On Tuesday, the government approved the 2026 state budget, under which consolidated general government revenues are planned at 16.064 billion euros, while expenditures will total17.945 billion euros.
Compared to the 2025 budget, revenues in 2026 will grow faster than expenditures. Budget revenues are expected to increase by 944.6 million euros, while expenditures will rise by 804.3 million euros.
Revenues in the basic budget are projected at 10.9 billion euros, with expenditures of 13.2 billion euros. In the special budget, revenues are expected to reach 5.5 billion euros, and expenditures 5.1 billion euros.
Latvia’s gross domestic product (GDP) next year, at current prices, is forecast at 43.953 billion euros. The budget deficit will amount to 3.3% of GDP, and the public debt will remain below 55% of GDP.
General government expenditures will decline to 47% of GDP, compared to 47.5% this year.
At the same time, while total spending decreases, defence expenditures will rise.
In total, expenditures will be reduced by 171 million euros next year. 693.5 million euros has been allocated for priority measures, of which 448.3 million euros are earmarked for defence and security.
The Ministry of Finance (MoF) states that the 2026 state budget and the 2026–2028 medium-term budget framework have been prepared in accordance with both European Union (EU) and national fiscal discipline rules.
Next year’s budget provides additional investments in national security, family support, and quality education. The MoF also notes that the budget includes over 1 billion euros in EU fund investments, as well as an increase of 151.4 million euros in municipal revenues.
According to the MoF,
the 2026 state budget is based on cautious macroeconomic forecasts prepared in June,
which anticipate moderate economic growth and a gradual decline in inflation in the medium term. The ministry concludes that the main drivers of economic growth this year are construction, manufacturing, and trade. After years of stagnation, corporate lending volumes have started to grow strongly this year — as of August, the total loan portfolio issued to companies had increased by 16% compared to August 2024.
Economic growth this year is forecast at 1.1%, while next year’s budget foresees 2.1% growth, and up to 2.2% in subsequent years.
The inflation forecast for 2025 has been raised to 3.5%, mainly due to rising food prices and heating tariffs. Over the coming years, the MoF expects gradual disinflation, reaching 2.3% in 2026 and 2.2% thereafter.
The general government budget deficit is expected to be 2.9% of GDP in 2025, rising to 3.3% in 2026, and averaging around 3.6% in the medium term. The MoF explains that this increase is mainly due to higher spending on national defence and security. These expenditures are being implemented under the EU fiscal flexibility mechanism – the national defence escape clause, which allows member states to temporarily exceed deficit and expenditure limits if additional funding is directed specifically towards defence.
The MoF emphasizes that Latvia is using this flexibility responsibly,
maintaining fiscal sustainability and providing for a gradual reduction of the deficit once the escape clause period ends.
The budget also takes into account that in 2025 the government implemented a labour tax reform, reducing the tax burden on employers and employees. According to the MoF, as a result of this reform, budget revenues will decrease by approximately 1 billion euros between 2025 and 2028.
Through expenditure reduction measures, a fiscal saving of 233 million euros has been secured for 2026, while total expenditure reductions for 2026–2028 exceed 800 million euros, according to the MoF.
Compared to 2025, expenditure on basic government functions has been reduced across several ministries: by 16% in the Ministry of Finance, 10% in the Ministry of Justice, 9% in the Ministry of Climate and Energy, 9% in the Ministry of Economics, and 5% in the Ministry of Foreign Affairs, among others.
Overall, 693.5 million euros is allocated for government priorities in 2026,
724.8 million euros in 2027, and €935.9 million in 2028. A significant share — 448.3 million euros next year — is directed toward strengthening national security, including improving the combat capabilities of the National Armed Forces, developing military infrastructure and border protection systems, and supporting the growth of the domestic defence industry and job creation.
The total defence funding for next year will reach 2.2 billion euros, according to the MoF. Latvia’s defence expenditure, according to NATO methodology, will reach 4.9% of GDP in 2026, 5.0% in 2027, and 4.9% in 2028.
An additional 94.8 million euros will be directed to family support and maternal and child healthcare, providing for increased benefits, better access to services, and greater social security.
Funding for the health sector will increase by 27.9 million euros compared to 2025, reaching a total of 1.9 billion euros.
In education,
45 million euros is earmarked for implementing the new teacher remuneration model
“Programma skolā”, strengthening support staff and ensuring quality education across Latvia.
Additional investments are also planned in socially important areas — expanding palliative care, improving access to social services and rehabilitation, and supporting farmers.
According to the MoF, EU Cohesion Policy and Recovery and Resilience Facility (RRF) investments will remain one of the key drivers of Latvia’s economic growth in 2026, exceeding 1 billion euros, remaining at a historically high level and significantly surpassing the figures of the previous programming period.
These funds are being invested in strengthening security, regional development, infrastructure, business competitiveness, and human capital growth.
By 2026, over 2.2 billion euros has already been mobilized for EU-funded projects, and 93% of the total 1.97 billion euros RRF funding is already reserved for specific investments that are being implemented as planned.
The MoF highlights the importance of new investments
under the European Commission’s “ReArm Europe” regulation, which allows 10% of EU funding to be redirected to security and defence projects, including the development of military and business mobility.
