Latvia gov't approves 2016 budget with deficit at 1 pct

Latvia's government at an extraordinary meeting on Tuesday passed a bill on Latvia's 2016 budget in which the deficit is planned at one percent of GDP.

The cabinet also adopted a bill on Latvia's medium-term budget framework for 2016-2018.

The government's draft budget plan for 2016 has to be submitted to the European Commission and the Eurogroup.

Finance Ministry representative Jolanta Plume told the ministers that the negative fiscal space of 96.8 million euros represented the greatest challenge in drawing up next year's budget.

Despite this difficulty, the government managed to significantly increase funding for top priorities like defence, internal security and health care, the ministry representative said, adding that extra allocations had been earmarked in practically all areas.

Latvian Prime Minister Laimdota Straujuma thanked all ministries for their input and urged the government to focus on next year's issues, particularly the medium-term taxation system.

Latvian Finance Minister Janis Reirs told his colleagues that he would submit the draft 2016 budget to the parliament on Wednesday, and that the first reading of the budget bill might be held on Nov. 5. The date for the budget bill's final reading in parliament is not yet known, the finance minister said.

Although voicing her support for the draft budget in general, Economics Minister Dana Reizeniece-Ozola said she had some objections from the business point of view.

Health Minister Guntis Belevics pointed to the problem of low wages in the health sector.

Peteris Leiskalns, a representative of the Latvian Confederation of Employers, said his organisation objected to the budget bill as it provided for increasing the tax burden on businesses by 100 million euros. He also criticized the government for not keeping the promise to cut personal income tax and the way in which the government intended to tackle income inequality.

Janis Endzins, chairman of the Latvian Chamber of Commerce and Industry, also raised objections to the government's plans to increase taxes on labour.

Next year, revenues in Latvia's budget are expected to grow by 114.21 million euros from this year to 7.37 billion euros. Budget expenditures are projected to increase by 183.19 million euros from this year to 7.65 billion euros in 2016.

The value of Latvia's GDP is expected to reach 26.127 billion euros in current prices next year, according to Latvia's draft 2016 budget.

According to the medium-term budget framework for 2016, 2017 and 2018, Latvia's GDP is expected to grow to 27.75 billion euros in 2017 and 29.48 billion euros in 2018, which means that Latvia's economic growth rate is projected at 3.1 percent in next year, 3.3 percent in 2017 and 3.5 percent in 2018.

The government is determined to keep Latvia's budget deficit at 1 percent of GDP next year and in 2017 and to reduce it to 0.8 percent of GDP in 2018. There is also a plan to create a fiscal contingency reserve, worth 0.1 percent of GDP, in 2017 and 2018. Endit