Are we really approaching the end of the era of wasteful government spending, or are the current statements about future austerity just window dressing? What does the discordant note between Prime Minister Evika Siliņa’s (New Unity) comments on the need for austerity measures and Finance Minister Arvils Ašeradens’ (New Unity) admission that the public sector will only have to think about cost reductions in 2027–2028 actually mean? What can we expect under such an “austerity regime”? BNN asked political scientist and Mediju tilts co-owner Filips Rajevskis.
“Most likely, we will borrow and squander money until the parliamentary elections, which will then have to be repaid at some point later,” Rajevskis says, expressing scepticism. He reminds us that it has been said for years that public administration should be more efficient and the state should be more frugal. Now, however, the ruling party—which controls the government and has the largest parliamentary faction—essentially announces that austerity is postponed until after the elections. According to Rajevskis, this is an extremely risky move:
“On one hand, they are trying to please their voters by avoiding painful decisions and continuing very active public spending—this time financed by borrowing. On the other hand, they are exposing themselves to enormous risk, because this is something they can be attacked for during the election campaign. By acting in such an openly populist way and declaring that austerity measures can be delayed until after the elections, the party is taking a huge gamble. Our society, even if only subconsciously, already has experience of what postponed austerity measures mean—usually they are much harsher, more painful, and more drastic.”
Asked whether the 150 million euros “saved” by ministries indicates that austerity is already underway, Rajevskis points out that this is a negligible amount in the context of the state budget:
“Everyone has admitted that this 150 million euros is just an annual, theatrical exercise.
Perhaps the amount will rise to 200 million euros, but it could just as well shrink. After all, there was the Prime Minister’s statement—citing the Ministry of Finance—that things aren’t so bad and the budget is performing. This shows an unwillingness to seriously address the matter—more talk about austerity than actual implementation of austerity measures.”
When asked what this could mean for taxpayers, Rajevskis recalls the events of the 2009 crisis:
“That was a serious across-the-board budget cut. The same will happen this time—when the crisis comes, everything will be cut, starting with pensions and ending with healthcare spending. To fix the situation, taxes will also be raised. With today’s left-progressive fiscal policy, the eagerness to spend, and the postponement of austerity measures, we are marching rapidly towards a severe crisis similar to 2009.” He reminds that during that crisis, Latvia lost many people who simply had to leave the country.
Could it be that the failure to reduce inflated public administration staffing is due to a fear of losing, as some believe, “New Unity’s” natural voter base—the bureaucracy? Rajevskis dismisses this as a myth:
“If that were really the case, then in 2010—after severe austerity measures, major budget cuts, and mass layoffs in the public sector—Valdis Dombrovskis (Unity) would not have been re-elected with such a strong result. This experience suggests that this so-called electorate is more mythical than real—it is neither that large nor that powerful.”
Rajevskis adds that New Unity should look into its own historical record:
“When they have been pragmatic, frugal, and clear in these measures, they have been far more successful than when they have squandered money and slammed the pedal to the metal.”
Read also: Austerity measures will be necessary for Latvia, says Siliņa