Central government budget deficit for 2009 decreased by 500 million lats

2009

June

On Sunday, June 14, in the extraordinary sitting the Cabinet of Ministers adopted amendments to the central government budget 2009 envisaging total revenue in amount of LVL 4 022 543 416, and expenditures - LVL 4 687 239 898. State basic budget revenue is planned in amount of LVL 2 776 227 197, but expenditures - LVL 3 234 776 348. In the state special budget revenue is planned in amount of LVL 1 263 145 800, but expenditures - LVL 1 469 293 131.

The Government agreed to increase state revenue from dividends, assigning all state-controlled corporations to pay in the state budget 80% of the previous reporting year profit, State JSC "Latvian State Forests" - increased amount in accordance with the budget law, but State JSC "Latvenergo" and State JSC "Latvian State Radio and TV Center" - 100%. The Cabinet of Ministers also decided to liquidate boards in state-owned capital companies, as well as to reduce administrative expenditures of state-owned capital companies.

Also it is planned to perform substantial reduction in the public administration. The Government decided to decrease expenditures for remuneration by 82 million lats, as well as agreed to invite independent institutions (State Audit Office, Supreme Court, Ombudsman's Office etc.) to ensure reduction in remuneration for employees and civil servants by 20% of currently set amounts from July 1, 2009. Expenditures for goods and services will be reduced by 2.5% of annual financing allocated to the joint budget programme.

At the same time expenditures are being reduced in the social field envisaging decrease in old-age pensions and long service pensions by 10%, decrease in old-age pensions for working pensioners by 70%, family state benefits are set in equal amount for each child, as well as the parental benefits are decreased by 50% for working parents.

Together with the budget amendments the Government approved changes in the tax policy. Amendments to the Law on Duty and Tax on Lottery and Gambling envisage that tax on the game of chance via the telephone and on totalizator and betting will be 15% of the income from the organization of the said game. However tax on bingo will be 10% of the income from the organization of the said game, resigning from the flat rate depending on the number of seats. Lottery tax on income from ticket sales will be 10%.

Amendments are also planned to the personal income tax envisaging reduction in the non-taxable minimum to LVL 35. However, tax relief for maintenance of dependant for one supporter will remain LVL 63 for each dependant.

The Government also agreed on amendments to the Law on Enterprise Income tax. According to the regulatory act in future residents and permanent representative offices will be able to decrease their taxable income by the amount donated to budget institutions, as well as society, foundations and religious organisations granted with the public benefit status and registered in Latvia. Decrease in the taxable amount cannot exceed 20% of taxable income.

Amendments also have been introduced to the Law on Excise Duty stating excise duty rate for beer (100 litres) with alcoholic strength 1 per cent by volume from LVL 1.45 to LVL 2.18, but excise duty rate for other (strong) alcoholic beverages (100 litres of absolute alcohol) from LVL 825 to LVL 890.

Methodology of the International Monetary Fund for calculation of budget deficit foresees inclusion of larger expenditure for social needs, including for local governments, in expenditures to ensure payment of guaranteed level of revenue, as well as it is supposed that current expenditure trends will remain, but capital expenditure will increase.

Having concluded work at budget amendments, on Monday, June 15, the Government updated Latvia's Economic Stabilisation and Growth Revival Programme. According to the updated programme in the result of fiscal consolidation activities the objective has been set to reduce the budget deficit to 3% of GDP in 2011. However, from 2013 the general government consolidated budget, except revenue and expenditures linked to the European Union and other foreign financial assistance, shall be balanced or in surplus.

The programme also envisages that the Government and responsible public administration institutions will carry out all the necessary steps to fulfil Maastricht convergence criteria, which would ensure introduction of the euro as soon as possible - in year 2013.

Updated Latvia's Economic Stabilisation and Growth Revival Programme is available on the web site of the Ministry of Finance.

It is planned that budget amendments will come into force on July 1, 2009.

Increase in revenue

Position	Planned increase in revenue (Lats)
Decrease in non-taxable minimum to LVL 35	43 800 000
Increase in excise duty	3 800 000
Contributions of state-owned capital companies to the budget	16 800 000
Non-tax revenue from payments of the Bank of Latvia	15 000 000
Increase in duties and taxes on lotteries and gambling	102 070
Total:	79 502 070

Position	Planned decrease in expenditure (Lats)
Remuneration	62 128 151
Goods and services	9 071 025
Remuneration in independent institutions	404 686
Goods and services in independent institutions	73 357
Separate EU funds projects	5 276 001
Ministry of Health	45 000 000
Ministry of Defence	15 000 000
Ministry of Education and Science	10 415 000
Ministry of Interiors	1 317 611
Ministry of Agriculture	23 763 658
Ministry of Regional Development and Local Government	6 942 946
Ministry of Environment	5 634 295
Ministry of Finance	44 309 263
Ministry of Transport	8 000 000
Cabinet of Ministers	168 959
Ministry of Economics	200 000
Ministry of Welfare	96 812 243
Derived public persons (remuneration and expenditure for goods and services)	7 883 179
Ministry of Education and Science	765 121
Ministry of Culture	1 727 919
Financing for art, music and sports schools, as well as heads of recreation centres	6 595 951
Financing for remuneration for teachers involved in education of five and six years old children	5 684 222
Decrease in long-service pensions	635 337
Decrease in financing for Latvia National Library	1 042 356
Saeima	2 740 702
Total:	361 591 982