Fiscal council's opinion on the reverse of the performed structural reform  22 March 2019

On 11 October 2018, the Saeima adopted amendments to the State funded pensions law, which resulted in the redistribution of the mandatory state social insurance contributions from the second pillar of pensions to the first level starting as of 2020.

The European Union's Stability and Growth Pact allows Member States to use the derogation from the balance objective if they implement structural reforms, for example by shifting social security contributions from public budgets to funded pension schemes. Latvia used such a derogation from 2013 to 2017, thus increasing the state budget deficit beyond the level permitted by the regulatory enactments regulating fiscal discipline. 

It is not the Fiscal discipline council's duty to control the Saeima's decisions, but given the fact that Latvia requested the European Commission, and with its permission, the structural reform derogation for 2013-2017 years, and the budget deficit has been increased accordingly, the decision taken must be carefully assessed from a fiscal discipline perspective. 

On 21 March 2019, the Fiscal discipline council received information from the Ministry of Finance (in Annex), which includes the intention to reduce contributions at the second pillar as of July 2019.

The Fiscal discipline council assesses the measures adopted on 11 October 2018 (amendments to the State Funded Pensions Act and proposals to accelerate their implementation in 2019) as a deteriorating fiscal space, and requiring additional compensatory measures with a fiscal impact on the 2019 national budget and a medium-term budgetary framework for 2020 -2022. In addition, reversing structural reform measures poses serious reputational risks.

For information:

According to Part 7, Section 28 of the Fiscal discipline law, the Fiscal discipline council shall prepare and submit to the Saeima and the Cabinet's attention its opinion on fiscal policy matters if the Fiscal discipline council finds them important for compliance with the terms stipulated in the Fiscal discipline law.

Opinion is available here.