On Wednesday, 1 November, the Cabinet approved the draft law on the 2024 state budget and the budgetary framework for 2024, 2025 and 2026. The consolidated state budget revenue for 2024 is planned to be EUR 14.5 billion, but expenditure - in the amount of EUR 16.2 billion. Internal and external security, education and health are determined to be the three main national priorities. The draft state budget and medium-term budgetary framework for 2024, together with the accompanying draft laws, are scheduled to be submitted to the Saeima on Friday, 3 November.
Compared to the budget for 2023, in 2024 the planned state budget revenue is EUR 1.763 billion higher. In 2024 the State budget expenditure is intended to be EUR 1.538 billion higher than in the State Budget Law for 2023.
The planned revenue in the basis budget is EUR 10.0 billion, but expenditure EUR 12.1 billion. The special budget revenue is planned to be EUR 4.8 billion, but expenditure EUR 4.4 billion.
"The draft state budget for 2024 is Latvia's budget for security and sustainability. Security issues in our region will continue to be topical for years to come, which is why investments are focused on strengthening our borders, further developing the capabilities of our armed forces and increasing the capacity of Latvian services to respond to all types of challenges, including threats in cyberspace. We also have a responsibility to ensure that the additional investment in healthcare and education is felt by the Latvian population. Additional funding for education and health is an investment in national sustainability. This means reduced queues for our patients and competitive, contemporary education for Latvia's students, who will shape the country's future. That is why the 2024 state budget is built around our core value - the people of Latvia, who need to feel safe, receive adequate healthcare and acquire the skills and knowledge needed for the labour market and the country's long-term growth. I would like to thank the Ministry of Finance, sectoral ministries and social partners for their joint work in drafting the state budget proposal, which will now be submitted to the Saeima deputies for consideration," says Prime Minister Evika Siliņa.
"Public finances are sound and next year's budget and budgetary framework support the economic policy objective of the government's declaration - to achieve sustainable gross domestic product growth through increased investment, productivity and exports. The 2024 budget drafting is driven by the growing security challenges in both the common European and the Baltic region, which is why the government has responsibly shaped next year's budget and substantially increased funding for internal and external security. In order to promote Latvia's sustainable development in a time of demographic, climate, technological and digital change, additional funding has been allocated for health services and improvement of their quality, teachers' salaries, higher education, including the strengthening of natural sciences and technology field (STEM), innovation and science, as well as export support," Arvils Ašeradens, the Finance Minister emphasized.
General government, which covers the entire structure of state and local government, as well as social security institutions, is planned to raise a total of €17.8 billion in revenue and €19.1 billion in expenditure.
The state budget for 2024 has been prepared taking into account the fiscal rules of the European Union and provisions of the Fiscal Discipline Law - the general government deficit in 2024 is projected at 2.8% of GDP, and general government debt at 41% of GDP.
Both the deficit and the debt are below the reference values set by the EU's fiscal rules - 3% for the deficit and 60% for the debt.
Credit rating agencies assessing Latvia's creditworthiness as a borrower note that moderate public debt-to-GDP and debt-servicing costs remain among the strengths of Latvia's credit rating and see no risks to its sustainability. However, a sharp rise in public debt could lead to a downgrade of Latvia's credit rating. This, in turn, would mean higher debt-servicing costs, even at constant borrowing rates.
Priority measures will be implemented using funds from the fiscal space, funds to be reallocated during the budget execution process (including additional contributions to the state budget from state-owned corporations), and one-off measures will be financed outside the fiscal space.
When preparing its budget proposal, the government allocated substantial additional funding to strengthen the country’s internal and external security. This important heading provides funding for an increase in the remuneration of staff in the institutions of the Ministry of the Interior and the Ministry of Justice, for ensuring the country’s external security measures and for the development of external border infrastructure. There are also funds to strengthen cyber-security, life-saving capabilities of the State Fire and Rescue Service and other measures. In 2027, the plan is to reach 3% of gross domestic product for national defence.
In the field of education, the most important issue is funding for the next step in the implementation of the teachers' pay rise schedule from 1 January 2024. Additional funding is also earmarked for a gradual transition to teaching in the official language and for the purchase of teaching materials and the development of digital learning tools. In addition, there is funding for higher education and science, strengthening science and technology in educational institutions and other measures.
An additional EUR 275 million is earmarked to improve health services and quality. In 2024 the state budget provides for additional funding for access to reimbursable medicines, including new medicines. Patient waiting times will be reduced and there will be more opportunities to get the tests and procedures you need. Additional budget will be invested in cardiovascular health, support for oncology patients and access to dental care for children. Next year will also see further pay rises for medical staff.
Priorities of independent institutions and sectors
An additional EUR 18 million is earmarked to strengthen the capacity and competitiveness of independent institutions, including public service electronic media. More than EUR 17 million is expected to be spent on implementing legislation and court rulings.
