The Council is opposed to the increase in the budget deficit 25 November 2019
The budget deficit cannot be recognized as a source of financing of expenses, because Article 66 of the constitution stipulates that additional expenditure must be financed by either increasing budget revenues or reducing other expenditure. The chairman of the Council Janis Platais emphasizes that, in addition to this restriction, the budget deficit should not be increased in 2020 in view of the significant deterioration of the state budget balance, which contradicts the requirements of the FDL and creates risks of breaching the European Stability and Growth Pact (SGP). The consequences of such violations would be demands for a rapid reduction of budget expenditure and deficit, as well as punitive sanctions from European Union bodies. These sanctions could deprive European funding of sectors where Latvia's contributions are several times lower than the support received.
The FDC emphasizes that the budget was prepared on the basis of optimistic economic forecasts issued in June, but since then most forecasts have been revised downwards. Gross Domestic Product (GDP) in 2020 could be as much as one percent lower than projected in June, which could reduce budget tax revenues by about € 100 million.
2020 could be a difficult year for Latvia's economy and the state budget: increasing external uncertainty, slower economic growth, lower-than-expected tax revenues, and the increasing demands for budget expenditure. The international economic and political environment is also becoming increasingly uncertain: the main causes of concern are the probability of a hard Brexit, possible international trade wars, a global slowdown in economic growth, Italy's budget problems.
In addition, the FDC and the European Commission, when assessing the 2020 budget, found that spending is growing significantly faster than FDL and SGP allow. The rules stipulate that expenditure growth must not exceed potential GDP growth so that in times of economic downturn there is no need for drastic budgetary consolidation - a rapid reduction of budgetary expenditure and an increase in the tax burden.
Salaries in health care increased by 13% in the first two quarters of this year when compared to the corresponding period of 2018, while in the whole economy wages and salaries increased by 8%. When comparing several public sectors, it has to be noted that wage growth in health care sectot has been one of the fastest in the last two years. More rapid wage increases in the health care sector will increase the wage gap in the state budget sphere and increase the pressure to find additional budgetary means for wage increase in other public sectors as well. Increasing the budget deficit is not the solution to these problems.
The FDC recognizes that healthcare as a sector is underfunded. Unfortunately, the well-begun structural reforms are currently overshadowed by the problem of pay for the medical staff. The FDP believes that the government's long-term plans should include increased funding, including through tax reform, but that the sector should propose structural reforms to improve public health outcomes and the effectiveness of the spending.
The FDP draws attention to the excess of wage growth over productivity in the economy as a whole, which may pose serious risks of macroeconomic imbalances. Overcoming imbalances in times of economic downturn may require a significant rise in unemployment and wage cuts.
In the light of the above considerations, the benefits of increasing wages for medical professionals at the expense of widening deficits do not outweigh the risks associated with this step.