Latvian government supports 2019 budget project

On Monday, 15 October, Latvia’s Cabinet of Ministers supported Finance Ministry’s prepared 2019 budget plan project. State budget revenue in 2019 is planned at EUR 9.178 billion, which is EUR 217 million more when compared to 2018, whereas state budget expenditures are planned at EUR 9.205 billion, which is EUR 96 million more when compared to 2018.

The budget plan’s resources for defence are planned at 2% of GDP. A major increase of funding is planned for healthcare – EUR 154 million.

The budget also includes wage increase for medical personnel, as well as funding for cancellation of extended work hours. Additional funding is planned for pensions – EUR 10 million.

National funding of EUR 236.1 million is planned to be allocated for roads in 2019. Additional funding from EU funds will also be available. Medium-term budget plan also includes the plan to increase minimal wages, which commenced 1 September 2018. This portion of the plan will have financial impact of EUR 17 million in 2019.

Finance Ministry admits that the budget plan project covers the state budget, municipal budgets and the budgets of many state companies.

Municipalities are provided with the option to receive loans from the state budget to implement investment projects at low interest rates. Tax revenue for municipalities in 2019 is planned at 19.6% of total state revenue, which ensures significant revenue growth in a medium-term perspective.

As a result of review of expenditures in 2018, funding was found worth EUR 51.4 million to finance different activities of Latvian ministries. The ministry adds that measures commenced in ICT and real estate sectors will yield a positive effect in a medium-term perspective.

The budget plan also provides for the formation of a reserve of 0.1% of GDP (EUR 31 million). The overall government deficit is planned to be reduced to 0.7% of GDP. This will ensure Latvia’s compliance with fiscal discipline requirements. The state debt is planned at 38.5% of GDP (84.1% – average in Eurozone).

According to the ministry, Latvia’s GDP is set to grow 4.2% this year, which is 0.2 percentage points more than was planned at the beginning of the year. A more rapid economic growth was secured by rapid growth in the first half of the year, which was secured by increase of investments and exports.

Finance Ministry adds that investment growth has calmed down. Economic growth rates will be slower in 2019-2021 and will stabilize around 3%, which is close to the economic growth potential.

Average inflation in 2018 and 2019 is planned at 2.5%, which is 0.3 percentage points lower when compared to what was planned at the beginning of the year.

According to the ministry, more rapid economic growth means a decline of unemployment as well. In 2018, average unemployment level is estimated to be 7.7%. Next year’s level is estimated around 7.4%. The number of employed residents is also expected to increase: by 1.2% in 2018 and 0.1% in 2019.

A slightly faster increase is also expected for average wages in 2018 – 8.3%, with average monthly wage reaching EUR 1.003. Compared to previous predictions, wage outlook for 2018 has been increased 0.3 percentage points.

Considering the macroeconomic development scenario reported in September 2018, as well as budget completion in the first eight months of 2018, Finance Ministry believes overall government budget deficit will be 0.8% of GDP in 2018.

The ministry explains that the lower budget deficit is ensured by larger tax revenue than previously planned.

«When preparing the outlook for 2019, we took into account the new macroeconomic development scenario, as well as budget completion in the first eight months of 2018. Compared to the previous outlook, we expect higher tax revenue for excise tax and PIT in 2019. We also expect higher PIT revenue from dividends paid for revenue left from previous years,» the ministry notes.

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