On December 23, it will be 100 days since the work of the government led by the Prime Minister Evika Siliņa began. Significant work has been contributed during this time to prepare the national budget, to activate the capital market, and promote investment of the financing of the European Union (EU) funds and Recovery Fund into the Latvian economy. Latvia continues to support Ukraine in all the possible ways, including provision of financial support and other aid to victims of the war.
#Budget2024 – Security and Sustainability Budget of Latvia
On Saturday, December 9, the Saeima approved the draft law on the 2024 national budget and budgetary framework for 2024, 2025 and 2026, as well as 19 accompanying draft laws, in its second and final reading. The consolidated national budget revenue for 2024 is planned to be EUR 14.5 billion, but expenditure – in the amount of EUR 16.2 billion. Internal and external security, education, and health are determined to be the three main national priorities.
The national budget for 2024 has been prepared taking into account the EU fiscal rules and provisions of the Fiscal Discipline Law - the general government deficit in 2024 is projected at 2.8 % of GDP, and general government debt at 41 % of GDP. Both the deficit and the debt are below the reference values set by the EU fiscal rules – 3 % for the deficit and 60 % for the debt.
For all municipalities, in 2024 an average increase of 8.1% in equalized revenue is planned compared to 2023. During the preparation process of budget for 2024, special solutions have been developed for local governments with the lowest revenue after equalisation of municipal finances to ensure additional resources for fulfilment of functions. As a result, a one-off additional grant in the amount of EUR 7 million will be granted for 19 local governments.
The general Latvian government draft budget plan for 2024 approved by the government was submitted to the European Commission, and on November 21 this year a positive opinion of the European Commission was received.
Changes to the tax policy – reduced administrative burden
Changes to the Law on Value Added Tax (VAT) have been approved to support the small and medium businesses. Raising the VAT registration threshold to EUR 50,000 will reduce the impact of inflation on small businesses.
Moreover, amendments have been approved to the Corporate Income Tax (CIT) Act, which stipulate for credit institutions and consumer credit providers to pay an annual corporate income tax surcharge of 20 % as of 2024. The amendments also provide that the tax surcharge paid annually will now be taken into account for an unlimited period in calculating the tax payable on distributions of dividends.
Development of the capital market
In 2023, the government has approved amendments to the Law on the Credit Register whereof the participants of the Credit Register are provided with a possibility to manage credit risk more effectively and fully by using information included in the Credit Register. Amendments are important for reflection of current information in the Register and for promotion of availability of derivative financial instruments service.
Considering the increased interest of the Latvian population in financially profitable investments as well as increasing financial literacy of investors, popularity of savings bonds is rapidly growing. On December 20, the volume of resident deposits in savings bonds emitted by the Treasury reaches 250 million euros, and the total number of investors has doubled during the last six months and exceeds 7.3 thousand.
Latvia submitted an application to determine the seat of the EU agency, the European authority for countering money laundering and financing of terrorism (AMLA) in Riga. It is a significant contribution to strengthening the national image and reputation while positioning Latvia as a safe destination of investments and sustainable economy. It also provides a possibility to raise international awareness on achievements in implementing the anti-money laundering reforms at a national level, as well as proves Latvia’s ability and readiness to host a significant EU agency and ensure its functionality and appropriate infrastructure.
Investments of the EU funds and the Recovery Fund
2023 has been a highly intense year in implementing the EU funds in involved institutions. In parallel, to develop the investment conditions for the new planning period of 2021–2027, several measures should be taken for successful completion of EU funds planning period 2014–2020, and implementation of the Recovery Fund plan should be worked on.
To ensure investment of the whole 4.6 billion euro financing of the EU funds from the planning period 2014 –2020 into Latvia’s interests, the option has been used to refinance 60 million EUR from the EU fund programme to cover the national budget costs of energy compensations paid in 2022 and 2023 to the residents of Latvia. Amendments to the Latvian Recovery Fund plan has been made to provide additional EU funding of 143 million EUR for investments into strengthening the energy security and transition to renewable resources in Latvia. It will promote strengthening of energy independence of Latvia and possible reduction of tariffs.
Border infrastructure for national security
More than 100 km of fence have been constructed along the border of Latvia and Belarus by December 4. Construction of a total of 173 km border area of Latvia and Belarus has been envisaged. The completion of the construction of entire border protection infrastructure is planned by 2025, including a fence of approximately 150 km by July 2024, and development of the border area by the end of year.
Support to Ukraine
Since the beginning of the war, 11 EU sanction rounds have been adopted against Russia, and currently the main focus is on effective implementation of the current sanctions and reduction of circumvention of sanctions, as well as further pressure on Russia. Since the time when Russia began its aggression against Ukraine, Latvia has provided significant support to government of Ukraine via international financial institutions – the World Bank and European Investment Bank – for a total of 32 million EUR.
In continued support to Ukraine, on November 28 the government approved a contribution of 4 million EUR by Latvia into support mechanisms of the International Monetary Fund and European Reconstruction and Development Bank to strengthen the public administration capacity and implementation of structural reforms in Ukraine. Whereas to support the more needy developing countries in recovering from the economic crisis exacerbated by Russian war in Ukraine, the government on September 26 approved the contribution of 2.6 million EUR by Latvia into the “Poverty Reduction and Growth Trust Fund” of the International Monetary Fund.