This week’s focus is on the Ministry of Finance’s forecast of national debt growth from 20.5 billion euros this year to nearly 29 billion euros by 2029. Debt servicing costs will also rise dramatically – within three years, instead of 165 million euros per year, Latvia will have to pay 1.2 billion euros. The budget deficit will also increase – from 3% in 2026 to 3.9% in 2029. Against this backdrop, the government’s plans to borrow an additional €8.4 billion from Brussels for defense appear as the “cherry on top.” Are we living far beyond our means, and what can be done about this situation? BNN asked political analyst and co-owner of the company Mediju tilts, Filips Rajevskis.
“The first thing that can be stated unequivocally is that our budget deficit and government spending have gone out of control. The second thing – a budget deficit can be justified if the money is invested, but given our weak growth indicators, it is quite likely that the money is simply being squandered,” says Filips Rajevskis. He points out that if it were invested not in “golden piles” in the middle of the Daugava, but in much-needed infrastructure that improves life and stimulates the economy, then one could say – fine, we spent more, but now we have, say, a new railway, a new road, or some other essential facility. “When new things are created, economic growth follows. But here it looks like everything has just been squandered and consumed. That is a very sad conclusion – GDP is not growing, government spending is spiraling out of control, and national debt is turning into a heavy burden that costs us enormous amounts of money,” says the political analyst, recalling the words of Jānis Hermanis, Finance and Tax Expert at the Latvian Employers’ Confederation (LDDK), who noted that currently,
servicing the national debt already consumes the equivalent of the Interior Ministry’s budget,
and at this pace, soon it will consume two such budgets. “From this perspective, it means lower security on the streets, reduced availability of healthcare services, and other things, because we will have to pay interest on this debt. Police services will not improve or become more available. The same applies to healthcare – if debt servicing swallows the equivalent of the annual healthcare budget, it is easy to see how much less healthcare will be available. Why do we need to borrow, pay these enormous interest rates, and thereby endanger the quality of life of our citizens? There are no answers. Cutting the budget by 150 million euros, as proposed, is insignificant – experts agree that at this level of problems, such a sum is negligible,” Rajevskis stresses.
Asked by BNN which option – raising taxes or significantly cutting spending – is more realistic, the political analyst replies: regrettably, the option of raising taxes, by collecting more money from the people, is indeed possible. “We are constantly talking about Latvia’s competitiveness. Competitiveness means we produce goods and services and pay taxes. Becoming less competitive means we reduce, rather than increase, the quantity and quality of our services. This leads to lower tax revenues. Thus, raising taxes in such a situation is extremely harmful,” Rajevskis explains. According to him, beyond the objective mathematical side, there is also a subjective aspect: society is told to tighten its belts, to pay more, while the state administration itself does not intend to change anything – out of 14 billion euros it can barely ‘scrape together’ 150 million euros, yet considers raising VAT. But that would mean people paying two percentage points more for every loaf of bread, carton of milk, and all other essentials subject to VAT. “If people have to pay more for medicine, food, healthcare, heating, and electricity – I wonder whether society is ready for this, and whether it is even politically feasible right now.
Could it not end the same way as with the smashed windows on Smilšu and Jēkaba Streets…”
The political analyst suggests looking at Estonia’s experience, where this “exercise” has already been carried out and VAT was significantly increased as of July 1. “What is the result? Estonians are buying basic food products in our border shops, because in Latvia they are cheaper. That is very good for us, as it stimulates our economy. Perhaps it is better to sell more, rather than taxing our own citizens and becoming uncompetitive,” Rajevskis says.
He also emphasizes that in the next parliamentary elections, society will vote for reasonable financial policies, not for the continuation of this spending spree with higher taxes on top.
Asked whether the parties forming the government understand this, the political analyst explains: looking at party positions, the Union of Greens and Farmers has announced it supports cutting spending and tightening belts; The Progressives have openly said that more and more borrowing should be done and only later will they see what happens; and New Unity, by proposing such budget figures, appears to be moving more and more in The Progressives’ direction. “This means they will lose their pragmatic, reasonable voters and become a feeding ground for The Progressives. But they cannot out-progressive the Progressives themselves – it’s simply impossible,” Rajevskis concludes.
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