Fiscal Council: in the survey political parties show a responsible attitude towards the public finances  17 August 2018

The Fiscal discipline council (Council), for the first time in Latvia, has conducted a survey of Latvia's largest parties on the fiscal impact of their pre-election promises before the forthcoming Saeima elections. The Council has founded that political parties express a responsible attitude towards the public finances.

In the light of European best practices, such as the work of the Netherlands' Independent Fiscal institution, the Council also addressed the political parties in Latvia in April 2018 with a call to participate in a survey on fiscal discipline and to fix the parties' intentions for the next four years.

In conducting this survey, in Latvia for the first time, political parties' experts tried to assess the impact of political initiatives on budget expenditures and revenues. The calculations were based on a single framework for macroeconomic and fiscal policy projections from Latvia's Stability Programme for 2018.-2021 years.

"By submitting a questionnaire, political parties demonstrated their fiscal responsibility, thinking both about a balanced budget and the possibilities of reducing the government debt. This is very positive, because parties demonstrated their maturity and ability to think about reforms in certain categories of expenditures," emphasises Jānis Platais, the Council chairman.

Seven parties – Jaunā konservatīvā partija, Nacionālā apvienība "Visu Latvijai!"-"Tēvzemei un Brīvībai/LNNK", Zaļo un Zemnieku savienība (opinion letter), "No sirds Latvijai", "Saskaņa" sociāldemokrātiskā partija (opinion letter), Attīstībai/Par! and Progresīvie. Political parties "KPV LV" (opinion letter) and Jaunā Vienotība their replies provided after the deadline.

Of all the replies, five replies were sent in MS Excel files (within the deadline) and they were also analysed in the Council report. The Council assessed the replies regarding balanced budgeting, sustainability of the government debt, tax-to-GDP levels changes, sectoral priorities, as well as the reserve establishment options and the risk assessment.

According to Jānis Platais, the responsiveness of the parties to the survey as a whole shows fiscal responsibility and a serious attitude towards fiscal discipline.

The Council did not assess the content of parties' reforms and notes that as the main observation in the area of the fiscal discipline, is that all parties support the creation of larger or smaller fiscal reserves, as well as all parties (by taking into account suggested reforms' impact) ensure a budget balance not exceeding -3% of GDP. Three parties have managed to comply with the provisions of the Fiscal Discipline Law at -0.5% of GDP. Almost all parties also plan to reduce the debt burden more vigorously and assess additional risks that may have an impact on the state budget targets.

The main conclusions about the parties' vision of using state finances by analysing the answers of the parties:

• The cumulative effect of the four-year budget balance from the responses varies from a deficit of 2.5 billion euro to a surplus of 25.5 million euro, or in other words – an average of 1.8% of GDP deficit to an average of the balanced budget over the next four years.

• The debt level at the end of 2022 in responses varies from 36.8% of GDP to 34.0% of GDP.

• In tax collection, all parties see a more rapid increase as it is provided by the current baseline scenario, i.e. from 30.4% to 34.3% of GDP in 2022. As regards to the revenue measures the parties did not follow the same tendencies and there are various proposals for strengthening revenue side.

• When looking at sectoral priorities, it should be noted that social protection is important for all parties, but nobody has indicated interest in the field of environmental protection. From other side it is true that, for the two parties, nature protection measures were mentioned on the revenue side.

• Creation of the fiscal reserves is mentioned by all parties, and the identification of additional risks is in the forefront of all parties, except for the Nacionālā apvienība, however, its main priority is the defence expenditure increase.

Analysing the opinion letters provided by ZZS and Saskaņa, the Council notes positively the responsible and procedurally-precise approach to the fiscal framework of Latvia by both parties, but believes that quantified proposals would be more beneficial for the public to have a clearer picture of the overall assessment.

When analysing the available programs of the other parties on the website of the Central Election Commission, the Council concluded that it is possible to find out, for the most part, widely listed expenditure measures or substantial reduction of budget revenues, but unfortunately there is no indication of adequate sources of financing. "We can note that the political parties that submitted the questionnaire went a lot more into the details of a responsible budget process and were more focused on the possibilities to balance spending priorities with serious choices while forming part of the budget revenue," J.Platais said.

The Council expects comments and criticisms of the survey carried out, as well as proposals for its improvement, if support for such cooperation continues. "We have realised that in the future in such a survey, it would be important to pay more attention to a more timely formulation of political priorities and a broader discussion of their fiscal impact assessment," J.Platais concludes.

The Council also calls on other parties to be able to demonstrate analytically their ability to work in the next Saeima in the future, as well as to improve parties' programs, not only indicating their expenditure lines, but also sources of revenue to cover different proposals, J. Platais emphasises.

To gather additional surrounding information and using the regular annual survey conducted by the social research centre SKDS the Council has included three additional questions for inhabitants about the political parties' work in the field of budgetary matters. The answers provided give an insight into how people see the work of politicians in budgeting and the promises of politicians during the election period. The results of this survey show that inhabitants expect a state budget that balances the fluctuations of the good bad years of the economy. In turn, the negative evaluation of the population receives a narrow interest in lobbying, the Council concluded.