The best use of seized proceeds is to reduce the government deficit  18 October 2019

Fiscal Discipline Council (FDC) is responsible for promoting responsible fiscal policies that promote balanced economic growth in the country. Therefore, we consider it necessary to express our views on the public debate on the use of the 29 million euros in proceeds of crime. The Criminal Court panel of the Riga Regional Court last week found the 29 million euros in "Regional Investment Bank" to be transferred to the Treasury as criminal proceeds. Account should also be taken of Ukraine's possible claims on the seized funds, and the need to keep reserve funds in the State budget if such claims need to be compensated. The work to prevent money laundering should be noted positively.

The state budget for 2019 was adopted without taking into account the objection of the Fiscal Discipline Council (hereinafter - the Council) that the maximum level of the state budget expenditure was set by 0.5% of GDP higher than the fiscal conditions would allow. The budget deficit has been raised by treating the negative impact of the tax reform adopted in 2017 on budget revenue as a one-off measure.

The European Commission's methodological guidelines for the implementation of the Stability and Growth Pact (SGP) define the nature of one-off measures and state that this type of revenue should be used in the state budget to improve the budget balance and not to finance policy initiatives. The FDC draws the attention of the government and the public to the fact that these seized criminal proceeds are, by their very nature, a one-off, and under no circumstances should increase the budget base expenditure with budgetary implications in subsequent years. In addition, the Council notes that in recent years Latvia has not met its structural balance and budgetary expenditure growth targets, which have a negative impact on the build-up of reserves before the economic downturn begins, in the light of rising risks. In these circumstances, the relaxation of fiscal discipline by the use of one-off revenue from the budget to increase current expenditure on the budget is unacceptable.

Therefore, in view of the risks identified, the FDC recommends that the above-mentioned funds be redirected to deficit reduction. This principle should be strengthened in the annual budget law for future revenue of this kind.