Budget, Financial Services, Latvia, Taxation

Although there was EUR 131.6 million surplus in the consolidated general budget at the end of July, this is EUR 133.5 million or 50.4% less than in July 2014. Government budget revenue in the first seven months totaled EUR 5.264 billion – EUR 182.8 million or 3.6% more than in the January-July last year, the Finance Ministry said.

The increase in budget revenue was primarily thanks to higher tax revenue.

General budget expenditure totaled EUR 5.132 billion in January-July, which is EUR 316.2 million or 6.6% more than in the respective period last year. The increase was mostly due to the higher amount of social benefits.

Tax revenue has increased EUR 175.8 million or 4.6% in the first seven months, which is more than in the same period last year – but less than stipulated in the 2015 state budget law. Tax revenue in January-July was EUR 30.7 million or 0.8% lower than anticipated, mostly due to lower value added tax revenue.

The lower-than-anticipated economic growth pace and the large amount of VAT payment extensions have caused the VAT revenue to be EUR 37.7 million or 3.4% lower than projected – even though VAT revenue has increased EUR 39 million or 3.8% as compared to the first seven months of 2014.

The amount of social contributions in January-July was also EUR 8.9 million or 0.7% lower than planned.

In the meantime, excise tax revenue has increased EUR 23.3 million or 5.5% as compared to the same period last year, and was EUR 11.7 million or 2.7% higher than anticipated. This was largely thanks to higher than planned amount collected in excise tax on oil products.

Expenditure on social benefits increased EUR 105.4 million or 7.6% in January-July, including an EUR 35.2 million (3.5%) increase in the amount of pensions. This is due to amendments that lifted the ceiling on several social insurance benefits and increased the amount of benefits paid to families with two, three, or more children. Budget spending on salaries for employees in the public sector increased 8.7%.

The Finance Ministry also notes budget expenditures on events of the Latvian Presidency at the Council of the European Union, maintenance and renovation of national highways, higher defense spending, funds for the reconstruction of the Riga Castle, and other spending items.

Regardless of the current surplus in the government budget, the Finance Ministry points out that budget expenditure tends to increase steeply toward the end of every year. The steady increase in budget spending, in excess of revenue growth, clearly indicates that the budget will have a deficit at the end of the year.

According to the Finance Ministry, the deficit in the consolidated government budget is projected at 1.5% of gross domestic product this year, which is the same as the ministry had predicted this past spring. The ministry explains that the deficit is due to lower than anticipated tax revenue growth and economic growth pace, and higher budget spending.