Latvia submits general government budget plan for 2026 to European Commission

RIGA - Latvia on Wednesday submitted to the European Commission (EC) its draft general government budget plan for 2026, which the government approved on Tuesday, LETA was told at the Finance Ministry.

The EC will assess the plan's compliance with European Union (EU) fiscal rules, and the Saeima will have to take the assessment into account when adopting the state budget in its final reading.

Based on the Finance Ministry's macroeconomic scenario and updated fiscal projections, the draft budgetary framework reflects the latest assessment for 2025 and incorporates all decisions taken by the government in the 2026 budget drafting process. Accordingly, it contains the same information for 2026 that underpins the draft law on the 2026 state budget and budgetary framework 2026-2028, but in a specified format.

According to the projections, in 2025, general government revenue is estimated at 44.6 percent of gross domestic product (GDP), total expenditure at 47.5 percent of GDP, the budget deficit at 2.9 percent of GDP and debt at 48.9 percent of GDP.

For 2026, general government revenue is projected at 43.7 percent of GDP, total expenditure at 47 percent of GDP, the nominal budget deficit at 3.3 percent of GDP and debt at 50.6 percent of GDP.

The draft budgetary framework for 2026 is based on the June 2025 macroeconomic scenario, which foresees GDP growth of 2.1 percent for 2026.

In view of the activation of the national exemption clause for defense expenditure, this year's draft budget plan has been updated with information on projected general government expenditure on defense and defense investment according to the classification of government functions (COFOG) and the European System of Accounts (ESA) methodology.

The Finance Ministry informs that in 2026, the national exemption clause is planned to be used at 0.24 percent of GDP.

For 2026, the draft budget plan provides EUR 693.5 million worth of funding, or 1.6 percent of GDP, for priority measures on security (defense and internal security), demography and education, regulatory enforcement and other priority measures.

Given the positive but still limited fiscal space in 2026, which is projected at EUR 39.7 million, a number of compensatory measures will be used to implement priority measures, in addition to the base funding already allocated in advance. The state budget for 2026 no longer provides financing outside the fiscal space, with the exception of expenditure planned under the conditions of the national exemption clause.

In the general government budget plan 65 percent of the funding, or EUR 448.3 million (1 percent of GDP) are earmarked for prioritized security measures, which has been made possible thanks to the activation of the national exception clause at the EU level.

Additional funding for demography has been allocated during the preparation of the budget to improve material support (benefits) for families with children (EUR 42 million), to improve material support for children in out-of-family care (EUR 24.2 million), to maintain the parental allowance at 75 percent for working recipients (EUR 7.7 million) and to improve maternal and child health (EUR 10 million).

Additional funding of EUR 45 million has been provided for 2026 to implement the "Program at School" education funding model.

Also in 2026, EUR 17.9 million have been earmarked for measures to provide palliative care services through policy changes, to ensure the remuneration of electoral commissions, to provide social rehabilitation services, one-off investments to implement urgent security measures for the Ministry of Foreign Affairs in Brussels, to adapt the information technology systems of the State Revenue Service and the Register of Enterprises in relation to changes in tax laws and other regulations. A further EUR 87.5 million have been is earmarked for a range of other measures, bringing the total to EUR 105.4 million.

Since last year, the draft budgetary plan, in line with the European Union's (EU) new fiscal rules, provides information on the net increase in nationally financed expenditure to assess compliance with the maximum allowable increase in expenditure. The maximum level of expenditure growth, or fiscal path, is included in Latvia's Fiscal and Structural Plan 2025-2028, which was approved by the EU Council in January this year.

The draft budgetary plans are submitted by euro area countries to the EC by the October 15 deadline.