After almost a day-long meeting and debate-filled night, Latvia’s Saeima finally passed the state budget for 2023 and the next three years on Thursday, the 9th of March.
52 deputies voted in favour of the budget and 39 voted against.
During the review of the budget, the parliament rejected all proposals submitted by the opposition and approved multiple proposals for changes worth nearly EUR 10 million submitted by the government and various ministries.
The parliament agreed to allocate funding of EUR 135 000 to the Central Election Commission to raise employees’ wages.
Work on the legislation relation to the state budget in the final reading commenced at 09:00 a.m. on the 8th of March. Debates continued all day and most of the night, forcing the parliament to limit the time deputies had to speak on various topics. Despite this odd restriction, viewing of the budget plan continued.
In the end deputies passed amendments to multiple laws accompanying the state budget.
The Ministry of Finance explained the rise of revenue and expenditures with the existing geopolitical situation in the region, as well as the government’s commitment to supporting Latvian residents with partial compensation of rising energy resource prices and planned support for Ukraine to help the country combat Russian aggression.
Minister of Finance Arvils Ašeradens mentioned in a previous government meeting that expenditures-wise the state budget for 2023 is the biggest one in Latvia’s history.
Until now Latvia’s budget listed expenditures under EUR 162 billion.
He mentioned at a previous press-conference that the budget was prepared based on macroeconomic outlooks composed in a situation of high uncertainty. But this January and the start of February the situation ‘caused reasons to believe the budget will be completed,’ said Ašeradens.
The general government budget deficit outlined for 2023 and which includes the entire state and municipal administration structure, as well as state social insurance institutions, is at EUR 1.77 billion or 4.2% of GDP.
The consolidated government budget deficit is planned at EUR 1.95 billion or 4.6% of GDP.
The peak ceiling for the state debt is set at EUR 19.2 billion or 45% of GDP. This provides flexibility when approving additional financing activities in order to quickly attract resources to help cover debts in a situation of unfavourable market conditions or situations with risks of negative influence for the national economy and state budget deficit. If aforementioned conditions do not come to pass, the state debt is expected to reach EUR 18 billion or 42% of GDP.
Revenue of the state base budget for 2023 is expected at EUR 8.796 billion. Expenditures are planned at EUR 10.861 billion. The growth of the state base budget expenditures, when compared with 2022, is EUR 1.564 billion or 16.8%.
Growth of expenditures of EUR 1.383 billion is intended to cover expenditures related to base functions of the state. Additional financing from various European Union facilities and other financial assistance projects will see an increase of EUR 181.1 million.
The state special social insurance budget revenue and expenditures are planned at EUR 4.197 billion and EUR 4.083 billion respectively. The increase of expenditures of the state special budget is EUR 697.9 million or 20.6% when compared with the year prior.
Funding of EUR 710 million is intended to go to various new government priorities this year. EUR 216 million is planned to go to various additional activities from the state budget’s fiscal space. Funding of EUR 354 million is planned to go to enhancement of the country’s defensive capabilities and to support Ukraine.
The government agreed to allocate EUR 61.6 million towards the wage increase for teachers in 2023.
For various healthcare priorities it is planned to allocate additional funding of EUR 85.8 million this year.
Additional funding is also planned for welfare. Minimal income support will be increased as well. The level of minimal income will change every year in accordance with socioeconomic indexes, allowing for more support the least protected residents. This includes recipients of old age, disability pension, state social insurance benefits and primary social care recipients.
EUR 24 million is planned to go to the interior affairs sector to increase wages of officials with rank. EUR 23.1 million will be spent on the purchase of vehicles for fire fighters and rescuers. EUR 23.8 million will be used to finance upgrades to eastern border infrastructure. Another EUR 4.7 million will go towards the creation of a catastrophe management centre and new premises for State Police.
EUR 77 million is planned to be provided to support Ukrainian residents and Ukraine’s reconstruction. EUR 40.1 million will go towards enhancement of cyber security and provision of various necessities to residents in the event of a threat to national security. EUR 19.3 million will go to Latvian State Police’s Riga Region Department to ensure proper premises, as well as to pay bonuses to police officials for work on holidays.
To commence the re-industrialisation process and ensure financial availability for businesses with plans for major investment projects, Latvian government decided to create the Investment Fund, whose operation and opportunities for the creation of value added chain in the national economy proved the need to expand the fund’s operations. To expand the support programme and strengthen competitiveness of the national economy, the Cabinet of Ministers decided to provide the fund with additional funding of EUR 10 million for 2023 and EUR 30 million for both 2024 and 2025.
This year’s new minimal income thresholds will come into force on the 1st of July 2023. From 2024 onward, however, they will be reviewed every year in January.
For the first time the state budget for the existing year and medium-term budget plan are merged into a single law with the main budget indexes for 2023, 2024 and 2025.
At the end of 2022 Latvia’s Ministry of Finance outlined macroeconomic index outlook for 2022-2025. Indexes were outlined based on GDP dynamics in the first three quarters of 2022, as well as the predicted slowing of economic growth in Latvia’s main foreign trade partner countries this year. Outlooks were composed in a situation of high uncertainty.
According to the macroeconomic outlook, as well as considering the government’s decisions in regards to allocation of additional funding for various sectors, the government was able to clarify the general government budget balance. The overall government budget deficit will go down from 4.2% of GDP in 2023 to 2.3 of GDP in 2024 and 2% of GDP in 2025.
Inflation outlook for 2022 is 17.3% and for 2023 it is 8.5%, which is 0.8 and two percentage points higher than what was predicted in August. Higher inflation outlook is tied mainly to energy resources, especially natural gas and heating energy price rise. There is also the growth of food prices and stronger second-hand effects. In the coming years inflation pressure is expected to go down. By the year 2025 inflation is expected to have stabilised at 2%. To reduce inflation, central banks, including the European Central Bank, have started increasing base interest rates.
The Latvian government has agreed to maintain the existing financial equalisation procedure among municipalities in 2023. All municipalities are planned to experience an increase of equalised revenue in 2023 – by 15.2% on average when compared with 2022. The government has also prepared a proposal for the payment of single-time additional grants to municipalities that have limited financial resources and the lowest growth when compared with the previous year.
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