Unlike Lithuania and Estonia, Latvian state budget does not use good years opportunity to build up reserves  21 November 2018

Unlike Lithuania and Estonia, Latvian state budget does not use good years opportunity to build up reserves

Fiscal council (Council) by assessing the draft budgetary plan for 2019, highlights that unlike the other Baltic states, the Latvian government has not been able to create a counter-cyclical budget without a deficit. The Latvian budget plan for the coming year has a negative balance - 0.7% of gross domestic product. For both other countries, the budget balance is positive which means that budget revenues are projected to be higher than expenditure - 0.4% of GDP for Lithuania, and 0.5% of GDP for Estonia.

"While in Latvia we are still talking and dreaming about a balanced state budget, Lithuania and Estonia are already preparing the budgets with surplus . Taking into account that the economy of Latvia is growing faster than our neighbours economy, this situation is unacceptable," says Jānis Platais, the Chairman of the Fiscal discipline council.

The European Commission today has acknowledged that Latvia's national budget plan for 2019 could lead to a deviation from the budget medium-term objective. "This means that Latvia is at the risk of breach of the rules and that there is no space for further allocation for new expenditures when preparing the next year's budget," says J. Platais.

"Latvian deficit budget practice has also been influenced by the fact that budget expenditure are currently growing faster than the Latvian economy, as well as we should take into account the negative fiscal impact of the tax reform implemented in recent years. Until now, Latvia has prepared a budget in line with a maximum allowable level of expenditure, without adequate assessment how to compensate tax cuts. Tax policy measures aiming to reduce the shadow economy may not be able to compensate all needs of the national budget. Continuing such a practice we will further increase the risk of budget consolidation or the need to reduce expenditures," says J.Platais.