Latvia’s state budget suffers deficit worth one billion euros

In 11 months of 2021 the deficit of Latvia’s state consolidated budget was EUR 1.03 billion, which is EUR 490.5 million more when compared to the same period of 2020, according to data published by the State Treasury.
Considering the costs of the aid provided to reduce consequences from Covid-19 pandemic, the deficit in the state budget reaches EUR 1.08 billion. The municipal budget, on the other hand, formed a surplus of EUR 43.3 million, as reported by the Ministry of Finances.
Revenue of the consolidated general budget in 11 months of 2021, when compared to 2020, increased by EUR 1.2 billion or 12%, reaching EUR 11.5 billion. Expenditures increased more rapidly – by EUR 1.7 billion or 16%, reaching EUR 12.5 billion.
Tax revenue in the January-November period, including the single tax account’s undivided remaining balance of EUR 256.5 million, was EUR 9.1 billion, which is EUR 888 million or 10.9% more when compared to 11 months of 2020.
Without the undivided balance on the single tax account, tax revenue reached EUR 8.8 billion this year, exceeding the tax revenue level of 11 months of 2020 by EUR 631.5 million or 7.7%.
In November, despite tight epidemiological restrictions, the amount of tax payments had exceeded those of last year by 7.4%.
This year’s increase of tax revenue for the state budget was related to increased economic activity of Latvia’s residents and the increase of average wages in the country, as well as lower tax revenue level observed in spring last year following the first wave of Covid-19, explains the Ministry of Finances. This means tax revenue increase was especially rapid in certain months of 2021. For example, in May 2021 general budget revenue, including the balance left on the single tax account, reached a 35.1% increase when compared to 2020.
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The tax revenue plan of the general state budget, aside from the single tax account’s balance, was completed 104.1% in 11 months of 2021. The surplus of tax revenue reached EUR 346.9 million. Although Latvia declared a curfew between 21 October and 14 November and activities of many businesses were severely limited, the tax revenue in November exceeded the budget plan, reaching 101.9% or EUR 15.5 million.
Increased tax revenue was observed for all tax positions, the ministry notes.
Revenue from Value Added Tax (VAT) has increased EUR 330.1 million or 14.3% and was EUR 2.6 billion. Two-thirds of this increase came from the trade sector.
Social insurance contributions increased by EUR 90.8 million or 3.5%, reaching EUR 2.7 billion. Personal Income Tax (PIT) revenue increased EUR 59.1 million or 3.6%, reaching EUR 1.7 billion. The biggest Labour Force Tax revenue increase came from healthcare, IT and ICT sectors.
Excise tax revenue has increased EUR 32.3 million or 3.3%, reaching EUR 1 billion. Revenue from oil products has increased EUR 17 million and from tobacco products – by EUR 12.9 million.
The most rapid increase is observed for corporate income tax – EUR 102.3 million or 54.5% more when compared to 11 months of 2020, reaching EUR 289.9 million.
Revenue from foreign financial aid was EUR 243.7 million or 22.6% more when compared to 2020, reaching EUR 1.3 billion.
The Ministry of Finances explains that the increase of foreign financial aid is related to the advance payments of EUR 237.4 million received in September for the implementation of the European Recovery and Sustainability Mechanism, which the European Commission approved last year to battle Covid-19 consequences in EU member states.
According to estimates from the Ministry of Finances, by the end of November the volume of support provided to reduce Covid-19 consequences reached EUR 1.9 billion or 6.2% of GDP. According to data from the State Treasury, the costs of the state base budget and special budget reached nearly EUR 1.7 billion this year. The volume of state aid provided this year was the main reason for the increase of general budget costs.
The aid allocated from the state general budget to cover benefits in 11 months of 2021 reached EUR 2.6 billion. Compared to the previous year, this aid has increased by EUR 193.7 million or 8.2%.
The ministry reports that the biggest cost increase for benefits was observed for the healthcare sector. Benefits have increased for interior affairs and defence sector workers.
The cost of goods and services increased moderately for the general state budget. In the account period these costs have increased EUR 50.2 million or 4%, reaching EUR 1.3 billion. The biggest increase for the cost of goods and services is observed for higher education institutions, research institutions and others, as well as the defence sector.
Grants and subsidies increased by EUR 266.2 million or 11.6% in 11 months of 2021, reaching EUR 2.6 billion. The increase of costs is dictated by the provision of additional financing for healthcare – an increase of EUR 449.9 million or 46%. The main increase comes from transfers towards the increase of wages of medical staff.
Social payments to the state budget form more than one-third of all expenses. This year this category of expenses increased the most rapidly among all other groups – in 11 months these costs increased EUR 1.1 billion or 34.8%, reaching EUR 4.4 billion. Of these costs EUR 2.3 billion were pension costs, which, when compared to 11 months of 2020, is an increase of EUR 162.4 million or 7.6%. Other benefit-related costs increased EUR 979.8 million or 86.3% and formed EUR 2.1 billion.
The costs of other benefits was related to payment of aid to entrepreneurs and residents to reduce the consequences from Covid-19, notes the ministry. According to data from the State Treasury, by the end of November the size of social payments in the form of Covid-19 aid reached EUR 1 billion. This includes grands for enterprises to ensure assets, downtime benefits, wage subsidies, and support paid to families, children and families.
Social payments also mostly consist of sick leave and unemployment benefits.
For sick leave costs the state special budget provided payments worth EUR 277.4 million, which is EUR 59.2 million or 27.2% more when compared to the same period of 2020.
According to data from the State Social Insurance Agency (VSAA) for 11 months of 2021, the number of people receiving sick leave benefits increased 30.1%, which was largely influenced by the spread of Covid-19 in Latvia. It is important to keep in mind that the state covers the cost of work inability from the first day of confirmed Covid-19 infection, stresses the Ministry of Finances.
The cost of unemployment benefits was EUR 110.4 million, which is EUR 32.9 million or 23% less when compared to last year’s January-November period. This is largely dictated by lower unemployment level and a lower average benefit amount and shorter benefit payment length from January 2022, explains the ministry. According to data from VSAA, the size of unemployment benefits has reduced 8.6% in 11 months of 2021.