According to the data published by Latvia’s State Treasury for the first four months of 2022, the consolidated state budget had a deficit of EUR 82.5 million, which is EUR 591.5 million less when compared to the January-April period of 2021.
With economic growth continuing, revenue of the general state budget was 15.3% higher when compared to last year’s four-month period, reaching EUR 4.5 billion. Expenses, considering high levels observed last year, remain mostly on the same level, increasing by only EUR 10.7 million or 0.2%, reaching EUR 4.6 billion, BNN was told by Ministry of Finance.
The payment of the government’s approved benefits determined the formation of deficit in the state base budget, where its volume reached EUR 406.4 million, which is EUR 252 million less when compared to last year’s four-month period. The state special budget generated a surplus of EUR 87.7 million and balance improved by EUR 235.2 million. The surplus generated in budget’s of municipalities reached upwards of EUR 164.6 million, which is EUR 92.9 million higher when compared to January-April of 2021.
Rapid economic growth continued following the drop in Covid-19 infections and the decision to lift epidemiological restrictions.
Data published by the Central Statistical Bureau of Latvia (CSP) for Q1 2022 indicates 5.9% GDP increase when compared to Q1 2021. However, it should be mentioned that, considering the significant increase of consumer prices, the actual GDP growth has been much higher, which can be explained with increased rates in tax revenue. With a rapid increase of private consumption and increase observed in the payroll fund, paid taxes, including the undistributed balance of single tax account, increased by EUR 519.4 million or 17.2% in January-April period, reaching EUR 3.5 billion. In the January-April period of 2022 general budget tax revenue reached EUR 367.9 million, which is 11.6% above the plan.
VAT revenue was received in the amount EUR 1.1 billion, which is EUR 241.1 million or 28.8% more when compared to last year’s four-month period. April’s revenue exceeded the VAT revenue level of last year’s April by EUR 76.9 million or 32%. Data from the State Revenue Service (VID) indicate that the biggest revenue increase was observed for sectors related to trade, energy resource supplies and production, which is mostly due to price level changes. According to data from CSP, inflation reached 13% in April in spite of wide state support aimed at slowing cost increase related to energy resource consumption. At the same time, a very positive situation is observed in retail trade, where, according to data from CSP, turnover in actual prices was almost 30% higher when compared to April 2021.
Increased tax revenue rates were observed in most of Latvia’s biggest national economy sectors with the country recovering from the pandemic and epidemiological restrictions. At the same time, following the positive indexes in the economy observed in the first several months and since the start of the war in Ukraine, the situation in the world and Latvia’s economy has changed drastically, and countries will have to accept lower growth rates from now on. Social insurance contributions to the general state budget in the January-April period have reached EUR 1.2 billion (37.2% more), whereas PIT revenue has increased by EUR 166.9 million or 34.9%, reaching EUR 645.1 million. Data from VID indicates the payroll fund in Latvia in Q1 2022 was 12-15% higher than the year before. The high labour wage tax revenue increase is linked to the low revenue base observed in January 2021, when Latvia adopted a new tax payment and accounting system, as well as more operational distribution of paid taxes from the single tax account.
A more moderate increase was observed for excise tax revenue, which was EUR 21.9 million or 6.9% higher when compared to the four-month period of 2021. Considering increased consumption of petrol and tobacco products, excise tax revenue from these products increased by EUR 12.1 million (7%) and EUR 5.2 million (7.3%) respectively.
General budget’s non-tax revenue was EUR 236 million, which is EUR 76.9 million or 48.3% higher when compared to January-April period of 2021. The increase can be explained with higher dividends received from state companies, as well as revenue from auctions of Latvian emission quotas. The non-tax revenue plan was exceeded by EUR 61.4 million or 53.5%. This was largely thanks to premium revenue received from State Treasury’s euro bonds and additional revenue from auctions of Latvia’s emission quotas and dividends.
General budget’s high cost level remains dictated by the payment of benefits approved by the government. Although general budget expenditures were slightly above last year’s level in Q1 2022, they were 34% higher when compared to the pre-pandemic period in 2019. According to the Ministry of Finance, in the first four months of 2022 the biggest portion of costs came from Covid-19 support, which is planned at EUR 1.4 billion for this year. The volume of aid paid in the form of energy support is already close to EUR 0.3 billion. Additionally, following Russia’s invasion of Ukraine, additional financing was diverted towards enhancement of the country’s defence and support of Ukrainian refugees, which has already reached EUR 10.8 million.
Financing diverting towards energy support and needs of the healthcare sector largely depended on increase of budget subsidies and grants by EUR 307.1 million or 35.4%, reaching EUR 1.2 billion. A major increase was observed in costs for goods and services, which were EUR 111.4 million or 26.2% more when compared to last year’s four-month period, reaching EUR 535.7 million. A considerable portion of this increase went to the National Armed Forces. Growing energy resource prices have significantly increased the costs of goods and services in municipal budgets, in which road maintenance costs have increased since the start of the year. A similar situation with increased costs is observed in budgets of public entities (universities, scientific institutions, etc.).
The general budget expenditures for pensions were EUR 883 million, which is EUR 48.9 million or 5.9% more when compared to the first four months of 2021.
The increase was dictated by pension indexation performed in October last year. Expenditures related to other forms of support were much lower amounts than last year, when the government paid single-time benefits of EUR 500 to families with children and EUR 200 to pensioners. The costs of other benefits were EUR 727.3 million, which was EUR 371.7 million or 33.8% less when compared to Q1 2021. It should be mentioned that the drop in expenditures may turn out even more rapid. Nevertheless, payment of aid and benefits to help reduce the effect of energy resource prices will continue this year.
Interest expenditures and capital expenditures turned out lower than expected in Q1 2022. Interest expenditures have dropped by EUR 78.6 million or 54.9%, reaching EUR 64.6 million.