Latvian government agrees on more deep budget cuts

The Latvian government has reached agreement on a further LVL 500 million in budget cuts, a move observers say should save it from bankruptcy and clear the way for an international loan to be released to the country.

The sweeping cuts appear to touch everyone, from government ministries and their employees, to retired persons, to those who like a stiff drink or a chance at the roulette table.

The cuts are on top of amendments to the state budget approved last year that trimmed the size of the government work force, reduced salaries of those remaining and increased taxes—including bumping the value added tax to 21 percent.

The government, led by Prime Minister Valdis Dombrovskis, signed off on the cuts June 11 after meeting with representatives from various political parties and social partners including labor unions, employers and pensioners. The cuts are needed if Latvia is to receive the next installment from a EUR 7.5 billion loan package offered by the International Monetary Fund, the World Bank, the European Union and others.

The Saeima may vote on the cuts June 15, according to media reports.

Government operations would take the brunt of the cuts.

The budget foresees a 30 percent reduction in the central administration of government ministries, as well as a halving of expenses from state agencies. The boards of directors of state enterprises would be eliminated. Training of civil servants would be halted and the Latvian School of Public Administration’s functions decreased. The work of a state commission to determine losses caused by the Soviet Union’s occupation (Komisijas PSRS režīma nodarīto zaudējumu aprēķināšanai) would cease on Aug. 1.

In addition to overall cuts in spending for services and goods, a number of ministries would see their budgets reduced. Among these are the Ministry of Finance, LVL 46.1 million; the Ministry of Health, LVL 45 million; the Ministry of Agriculture, LVL 23.8 million; the Ministry of Defense, 15 million; the Ministry of Education and Science, 10 million; and the Ministry of the Interior, LVL 9 million.

Besides cuts to government operations, social spending also is to see a decrease of more than LVL 90 million. Pensions would be cut by 10 percent, pensions for those who are working would plummet by 70 percent and support for parents and families would shrink by 10 percent.   
The cuts are to be offset by more than LVL 50 million in additional revenue, according a press release from the Cabinet of Ministers. The state budget would take a larger share of dividends from state enterprises, 80 percent of last year’s profit, except for energy company Latvenergo, which has to turn over 100 percent. The budget projects this will raise LVL 8.8 million. A higher excise tax on beer and liquor would result in LVL 3.8 million more in revenue. The minimum untaxed personal income would drop to 35 lats from 90 lats, resulting in LVL 43.8 million more for the government. Gambling duties and taxes would be increased, too.

After a June 8 meeting with the government coalition and social partners, President Valdis Zatlers told reporters that as soon as the changes to this year’s budget are approved, work will begin on cutting another LVL 500 million in next year’s budget.

Dombrovskis and Zatlers

Latvian Prime Minister Valdis Dombrovskis (left) and President Valdis Zatlers speak after the government signed off on a plan to slash spending. (Photo by Aivis Freidenfelds, State Chancellery of Latvia)

Andris Straumanis is a special correspondent for and a co-founder of Latvians Online. From 2000–2012 he was editor of the website.

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