LATVIA – Analitics
According to the State Treasury, there is a deficit of EUR 530 million in the consolidated general budget in the first ten months of 2022.
Compared to January-October last year, the overall budget balance improved by 394.7 million euros, boosted by a special state budget surplus of 372 million euros and a municipal budget surplus of 266.4 million euros, mainly due to a significant increase in tax revenues for these budgets.
On the other hand, the ten months of the main state budget this year ended with a significant deficit of 1,242.4 million Euros, which is 124.7 million Euros more than last year and is mainly due to the government decisions to provide additional state budget spending to finance Covid-19 support measures, rising energy prices and support for Ukrainian civilians, and with the September and October expenses for securing gas reserves.
The Ministry of Finance estimated the total impact of the deficit support for the ten months of 2022 to be 1.0 billion euros, and for the entire year, according to the September estimate, to be 1.7 billion euros, taking into account the more intensive energy supply costs in the last months of the year.
Taking into account the information provided by the State Treasury, State Revenue Service (SRS), Altum, State Social Insurance Agency, Latvian Investment and Development Agency, Ministry of Agriculture and other institutions, the impact of Covid-19 deficit support measures reaches EUR 632.7 million or 1.6% of the gross domestic product (GDP), where more than half of the expenses were spent on the health sector by October 31 this year.
On the other hand, 339.7 million euros was spent on energy support measures, which is less than a percentage of GDP, but it should be noted that until the end of October, expenditure for 2021/2022 was mostly accounted for. in the 2018 heating season, for example, 134.8 million euros was used to offset electricity bills, but support payments of 20 euros per month for pensioners and the disabled and 50 euros per month for families with children in the period from 1 January 2022 to 30 January 2022 were used.
Total budget revenues were 11.6 billion euros, 1.3 billion euros or 12.1% higher than in the first ten months of the previous year. Influenced by high inflation, tax revenues grew rapidly to €9.4 billion, an increase of €1.2 billion or 14.6% compared to January-October last year.
However, it should be noted that the actual increase in tax revenues was lower than the increase in inflation over the ten months – average annual inflation grew faster, reaching 16.5%. There has still been a significant increase in labour tax revenue, which was almost a quarter higher than in the first ten months of the previous year.
According to the SRS, the payroll has increased by almost 12% in the three quarters of this year, while the number of employed people has not changed significantly, remaining at the same level as last year.
Total budget expenditure in January-October 2022 was 12.2 billion euros, an increase of 859.1 million euros or 7.6% compared to the same period last year. For some items, budget expenditure grew even faster and exceeded the annual plan after ten months.
Expenditure on goods and services increased considerably, by 672.8 million euros or 58.4%, including a rise of 544.2 million euros or 90% in the state primary budget, taking into account the natural gas reserves purchased by the state in September and October, while expenditure on municipal budgets grew by 100.8 million euros or 22.3%.
The increase in the expenditure on goods and services in municipal budgets was influenced by higher road and street maintenance costs than last year, especially at the beginning of the year, higher heating and electricity costs, higher expenses on meals in municipal institutions and implementation of public activities.
Total budget expenditure for grants and subsidies increased by 496.4 million euros or 21.3% in the first ten months of 2022, mainly as a result of the increase in state budget expenditure on support measures. A large part of support, such as Covid-19 support for health and other sectors, energy price compensation support, is subsidised from the state’s core budget and significant support costs are expected in the last months of the year.
Social benefits in the total budget amounted to 373.5 million euros, or 9.2% less than in the last ten months, but the situation was different by budget level. In the state’s core budget, expenditure on social benefits decreased by more than half, which can be explained by the considerably larger amount of expenditure in the corresponding period in 2021 due to unemployment benefits, lump sum benefits for pensioners and families with children due to Covid-19.
In contrast, expenditure in the special state budget increased by 306.8 million euros or 11.8%, mainly due to an increase of 194.4 million euros or 10.8% for old age pensions and an increase of 54.2 million euros or 21% for sickness benefits. 0,7%.
The increase in sickness benefits is due to the rapidly rising number of cases at the beginning of the year due to the omnicidal nature of the Covid-19 virus. On the other hand, the higher costs of old-age pensions can be explained by the higher indexation given the very high indexation rate of pensions, which was also carried out two months earlier than usual this year, i.e. on 1 August.
Capital expenditure for the whole budget amounted to 17.7 million euros, or 2.1% less than in the corresponding period of the previous year. It is important to note that the low execution of capital expenditure has a negative impact on the overall level of investment in the economy. In the municipal budget, capital expenditure amounted to €55.2 million, down 12.7% compared to the corresponding period last year, mainly affected by the postponement of projects in view of high costs negatively affecting construction volumes.
Although municipal budgets are still implementing projects of high readiness, which were approved to mitigate the effects of the Covid-19 crisis, and there is sufficient capacity to borrow from the State Treasury, capital expenditure decreased both in core functions and in the European Union (EU) funds part.
On the other hand, in the core state budget, capital expenditure (without transfers to local authorities) for the ten months of 2022 was higher by 45.4 million euros or 12.4%, spending on EU fund projects increased by 14.1 million euros or 15.3%, and gross capital expenditure of core functions increased by 31.4 million euros or 11.4%, mainly due to investment projects in transport and internal affairs.
The state core budget expenditure for projects co-financed with foreign financial aid in ten months was 925.2 million euros, which is 46.7 million euros or 5.3% more than in the corresponding period in 2021, but the increase was mainly 27.5 million euros or 9.6 million euros. % higher expenditure in the agricultural and fisheries funds administered by the Ministry of Agriculture.
On the other hand, expenses of EU Structural Funds and Cohesion Fund for 2014-2020 decreased by 19 million euros or 4.2% compared to the corresponding period of the previous year, mainly due to the extension of project implementation deadlines, which affected the implementation of infrastructure projects co-financed by the European Regional Development Fund and the Cohesion Fund.
Budgeted expenditure for European transport infrastructure projects for Rail Baltica in the ten months was €61.1 million, close to the level of the corresponding period in 2021, but significantly below the amount planned for 2022, with expenditure from the Recovery Fund to October this year to the end of 2018 contributing €3 million, also behind the amount planned for this year.