RIGA - The 2010 state budget cannot be reduced by 500 million lats (714.2 million euros) as prescribed by the International Monetary Fund, says People's Party Saeima member Maris Kucinskis, reports news agency LETA. "I support the government's intention to decrease budget spending by 275 million lats next year. But 500 millions lats is impossible because it will trigger a catastrophe. The healthcare budget has already been dealt a severe blow, but the government has agreed at least that the healthcare budget will not be tampered with next year," he added.
Another technical mission from the IMF, the European Commission and the World Bank is in Latvia until Oct. 2 to review progress made on the 2010 budget project. Up for discussion will be macroeconomic forecasts for the upcoming years.
Latvia's Cabinet of Ministers, as reported earlier, at a special meeting Sept. 19 agreed to cut 275 million lats from next year's spending, in an attempt to cut the deficit by 500 million lats through spending cuts and tax increases.
Finance Minister Einars Repse (New Era) said that the talks with the IMF representatives were complicated, and the 2010 state budget would most probably have to be reduced by another 250 million lats. Prime Minister Valdis Dombrovskis (New Era) though said that this was just Repse's own opinion. "We have to take into consideration the political, social and macroeconomic aspects, none of which indicates at this time that steeper budget cuts will be needed," said Dombrovskis, adding that various measures are being taken to avoid more cuts.
In drawing up the 2010 state budget, the Finance Ministry will propose applying a 10 percent personal income tax to interest on bank deposits, says Dombrovskis. This is one of the proposals that the government will consider to increase budget revenue. The government hopes that increasing the personal income tax base will bring in an extra 49 million lats to the budget.
Dombrovskis added that the new tax will also be of interest to the former owners of the failed Parex bank, Viktor Krasovickis and Valerij Kargins, who, together with their relatives, have nine deposit accounts lodged in the bank which earn them 380,000 lats a month in interest.
Repse has said that "Taxes should not be increased during a crisis, however, now it is the only choice possible. Still, only two taxes will be raised." Repse regrets that the proposition to set a higher tax rate for property tax was spurned by Saeima, without even discussing it in detail.
Chairman of the People's Party Mareks Seglins pointed out his party supported increasing the personal income tax and the capital gains tax, however, taking in consideration residents' lower purchasing capacity, his party is against introducing a higher property tax.
Next year's state budget revenue is expected to be 351.1 million lats lower than this year.
