Saeima approves budget cuts, tax increases

Latvia’s parliament has accepted a package of 2009 budget reforms that slash state spending and raise taxes—and which prepare the country for billions of lats in loans from the International Monetary Fund and the European Union.

The Saeima on Dec. 12 voted 57-21, with 17 abstentions, to accept the changes proposed by the government of Prime Minister Ivars Godmanis.

Latvia has been hit hard by the global economic downturn. In early November the government took over Parex Bank, one of the country’s largest financial insitutions. Financial services companies have lowered their investment outlook for the country. And the IMF forecasts the nation’s gross domestic product next year will decrease by 2.2 percent.

The parliament’s debate on the budget reforms began Dec. 11 and lasted into the following morning. The session followed a Dec. 10 special meeting of the Cabinet of Ministers devoted to hammering out the package of legislation, which came after consultations with experts from the IMF, the EU, the Bank of Latvia and others. Among assumptions used by the government in determining the revised budget is that Latvia’s official unemployment rate will rise to 10 percent next year, the news agency LETA reported.

Under the revisions, Latvia’s state budget next year forecasts revenue of LVL 4.406 billion, but spending will total LVL 5.146 billion—a deficit of LVL 746 million.

Among changes in the budget is a 3 percentage point increase in the value added tax (in Latvian, pievienotās vērtības nodoklis or PVN), to 21 percent from the current 18 percent. The reduced VAT of 5 percent, applied to certain products and services, will increase to 10 percent. In addition, the Saeima trimmed the range of products and services that are free of VAT.

The new budget cuts LVL 419.6 million from the previously approved 2009 budget. Ministries and other areas of government spending will see cuts across the board. The Ministry of Health, for example, will lose LVL 44.6 million; the Ministry of Defense, LVL 43.7 million; the Ministry of Education and Science, LVL 43.2 million; and the Ministry of Transport, LVL 37.4 million. Government employees who do not lose their jobs are likely to see salary cuts of 15 percent.

Latvia’s public broadcasters, Latvijas Radio and Latvijas Televīzija, are to lose LVL 3.7 million or about 25 percent of their state support. Latvijas Radio is crying foul, warning that the reduction will mean shuttering most of the broadcaster’s five channels, slashing air time and pulling back on its signal.

Latvian officials were scheduled to continue negotiations Dec. 12 with the IMF and EU on a loan package of EUR 5 billion or more. The Swedish government also has offered assistance.

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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