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Friday 15.02.2019 | Name days: Olafs, Aloizs, Alvils, Olavs

Latvian state has no ‘fish’ to offer to sports industry; UGF takes away last fishing rod

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUPotential winners of Olympic medals in Latvia are in the process of consideration: to continue their career in sports or take up a different path. This is because Latvia’s sports industry is going through a dramatic financing decline. This situation was caused by the reform implemented by the government under the Union of Greens and Farmers.

Māris Kučinskis had promised last year to find a compensating mechanism, saying that ‘the situation is being monitored and the sports industry will not suffer’. Dana Reizniece-Ozola promised the same thing. However, the current amount of funding is not enough and tax benefits for donators have since been cut. This is why Latvia’s sports industry wants to save what is left, according to activities of ‘I support sport!’ initiative in recent months.

Sports industry’s broken fishing rod

«At the beginning of the 90s the sports industry was given an inexcusably small budget in the form of funding from the state budget. A fishing rod of sorts was given in the form of tax benefits. We were told basically: ‘Go ahead and fish!’ But then the fish ran out and the fishing rod was taken away. Now we have nothing. Then the country recovered and realized the base funding is considerably below what is needed,» said council chairman of Latvian Sports Federation and one of the supporters of the ‘I support sport!’ initiative Einars Fogelis in a conversation with BNN.

It should be said that a tax reform was launched in 2018. This reform changed the order under which companies are allowed to donate money to sports. Before the tax reform companies could receive corporate income tax discount in the form of 85% of the donated amount but no higher than 20% of the total paid tax amount.

Even now benefits for companies are provided only for donations to public welfare organizations, budget institution or state capital association that performs functions delegated to it by the Culture Ministry. However, the effect donations have on corporate income tax has changed.

Before the reform, the calculation of corporate income tax was based on the profits acquired in the accounted year, allowing tax discounts for donations. The new CIT model is similar to the method used by Estonia. It allows for postponing payment of corporate income tax until the company divides profits. Companies can decide to divide dividends, divert money for the development of economic activities or donate the money.

Unofficially it is mentioned changes to the tax benefit system were needed to prevent money laundering through the sports industry.

However, the problem of insufficient funding for the sports industry remains unresolved. According to statistical information compiled in summer 2018, the volume of private donations for sports organizations suffered a 75% decline after the tax reform.

Solutions coming like firefighters but with no long-term plan

LSFP chairman also points to the problems in the sports financing system and short-sightedness of the previous government. «The previous government did help resolve some of the ‘hotter’ problems, such as the start of our handball team in the qualification tournament, organization of several sports events, including the recent World Cup stage in luge sport in Sigulda. A number of other financial problems were only partially resolved. But this is not a system we’re talking here. One or another case was resolved in the pace of firefighters rushing to the next fire. The problem, however, is not resolved in a long-term manner,» says the council chairman of the federation.

In October 2018, sports representatives and supporters of the «I support sports!» initiative stressed that the will carefully follow compliance with the promises given by Latvia’s last Prime Minister Maris Kučinskis and his government. «We – representatives of the sports industry – would be very disappointed if it turned out the promises given by Prime Minister Maris Kučinskis to athletes and sports organizations in regards to compensation of lost donations and change of sports management model in the pre-election period turned out to be lies and deceit,» said organizers of the initiative.

It seems something was done for the benefit of the entire situation: a work group was formed in September 2018. Its objective was preparing proposals for the change of the management and financing model of the sports industry. The work group was supposed to submit proposals to the State Chancellery by the end of October 2018. However, Fogelis says only some of the more immediate problems were resolved, whereas the financing model remains unchanged.

A possibility exists to leave Tokyo with no medals

The federation’s council chairman says the 2018 budget deficit in comparison to the previous year was about EUR 1.6 million, which causes certain difficulties for the sports federation to maintain long-term contracts with coaches and athletes.

«I am not envious of the federations that have to guarantee contracts with specialists – coaches. We need to secure guarantees for athletes who continue training. At the end of the day we need guarantees to ensure commitments we have undertaken – from national sports events to international events.»

«If we tell biathlon athletes that they can start this winter, they will likely have to decide what they want to do with their lives next year.»

«Many may decide to discontinue their career as athletes. We already feel the consequences from 2010, when everyone had to tighten their belts – our industry included. Most athletes were aged 21-22 – a very perspective age. We did accomplish a lot in this period of time. Now athletes are of a different age, because when the financial crisis struck many of the athletes who were in transitory age, perspective youngsters were forced to pick a different path in life,» the council chairman comments on the potential future of the sports industry.

He notes the current funding reduction has an effect on accomplishments in sports, because it is not possible to guarantee wages for athletes and coaches. «We were all happy for our athletes’ accomplishments in Sochi. Everything was neat and great. The number of medals, considering high-class sports, was simply great for Latvia. Now there’s been a serious decline. In this situation, if there is a serious decline in the industry, the processes we had observed in 2010 will definitely turn out far worse in 2019. Consequences will likely come during 2020 Olympic Games in Tokyo.»

We are either together or spin on our own orbits

«There has always been a need for political will. Where is the road construction sector? Where is the sports sector? And where is healthcare? Do we stick together or stay on our own orbits as lone satellites? This is a major issue. Of course, everything hinges on political will, political rationale and priorities,» says Fogelis.

But the political will of ‘champions’ only extends as far as preparing said good deeds for successors. «The next government will have to decide on resolving the problem of compensating losses from donation decline,» Reizniece-Ozola told journalists on 4 September.

The council chairman of LSFP is vocal about the composition of the new Saeima: «It is pleasant to hear some deputies say they will support sports and everything».

It should also be said that the government declaration signed on 23 January mentions that politicians plan to review funding amount for sports sectors.

When asked about the solutions to help compensate lost funding, Fogelis said: «I’m not saying we cannot return to the old system, but time rarely turns around. The compensation mechanism, I would say, could be sought in different excise tax sections or by means of lottery profits, as it is done in many European member states.»

What are the ‘gifts’ the new government received from the old one?

As for the future of the sports industry in Latvia, Fogelis said: «As far as I can tell, Finance Ministry has an objective to analyze the fiscal consequences for the state budget and certain industries tax changes have caused.»

He says the planned tendency now has a negative sign, because grants provided to federations in 2017 were EUR 6.7 million, whereas planned grants for 2021 are around EUR 5.7 million.

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