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Budget that brought down a government passes smoothly

  • 2004-12-22
  • By Aaron Eglitis
RIGA - The budget that brought down the last government was approved - in record time - on Dec. 20 by a vote of 62 for and 19 against.
The health care sector, funds for cofinancing some European structural fund projects, as well as support for mothers and education, were some of the areas that benefited from the slightly modified budget.

The government of Indulis Emsis fell after an unexpected no-vote on the budget by the ex-prime minister's own coalition partner, the People's Party, despite the fact that it was namely the latter party that was largely responsible for putting together the budget. This government's collapse was followed by drawn-out negotiations, forcing the new Cabinet to whisk through the budget bill with little fine-tuning and even less debate.

The president's approval is all that is needed before the bill becomes law, which should take place before the end of the year.

Spending will again outpace revenues, although the deficit is expected to be 1.68 percent of GDP, a reduction from the nearly 2 percent this year. Next year's expenditures will amount to 2.17 billion lats (3.16 billion euros).

The health care sector was allocated an additional 35 million lats, a 10 percent increase over last year. More money is need, however, to finance the structural plan for an overhaul of the health-care industry. According to the Health Ministry, full implementation of the structural plan will require nearly 440 million lats, or 73.4 million a year until 2010.

Additional funding will partly come from raising health-care fees by 20 percent for many patients, although free medical care will still be available to the poor, children and others in need.

Critics contend that the increase is still not sufficient to calm the current crisis besetting the health sector and say there still is not enough money for hospitals and salaries. The anesthesiologists may still continue their strike, and other doctors and surgeons have also been considering a strike as a means to win wage increases.

Lawmakers claim, however, that there is not enough money to go around, and even with strong economic growth the country still sits at the bottom of the EU in terms of GDP per capita.

While growth rates have been meteoric - 9.1 percent growth in the third quarter - next year's budget envisions a more modest 6.7 percent rise of GDP.

Inflation promises to be a headache for the government. The 2005 budget foresees significant increases in the pay for education and health workers, and this will put pressure on the consumer price index.

At the same time much of the difference in inflation rates between Latvia and its two Baltic neighbors has be explained by the depreciation of the U.S. dollar, economists said. While the Latvian lat is pegged to a basket of currencies, Estonia's and Lithuania's are tied to the euro.

Latvia will peg its currency to the euro in January.

Meanwhile, the day after the budget was accepted, Parliament voted in favor of putting off a final decision on lifting the rent ceilings - in and around Riga - for three years. Parliament did, however, decide by an overwhelming majority to raise the ceiling gradually from the current 0.48 lat per square meter to 0.60 in January 2005 and then to 0.72 lats the following year and 0.84 by 2007 - nearly doubling the ceiling over the period.

The left-wing bloc For Human Rights in a United Latvia proposed adding 20 million lats to the budget to help poorer people cover this increase in rent, but this was rejected.

"There is no way to move from the current situation without someone losing," said Alf Vanags, director of the Baltic International Centre for Economic Policy Studies.

If the rent ceilings were to suddenly be removed, many of the residents currently living in rent controlled apartments would have to find different accommodations, and the number of new spaces made available in the city center would raise the supply of available housing likely causing a decrease in price.

Economists typically do not like rent ceilings and often prefer either subsidized housing or building affordable housing for the public, Vanags said.