On Monday, 25 October, Latvia’s Saeima conceptually passed the State Budget for 2022 project. The consolidated budget revenue is planned at EUR 10.6 billion and expenditures at EUR 12.4 billion.
It is planned for the Saeima to review the next year’s budget project and accompanying legislative drafts on 15 November.
According to the government, a considerable amount of financing in the 2022 state budget is planned to be allocated to increase wages of medical workers, teachers and workers of the home affairs sector. There are also plans for additional financing towards state security-related measures, execution of government decisions and other priorities.
One of the government’s priorities in the tax field is the reduction of the labour tax burden, according to authors of the budget project. To continue reducing the labour tax for low wage recipients and improve the competitiveness of businesses among Baltic States, it is necessary to continue increasing the non-taxable minimum.
The government plans to allocate EUR 93.8 million in 2022 for relevant changed and ensure the maximum differentiated non-taxable minimum and
non-taxable minimum for pensioners is EUR 350 from 1 January onward and EUR 500 from 1 July onward.
In 2022 the state consolidated budget revenue is planned at EUR 10.663 billion and expenditures – EUR 12.406 billion.
Compared to the 2021 plan, the budget plan for 2022 provides for an increase of revenue of EUR 1.078 billion and increase of expenditures of EUR 1.642 billion.
The base budget revenue for 2022 is estimated to reach EUR 7.47 billion and expenditures are planned at EUR 9.263 billion.
The increase of base budget expenditures is EUR 1.417 billion or 18,1% when compared to 2021 plan. The increase of expenditures by EUR 1.006 billion is intended to finance the basic functions of the state. Financing available from the EU and other foreign aid reaches EUR 410.9 million.
Revenue and expenditures of the state special social insurance budget are planned at EUR 3.438 billion and EUR 3.387 billion respectively. The increase of the state special budget is EUR 214.5 million or 6.8% when compared to the 2021 budget plan.
The legislative draft on the state budget 2022 includes measures submitted by the Cabinet of Ministers. These measures have an effect on tax revenue.
Legislative drafts accompanying the state budget plan include the reduction of VAT from 12% to 5% for books and other printed press (newspapers, magazines, etc.) and electronic delivery (except online or through downloads) and their subscription fee.
It is also planned to increase the maximum state social insurance fee ceiling from EUR 62 800 to EUR 78 100, as well as the increase of different non-tax positions.
In addition to the aforementioned, tax revenue will be affected to the previously made tax measures – natural resource tax rate increase for specific subjects and tax revenue distribution change between the state and municipal budgets, excise tax increase for cigarettes, cigars, cigarillos, smoking, heated tobacco and e-cigarette liquids. There are also plans to set the excise tax rate at EUR 14 per 100 l for non-alcoholic beverages with sugar concentration of 8 g per 100 ml.
The medium-term macroeconomic development scenario for 2021-2024 was developed in June 2021 based on GDP data available in Q1 2021, as well as short-term macroeconomic information and the government’s approved measures to reduce the impact of Covid-19 on the national economy.
In the development of the medium-term macroeconomic development scenario, the Ministry of Finance consulted with experts from the International Monetary Fund and European Commission
The macroeconomic outlook is coordinated with the Bank of Latvia and Ministry of Economics. There were also approved by the Fiscal Discipline Council on 14 June 2021.
According to the approved scenario, Latvia’s GDP growth will reach 3.7% in 2021 and 5% in 2022, which is 0.7 percentage points and 0.5 percentage points more rapidly than the outlook detailed for Latvia’s Stability Programme 2021-2024 in February. In 2023 and 2024 Latvia’s GDP will increase 3.5% and 3.4% respectively.
The macroeconomic development scenario is based on the assumption that the economic growth in 2021 and 2022 will be dictated by efforts to limit the spread of Covid-19 in Latvia and efforts to overcome the crisis in the world and Latvia’s main foreign trade partners.
A similar assumption is the basis for all international institutions’ macroeconomic outlooks based on the latest information on the spread of Covid-19.
Growth of private consumption will be the main driving force of Latvia’s economic growth in 2021. It is expected to grow 6.3% this year. Considering the low base, private consumption increase may reach 10.4% in 2022.
The investment volume may increase 4.1% this year and 8.5% in 2022. Growth is provided by accessibility of EU funds and Recovery and Resilience Facility, as well as the implementation of Rail Baltica project.
Average annual inflation is expected to be 2% in 2021 and 2.4% in 2022. Compared to outlooks voiced in February, inflation outlook for 2021 has been increased 0.6 percentage points and for 2022 – 0.4 percentage points. More rapid price increase will be dictated by both the price of raw materials, including oil and food material prices in the world, as well as faster economic growth in Latvia. Inflation is expected to drop to 2% in the next two years.
In 2022 unemployment level is expected to drop to 7% as long as economic development remains rapid and the number of residents of work age goes down. The number of employed people will increase slightly in 2022. It will have stabilized at 900 000 by 2024.
Latvian parliament conceptually passes the 2022 state budget project
