Latvia’s Ministry of Finance reports that the state special [pension] budget in Q1 2023 had a deficit of EUR 67.9 million, whereas the deficit of the consolidated general budget was EUR 264.1 million, which is EUR 128.4 million more when compared with the first three months of 2022.
According to data published by the State Treasury, the expenditures for the consolidated general budget in January-March 2023 was EUR 3.8 billion or EUR 420.1 million or 12.3% higher than a year prior. Revenue, on the other hand, increased by EUR 291.8 million or 8.9% when compared with the first three months of 2022, reaching EUR 3.6 billion.
Higher tax revenue in Q1, which reached EUR 2.9 billion, was EUR 317.5 million or 12.3% higher than the year prior. This largely provided the revenue increase in the general budget. This year, similarly to the year prior,
there was an increase for labour tax revenue,
thanks to the growth of the pay fund.
The rapid rise of VAT revenue is mainly tied to taxes paid in the commercial sector, because the consumer price index in January-March was 19.6% higher than it was in Q1 2022. High energy resource prices contributed to higher paid taxes in the power, gas and heating sectors.
On the side of general budget expenditures there is a rapid rise for subsidies and grants, which reached EUR 1 billion in Q1 and were EUR 158.8 million or 18.3% more than the year prior.
It is also worth mentioning higher general budget’s capital expenditures, where an increase of EUR 44.2 million or 29.8% is observed. In the first three months it reached EUR 192.6 million in the first three months of 2023. State base budget expenditures to compose the base capital increased by EUR 47.1 million or 71.7%.
EUR 20.7 million was diverted towards the construction of a new prison in Liepaja. EUR 9.3 million more was spent on procurement of new transports for the defence sector. EUR 16.3 million more is provided towards various projects co-financed by the EU.
Although Q1 was concluded with
a deficit of EUR 274.7 million in the state base budget,
it is still a significant improvement when compared with last year’s Q1, when deficit reached EUR 401.3 million. Improvement of the base budget balance is due to reduced expenditures in social payments by more than a half – by EUR 153.7 million or 50.9%.
This can be explained with a much higher expenditures base in the same period of 2022 – payment of single-time benefits between the 1st of January and the 30th of April to families with children and the benefit paid to seniors to help compensate the negative effect from the surge of energy prices.
The price rise had the biggest impact on heating energy, electricity, fuels and road maintenance. Expenditures were also on a rise for social aid, as expenditures increased for housing benefits and guaranteed minimal income benefits, which is mainly due to provision of aid to Ukrainian civilians.
According to information compiled by the Ministry of Finance, the state spent EUR 306.5 million on various support measures in the first three months of 2023.
According to the ministry’s estimate, the planned EUR 622 million towards various energy support measures will be enough for the start of the next heating season. Additionally, support measures will become more focused in the future. It should be mentioned that this year’s support measures are planned to cost EUR 824.4 million (1.9% of GDP), which is EUR 826 million less when compared with the year prior. Support measures are expected to worsen the general government budget balance by EUR 856 million or 2.0% of GDP.
In 2022 Latvia’s general government budget deficit was 4.4% of GDP, which is 0.8 percentage points higher than average in the EU, according to data published by Eurostat on the 21st of April.
Compared with 2021, balance is improving. However, it remains significantly higher than it was before the pandemic and the first year (2020) of the pandemic.
Also read: Latvia’s state budget deficit at 4.4% of GDP in 2022