Fiscal council issues recurrent non-conformity report on maximum budget expenditure violation  1 November 2018

In addition to the non-conformity report sent by the Fiscal Council on 23 October about the decisions taken by the Cabinet on that day, the Council would like to highlight that in the same meeting the Cabinet adopted an agenda's item that foresees the redistribution of funds to the budget programme 02.00.00 "Funds for unforeseen events" (budget line "74 Funds for redistribution during the state annual budget implementation process") from the Ministry of Welfare budget sub-programmes in the amount of 5 465 000 euro 
– 20.01.00 "State social benefits" in the amount of 3 620 781 euro;
– 20.02.00 "Work pensions" in the amount of 1 732 643 euro;
– 20.04.00 "Benefits and other support measures for refugees and persons with an alternative status" in the amount of 111 576 euro.

Any expenditure savings achieved in the budget estimates for the categories listed under the Article 5(1) of the Fiscal Discipline Law is reducing maximum expenditure ceilings for 2018 thus making any reallocation of expenditure a breach of the requirements of the Fiscal Discipline Law.

Article 8 of the Fiscal Discipline Law stipulates that amendments to the budget should be accompanied by a re-assessment of the corrected state budget expenditure ceilings in the cases stipulated by the Article 5 of the Fiscal Discipline Law.

According to Article 9 (2) of the Fiscal Discipline Law, if the Cabinet adopts a regulatory enactment which causes budget expenditure to exceed state budget expenditure ceiling established in the Medium-term Budget Framework Law that is related to the cases referred to in Section 5, Part 1 of the Fiscal Discipline Law, or causes a decrease of planned state budget revenues, the Cabinet shall ensure that a regulatory enactment or regulatory enactments come into force concurrently, which compensate the increase in expenditure or decrease in revenues.

The Council can not agree with the view that the reallocation of appropriations is permissible in the sense of Latvian law as redistribution results in the modification of the appropriations covered by the provisions of Chapter II of the Fiscal Discipline Law.

In view of the above, the Council finds the decision made during the Cabinet meeting on 23 October to reallocate saved funds from the Ministry of Welfare's budget sub-programmes "State social benefits", "Work pensions" and "Benefits and other support measures for refugees and persons with an alternative status" are not compliant with the requirements of the Fiscal Discipline Law. The decision to allocate additional funds reducing any appropriation that has flexibility clauses established in the Article 5 (1) of the Fiscal Discipline Law is causing allocation in excess of the expenditure ceilings stipulated in the Medium-term Budget Framework Law.

The Council refers to the systematic practice of deciding on reallocation of expenditure by the government, indicating unused appropriations as the source of funding, the amount of which is used to calculate the maximum amount of government expenditure. This appropriation is subject to a specific procedure that allows the amount of expenditure indicated in the budget to be exceeded if, in accordance with the procedures laid down by law or international treaties, the expenditure exceeds the budget planned.

In order to rectify the non-conformity created on 23 October 2018 the Council recommends the following:

1. The Cabinet should prepare and adopt legislative acts that would fully compensate the decision to allocate an additional 5 465 000 euro over the maximum allowable amount of state budget expenditure fixed in the 2018 budget for the corrected medium-term budgetary framework.

2. The Cabinet should not consider proposals to reallocate the expenditure savings achieved under the categories outlined in Article 5(1) of the Fiscal Discipline Law and thus exceed maximum permissible state budget expenditures for 2018 and further years stipulated in the medium-term budget framework.

Non-conformity report available here.