Latvian parliament passes state budget for 2022; expenditures approved at EUR 12.4 billion

After approximately 51 hours-long discussions and debates Latvia’s Saeima finally passed the Law on State Budget 2022 in the final reading. Revenue is planned at EUR 10.6 billion and expenditures at EUR 12.4 billion.
52 deputies voted in favour of the law and 37 voted against.
The parliament commenced work on the state budget package 15 October. The final reading commenced 15 November. The budget was reviewed within five days. Deputies spent 51 hours, breaks included, discussing budget proposals. A total of 567 proposals were submitted for the budget and accompanying laws.
During debates deputies exchanged both constructive proposals to benefit residents and mutual insults, with deputies criticizing one another for failure to fulfil promises and attempts to refinance certain sectors.
Certain members of the coalition said some of the proposals and warnings from the opposition should be considered. Nevertheless, the proposals submitted by the opposition were rejected.
This is the second budget in Latvia’s history to have been passed partially remotely, using the e-Saeima platform.
The length of debate talks was also shortened two times this year.
232 proposals were received for the final reading. A number of them were related to so-called coalition «deputy quotas», which received sharp criticisms from the opposition. In general quotas were divided into nearly two million euros for multiple organisations, associations, religious communities and municipalities.
Considering the Saeima had added corrections to the initial budget plan submitted by the government, budget estimates, revenue/expenditures percentages are expected later, once the Ministry of Finances has composed all approved changes.
Union of Greens and Farmers member Edgars Tavars criticized this budget, saying that it contains an arbitrarily and rapidly inflated external debt, as well as rapid wage increases for the state president, government and Saeima deputies and does not contain the promised wage increase for medical workers, police officers and other officials.
What Tavars found the most «outrageous» was the return of «deputy quotas» even though it was promised to discontinue this practice.
At the same time, the opposition member said this is not a budget for development, adding that for residents it could become a «sharp lump in their throats».
His colleague Viktors Valainis agreed with him, saying that initially the next year budget lacked priorities. Medicine is also not mentioned as a priority in the budget, he said. Valainis mentioned politicians have failed to fulfil the promises previously given to medical workers.
Additionally this new budget does not respect the ongoing increase of energy resource prices, which is one of the biggest negatives of this budget.
Chairman of Saeima’s Budget Committee Mārtiņš Bondars thanked the opposition for the debates, which demonstrated «what kind of people they are». «We’ve had the opportunity to not only listen to your opinions about proposals but also understand what kind of future you envision for Latvia and what kind of partners you are,» said the coalition deputy.
At the same time, Bondars said perhaps it is necessary to discuss the way budget review process should be held in the Saeima to make it more fulfilling for society.
This proposal received support from Harmony member Sergejs Dolgopolovs, who said the procedure should be reviewed. At the same time, he said the approved budget does not meet the requirements of the state of emergency.
The opposition deputy said that he would vote against this budget because it offers no answers to how Latvia intends to deal with the pandemic and unreasonable expenditures. Deputy Regīna Ločmele allowed this could be the final budget for this Saeima and multiple coalition deputies.
New Conservative Party deputy Krišjānis Feldmans stressed that the new budget has weak points, as all previous budgets did. However, his party nonetheless believes it is generally positive.
Feldmans also thanked his colleagues who agreed to fulfil the party’s «famous pre-election promise 3×500».
According to the politician, he did not think it would come to pass.
Coalition member Artuss Kaimiņš criticized the fact ministers did not participate in debates during the entire budget review process. Ministry of Finance parliamentary secretary Atis Zakatistovs also received blame from Kaimiņš for not participating in debates even once.
The politician put ministers on blast for not appearing to represent their respective sectors in debates.
The revenue in the 2022 state budget is estimated at EUR 10.663 billion and expenditures are estimated at EUR 12.406 billion. Compared to the 2021 plan, the legislative draft for the state budget 2022 includes an increase of EUR 1.078 billion for revenue and an increase of EUR 1.642 billion for expenditures.
State base budget revenue for 2022 is expected at EUR 7.47 billion and expenditures – at EUR 9.263 billion.
The increase of base budget expenditures when compared to 2021 is EUR 1.417 billion or 18.1%. The increase of expenditures of EUR 1.006 billion is intended to help finance the basic functions of the state. An increase of EUR 410.9 million is planned to EU mechanisms and other foreign financial assistance projects.
Considerable financing in the state budget 2022 is planned to be diverted towards the increase of wages of medical workers, teachers and people working in the interior affairs sector.
There are also plans to allocate considerable finances towards state security-related measures.
One of the government’s main priorities for taxes is the reduction of the labour force tax, according to authors of the budget. To continue reducing labour force tax for low income recipients and improve competitiveness of businesses among Baltic States, it is necessary to continue increasing the non-taxable minimum while also increasing the non-taxable minimum for pensioners.
EUR 93.8 million is planned for changes in 2022. This money will be used to make sure the maximum differentiated non-taxable minimum from is EUR 350 from 1 January 2022 and EUR 500 from July 2022.
Revenue from the state special insurance budget and expenditures are planned at EUR 3.438 billion and EUR 3.387 billion respectively.
The increase of the state special budget when compared to 2021 is EUR 214.5 million or 6.8%.
The law on the state budget 2022 includes the activities passed by the Cabinet of Ministers in regards to the influence on tax revenue.
Amendments to laws accompanying the next year’s budget also include the reduction of VAT for books and printed press from 12% to 5%.
It is planned to increase the maximum size of state social insurance contributions from EUR 62 800 to EUR 78 100, as well as increase the revenue level for multiple non-tax positions.
In addition to the aforementioned, tax revenue will be affected by previously approved tax measures – increase of the natural resource tax for specific subjects and tax revenue cut change between state and municipal budgets, increase of the excise tax rate for cigarettes, cigars, cigarillos, smoking and heated tobacco and e-cigarette liquids, as well as the increase of VAT rate to EUR 14 per 100 litres for non-alcoholic beverages with sugar concentration from 8 g per 100 ml.
The medium-term macroeconomic development scenario for 2021-2024 was developed in June 2021 based on GDP data from Q1 2021.
When developing the medium-term macroeconomic development scenario, the Ministry of Finances consulted with the International Monetary Fund and experts from the European Commission. The macroeconomic index is coordinated with the Bank of Latvia the Ministry of Economics and the Fiscal Discipline Council.
According to this scenario, Latvia’s GDP increase will reach 3.7% in 2021 and 5% in 2022, which is 0.7 and 0.5 percentage points more rapidly when compared to the original outlook in February, when the government worked on Latvia’s Stability Programme 2021-2024. 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 restriction of Covid-19 pandemic in Latvia and successful overcoming of the crisis in other countries of the world and Latvia’s main trade partner states, contributing to domestic and foreign demand.
Annual inflation is expected at 2% for 2021 and 2.4% in 2022. Compared to outlooks in February, the inflation outlook for 2021 is upgraded by 0.6 percentage points and for 2022 by 0.4 percentage points. More rapid increase of consumer prices will be dictated by increasing raw material prices, including oil and food products in the world, as well as more rapid economic growth and increase of service prices in Latvia. In the next two years inflation is expected to drop to 2% in Latvia.
As economic development remains rapid and the number of residents of working age continues to decline, the level of unemployment in the country is expected to drop to 7% in 2022. The number of employed people will increase slightly in 2022. It is expected to have stabilised at 900 000 by 2024.