Fiscal Council: fiscal sustainability should be addressed carefully, by also taking into account associated social and political risks  6 June 2017

Fiscal Council: fiscal sustainability should be addressed carefully, by also taking into account associated social and political risks

On 6 June the Fiscal discipline council (hereafter – Council), in cooperation with the European Commission Representation in Latvia, organised a discussion on fiscal sustainability and the role of the public sector in stimulating economic growth and social welfare. As a result of the discussion, it was concluded that the current level of tax revenues is insufficient to meet the needs of the country and there is a risk that the level of public debt will increase.

The current level of tax revenues limits the ability of the government to provide high quality public services and adequate social protection. It is likely that, as the standard of living increases, demands for public services will continue to grow. A clear understanding will be necessary as to the range of services and social protection measures that the public sector will provide so as to develop an appropriate revenue policy. Baseline expenditures should not increase public debt and threaten fiscal sustainability – argues Jānis Platais, Chairman of the Council.

The first session saw presentations from Manfred Bergmann, Director, Directorate-General for Economic and Financial Affairs and researchers representing the National Research Programme Innovation and sustainable development: Latvia’s post-crisis experience in a global context (SUSTINNO). Representatives from the Latvian Chamber of Commerce and Industry, the Free Trade Union Confederation of Latvia and the bank Citadele presented their views in the second session.

Fiscal sustainability is the ability of a country to meet its financial commitments and obligations. When working on a fiscal sustainability report, it is necessary to assess the impact of current expenditure policies, in view of population ageing and the associated costs. Even though several organisations have concluded that Latvia’s pension system is sustainable, it also highlighted that the low adequacy of pensions and issues stemming from the insufficient attention paid to the health care sector may create several social and political risks. Today’s discussions allowed us to approach fiscal sustainability from different angles. Compromises will have to be made regarding the distribution of government funds, the tax burden, opportunities for economic growth, public services and social security – concludes Jānis Platais.

The discussion was attended by experts from several areas, and the views and conclusions expressed during the event will be noted so that the fiscal sustainability report prepared by the Council can provide a broad overview of the factors that will influence the stability of government finance over the next 20 years.

The discussion took place at the EU house, Aspazijas boulevard 28, Riga. The programme, presentations and videos are available here.