In addition to EU and RRF funding, other international financial assistance programmes continue in Latvia. Swiss financial assistance through 2029 amounts to 49.8 million euros, including a 42.4 million euros Swiss grant and state co-financing for four programmes — improving children’s cancer care, cleaning contaminated sites, applied research, and developing work-based learning.
In the new European Economic Area (EEA) and Norwegian Grants period until 2031, Latvia will have the opportunity to invest over 100 million euros (including national co-financing) in three priority areas: 43 million euros for local development and resilience, supporting the government’s main priority “National Security” through investments in civil protection infrastructure, including new shelters and the adaptation and equipment of existing facilities. Funds will also cover the procurement and installation of generators to ensure an uninterrupted power supply for medical institutions and social care centers. 27.5 million euros for green innovations, including business support and remediation of polluted sites. 15 million euros for the corrections services programme – construction of a women’s prison, strengthening corrections services, and rehabilitation services for children with substance addictions.
The MoF explains that these
foreign investments complement EU funding, reduce the burden on the state budget,
and ensure long-term investments in national security and public well-being.
From the state budget, the largest investments — 545.9 million euros — will be directed to national defence, strengthening the combat capabilities of the National Armed Forces, developing military infrastructure and border protection systems, and supporting the growth of the domestic defence industry.
Meanwhile, the interior sector will receive 67.9 million euros for modernising security service infrastructure, including new fire and rescue depots, police vehicle renewal, and civil protection improvements.
Funding is also planned for the development of education, health, and cultural infrastructure, according to the MoF. The Ministry of Education and Science will receive 11.9 million euros, including for digitising Latvian language resources and creating a modern learning environment. Investments in the health sector will go towards modernising hospital infrastructure and improving the e-health system, while the Ministry of Culture’s 5.7 million euros investment will support cultural heritage preservation, digital security, and museum exhibition modernisation.
Next year, five border municipalities — Ludza, Krāslava, Balvi, Alūksne, and Augšdaugava — will receive 3 million euros to strengthen security at the EU’s external border.
Municipalities will also have expanded opportunities to obtain loans for investment projects,
particularly in security, education, and demography.
The personal income tax (PIT) distribution next year will remain 78% for municipalities and 22% for the state budget, with forecast municipal PIT revenues of 2.278 billion euros.
The total permissible increase in municipal borrowing is set at 168.14 million euros.
Municipal tax revenues are projected to grow steadily in the coming years – in 2026, including compensation, they will increase by €151.4 million (6.1%). The MoF notes that the PIT forecast is fully guaranteed, and any revenues exceeding the guaranteed level will be used to repay debt obligations.
Earmarked grants to municipalities next year total 676.286 million euros, including 527.435 million euros for the salaries and social contributions of teachers in primary, secondary, special, and vocational education institutions, as well as for partial extracurricular education programmes.
For special preschool groups and boarding institutions, 73.96 million euros is allocated, while
72.829 million euros is provided for teachers educating children from age five,
and 2.063 million euros for artistic ensemble leaders.
The total state budget grant to municipalities is set at 106.32 million euros, including 50.923 million euros for the municipal financial equalisation fund, and an additional 51.794 million euros integrated into the equalisation system based on PIT distribution principles. Another 3 million euros is earmarked for border municipalities.
A separate grant of 602,928 euros is provided for municipalities to cover long-term care costs for residents placed in nursing homes before the 1st of January, 1998 (11,376 euros per resident).
The total increase in municipal guarantees is 56.915 million euros for loans to municipal enterprises implementing investment projects and short-term loans for fuel purchases with repayment periods of up to two years.
According to the MoF,
public sector efficiency measures include the reduction of administrative costs
and staff positions in the State Revenue Service (SRS), the merger of the Lottery and Gambling Supervisory Inspection with the SRS, and the review of funding in completed infrastructure projects, such as the Liepāja prison construction, among other steps aimed at more efficient use of public funds.
The government has also reaffirmed its commitment not to increase core taxes, making only adjustments in the public interest. Next year, excise duties on alcohol and tobacco, the gambling tax, and the natural resource tax will be raised. The reduced 12% VAT rate will continue to apply to bread, eggs, milk, and poultry.
In 2026, both the minimum wage and the non-taxable minimum income will increase by 40 euros, reaching 780 euros and 550 euros per month respectively. From the 1st of October, 2025, pensions up to 1,488 euros will be indexed, ensuring that 98% of pensions are fully adjusted.
According to the budget, the following state-owned enterprises (SOEs) will contribute dividends in 2026: AS “Latvenergo” – 141 million euros; AS “Latvijas valsts meži” (Latvian State Forests) – at least 143.896 million euros; AS “Augstsprieguma tīkls” – at least 5.716 million euros; AS “Latvijas Loto” – at least 9.358 million euros; VAS “Latvijas Valsts radio un televīzijas centrs” – at least 6.261 million euros.
Meanwhile, VAS “Latvijas gaisa satiksme” (Latvian Air Traffic) will not pay dividends from profits for 2025–2027 in order to comply with international and EU regulations.
The budget law also stipulates that state-owned enterprises included in the general government sector may waive capital use payments, provided that the share of profits normally paid as dividends is instead directed towards servicing existing financial obligations.
The 2026 state budget legislative package will include nearly 50 accompanying laws. The budget will be submitted to the Saeima on Wednesday, the 15th of October.
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