increase is no solution for these problems, FDP believes.

The council admits healthcare is insufficiently funded. Well-intended structural reforms, unfortunately, have been overshadowed by the wage problem. FDP believes the government plans have to provide funding increase in a long-term perspective.

Considering the aforementioned considerations, benefits from increased wages for doctors at the expense of deficit increase does no not exceed associated risks, the council says.

More on this topic: Healthcare Minister refuses to drop idea of financing healthcare at budget deficit’s expense


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