Almost EUR 176 million extra is foreseen to implement the priorities proposed by the sectors in 2024. For example, the Ministry of the Economy has earmarked EUR 6 million for its priority of supporting innovation and exports. In the agriculture sector, the most significant funding is planned to support the strengthening of the economic viability of agriculture and the recovery from the crisis, as well as investment support to strengthen the competitiveness and export capacity of fruit and vegetable farms.
It is intended to grant EUR 40 million to the Ministry of Transport in significant funding for the development of the sector. Of this, EUR 19 million is for the maintenance of public railway infrastructure and EUR 19 million for subsidies to cover losses on public transport, including EUR 1.1 million to provide fare concessions on public transport in national cities.
Among supported priorities of supported are also the measures of the Ministry of Welfare in the amount of EUR 32.6 million. These include extending the range and amount of old-age and invalidity pension supplements, support measures for families and children, and increasing the remuneration of assistants and companions for people with disabilities.
Up to EUR 75 million are also intended for a climate and energy measures - stabilising and compensating for increases in electricity tariffs for households and supporting protected customers. The Ministry of Culture plans to build the capacity of human resources of the cultural sector and expand the availability of the programme “Latvian School Bag”.
Cooperation with partners and local authorities
During the budget preparation process, discussions were held with social and cooperation partners, as well as with the Latvian Association of Local Governments (LALG), and the Memorandum of Understanding and Disagreement between the Cabinet and the LALG on the budget for 2024 and the budgetary framework for 2024-2026 were drawn up. The annual Memorandum of Understanding and Disagreement between the Cabinet and the LALG has resulted in a number of important agreements aimed at the development of local governments, including wider borrowing opportunities and a substantial increase in the borrowing limit.
Tax revenue in the basic budget of local governments is expected to increase by EUR 221.1 million compared to the plan of 2023. The Government has committed to guarantee 100% of the personal income tax projection for local governments, which is the largest source of revenue for local governments. Thus, a stable and predictable revenue base is foreseen for municipalities in 2024, which will provide the necessary financial resources for the performance of municipal functions and obligations.
For all municipalities, in 2024 an average increase of 8.1% in equalized revenue is planned compared to 2023. A one-off additional grant in the amount of EUR 7 million has also been agreed for 19 municipalities.
Accompanying draft laws
Government decisions have been taken to avoid significant tax increases and cuts in funding for essential public services. 19 draft laws accompanying the annual state budget draft law package for 2024 are included.
For example, in tax policy, the amendments to the Personal Income Tax Act provide for a number of measures to promote sustainable human capital development in Latvia and employers’ ability to motivate employees, including the exemption of an employee’s income from payroll tax if the employer pays the employee’s tuition fees for higher education and studies related to the acquisition of skills that are necessary for the employer. There is also an increase in the exemption threshold for employer-paid health insurance premiums to EUR 750 per year and an increase in employer reimbursements for employee expenses related to remote working to EUR 40 per month.
The draft law also includes amendments to support and simplify the operation of small businesses. It is envisaged to allow micro-enterprise taxpayers to apply the differentiated non-taxable minimum and the dependants’ allowance if they earn income taxable for personal income tax purposes. The measure is included in a single package with amendments to the Micro-enterprise Tax Law, which provides for a flat rate for micro-enterprises of 25% instead of the current two rates of 25% and 40%.
The Value Added Tax (VAT) Law is amended to exempt certain services closely linked to sport from VAT. It also aims to reduce the administrative burden and facilitate improvement of the business environment, as well as to review the conditions for registered VAT payers to correct input tax losses. Raising the VAT registration threshold to EUR 50,000 will reduce the impact of inflation on small businesses.
The excise duty rates on tobacco products, e-liquids, tobacco substitutes, alcoholic beverages, and also diesel and kerosene used in SEZs and free ports are to be reviewed and increased, with corresponding amendments to the Law on Excise Duty and the Law on Taxation in Free Ports and Special Economic Zones.
Given the high market concentration in the crediting sector, which makes it more expensive and limits the availability of services to financial sector clients and, in a high interest rate environment, allows the financial sector to make substantial profits in order to finance the growing needs of Latvian society, including to protect public safety and welfare, amendments to the Enterprise Income Tax Law have been drafted to ensure a fairer sharing of the burden of high interest rates between the public and the financial sector.
These amendments to the law provide that, from 2024, credit institutions and consumer credit providers will pay an annual enterprise income tax surcharge of 20% calculated on the basis of their financial data of pre-taxation year. The amendments also provide that the tax surcharge paid annually will now be taken into account for an unlimited period in calculating the tax payable on distributions of dividends.
The minimum wage is set to rise to EUR 700 per month from 2024.