Deficit declines sharply on higher revenue

RIGA - The consolidated budget deficit is at 9.8 million lats (14 million euros) for the first six months of this year, according to the State Treasury’s preliminary data, reports Nozare.lv. The budget deficit was determined by a surplus of 48.3 million lats in the master budget, and a deficit of 58.1 million lats in the special budget.
The increasing surplus in the master budget, compared to the first five months of the year, was due to an increasing amount of dividends paid into the budget by state-owned companies in June. Also, the European Commission has renewed payments from the European Union funds to Latvia; as a result, payments worth 39 million lats altogether were received at the end of June.

The consolidated budget deficit has dropped by 265 million lats from the first half of 2011, mostly due to rapidly increasing revenue. Budget spending was just a little higher than in the first half of 2011. The Finance Ministry notes that budget spending usually tends to increase in the second half of the year.

In the first six months this year, master budget revenue totaled 1.52 billion lats, of which 68 percent was tax revenue. Revenue from all taxes increased in the first half of the year, including a 21 percent increase in value added tax revenue, 44.7 percent increase in revenue from corporate income tax and 8.9 percent increase in excise tax revenue.
However, tax revenue growth has been decreasing every month from this past February. Furthermore, VAT was reduced from 22 percent to 21 percent on July 1; therefore, VAT revenue is expected to decrease in the future.
Master budget spending totaled 1.47 billion lats in the first six months, which is about the same as in the first half of 2011. The Finance Ministry says that spending increases were registered for Latvia’s payments into the EU budget, and subsidies.

Keeping spending under control
During a closed session on July 10, the government agreed on a 70 million lats ceiling for any amendments to this year’s national budget .
Prime Minister Valdis Dombrovskis (Unity) previously said that the amount of additional financing from this year’s budget has not been set yet, but could be approximately 60 to 68 million lats.

Dombrovskis said that the main topic at the meeting was to evaluate the various budget requests from ministries and decide how to allocate this additional financing from the national budget.
The 2012 budget amendments will not envisage “mass salary increases,” since all decisions in this regard will be affected by the maximum level of next year’s budget deficit, warned Dombrovskis after a July 9 meeting of the Coalition Cooperation Council.

Salaries will be increased only in a couple of cases. For example, the Education and Science Ministry’s reserves will be redistributed to raise salaries for some teachers, explained Dombrovskis.
At the Culture Ministry’s request, salaries will also be adjusted for cultural education teachers, explained Dombrovskis’ press secretary Martins Panke.

“We cannot channel all extra revenue into additional expenditures. Additional expenditures are only possible if their amount does not threaten achieving the 2013 budget deficit goal,” emphasized the prime minister.
Education and Science Minister Roberts Kilis has signed a memorandum with Latvian education and science workers’ associations, which stipulates that teachers’ minimum wage will be increased 10 percent on Sept. 1, therefore increasing salaries for young teachers and teachers who are currently paid less. The memorandum also offers linking the quality of a teacher’s performance to salary. Those with quality grades of 4 or 5 will have their salaries augmented by 8 and 12 percent, respectively.