With the budget deficit amount for next year we have managed to stop at a “red line”, but we have to consider crossing it in the future, said Chairman of Saeima Public Administration and Local Government Committee Oļegs Burovs in an interview to LTV programme Rīta panorāma.
According to him, the state budget plan for 2025 submitted to the Saeima is balanced despite the slow growth of Latvia’s economy. While the gross domestic product (GDP) growth forecast was as low as 0.6% just four months ago, then could end up even lower by the end of the year, according to Burovs.
At the same time, however, budget deficit is on a rise. “It is good that we’ve stopped at a red line and we have 2.999%,” said the politician in his interview. Nevertheless, he said that looking at experience of other European countries, Latvia needs to be prepared for budget deficit potentially exceeding 3% in the coming years.
The state debt will continue going up and may even come close to 50% in moments of economic recession, Burovs continued. “It’s sad, but it is the reality,” he said.
Meanwhile, the tax system, in his opinion, is fiscally neutral. Improvements can be debated, but it is fiscally neutral. In his assessment, tax collection in Latvia has improved, which indicates a slight decline in the shadow economy.
According to Burovs, the main problem in Latvia is not taxes, but attracting investments, which is hampered by sometimes mismanagement, concerns to take responsibility and an extremely large bureaucratic burden. There is also a lack of cooperation between those involved, the parliamentarian deputy said. “Sometimes politicians are afraid to take responsibility, maybe they are unprofessional, but officials sit and observe the process. There are such elementary things that are not solved,” he assessed.
Latvia’s budget plan for 2025 will be submitted to the European Commission with deficit at 2.999%, as confirmed by Minister of Finance Arvils Ašeradens.
He explained that the decision was made to compose a “very tense” budget due to serious challenges in the security sector, and the EC is well-informed of that.
“It’s the government’s risk to run the state budget year in such a way that we fit into this situation [budget deficit of 3% of gross domestic product (GDP)],” said the minister, stressing that the government has plenty of ways to manage the situation.
At the same time, Ašeradens also mentioned Latvia should hope for the best but also be prepared for the worst, stressing the country is prepared for both possibilities. So far, the government has been working very prudently with costs that could be above the allowable deficit level, the finance minister said, expressing hope that it can continue to do so next year.
The European Union’s (EU) economic governance mechanism stipulates that the planned or real government deficit must not exceed 3% of GDP.
The Fiscal Discipline Council (FDP) has noted that the Latvian government has developed an economically justified budget project for 2025. Nevertheless, there is a number of risks that could still threaten fiscal indexes in the medium-term perspective, because Latvia, like several other EU member states, is currently in a “post-crisis syndrome”, and economic growth is much slower than expected.
This spring, the new framework for EU economic governance entered into force, designed to gradually and sustainably reduce the EU’s increased deficit and debt levels. At the same time, it is also aimed at promoting economic growth, partly by directing additional budget revenues towards reducing the budget deficit.
“Taking into account slower growth and also the fact that Latvia’s public debt will approach the 50% limit in a few years, it is important to be prepared for the adjustment of public finances in order not to exceed the “red line” of the budget deficit – 3% of GDP,” said FDP Chairperson Inna Šteinbuka.
The revenues of the consolidated state budget for the next year are planned in the amount of EUR 15.081 billion, while expenditures – in the amount of EUR 17.093 billion.