Next year in Latvia will start with the temporary #Budget2019 07/12/2018 Dr. Kārlis Ketners, Director of the Budget Policy Development Department of the Ministry of Finance
Next year in Latvia will start with the technical or temporary budget. On December 6, the Saeima (Parliament), with a convincing majority of votes, have supported the amendments to the Law on Budget and Financial Management, providing for enhancement of the principles of preparation of temporary budget. Last time the temporary budget had been prepared for 2003, when Latvia had not yet joined the European Union (EU) and the European Economic and Monetary Union, and the medium-term budget planning had not yet been introduced, either.
The enhanced legal framework provides for pegging the principles of formation of temporary budget to the Medium-Term Budget Framework Law, ensuring the continuation of the launched policies and fulfilment of the public administration functions in accordance with the applicable legal framework.
The adopted amendments to the law prescribe: if, at the beginning of the economic year, the Annual State Budget Law has not come into effect, the Minister for Finance shall approve the State budget expenditure, loan and borrowing limits necessary for the operation of the State, taking into account several conditions. Those are:
- the basis for the expenditure of each ministry shall be the amount of expenditure approved for the relevant year in the Medium-Term Budget Framework Law for the relevant ministry, which shall be adjusted to ensure the fulfilment of international liabilities, government debt interest payments, implementation of the projects co-financed by foreign financial assistance (including the EU funds), provision of the paid services of the budget institutions, as well as performance of such payments, where the amount of expenditure depends upon the changes in the number of service recipients (for example: pensions, benefits);
- it must be noted that the financing of the measures commenced in the previous economic year shall continue, however the services not provided for in the previous economic year (payment orders) shall not be paid for, and investments not implemented in the previous economic year shall not be made;
- the fulfilment of the applicable legal framework in the field of pensions, benefits and remuneration must be ensured;
- performance of such mandatory payments must be ensured as expenditure for the fulfilment of the government debt liabilities in accordance with the provisions of the effective contracts, State contributions into the European Union budget;
- the fulfilment of the budgetary policies and conditions prescribed by the State Budget Law for the previous economic year shall continue at a constant level, except for the fixed-term measures expected to be completed in 2018.
To ensure a stable financing necessary for performance of functions of local governments, the allocation of the funding for earmarked grants and grants, loan and borrowing limits shall be approved. Thereby the use thereof shall be ensured for the implementation of the projects co-financed by the EU and other foreign financial assistance.
Thanks to the new regulation and the enhanced approach, by the temporary budget the fulfilment of the functions and liabilities of the State will be ensured, as well as the continuation of the launched budgetary policies and measures at a constant level, up to the moment of coming into effect of the Annual State Budget Law. This will provide for the funds for the groups of society, who, under previous regulation, would not be able to receive money due to them according to the legal framework:
- in 2019, teachers will be able to continue receiving the work remuneration increased on 1 September 2018;
- persons employed in the field of the interior and justice will be able to receive the benefit for the years of service determined by law;
- the execution of the judgment of the Constitutional Court on the work remuneration of judges and prosecutors will be ensured, as well as the cancellation of the extended normal working time for medical persons;
- the disbursement of remuneration to the State President will be ensured (in accordance with the Law on Ensuring the Operation of the State President, the remuneration for the President shall be determined in the Annual State Budget Law);
- the increase of the non-taxable differentiated minimum will be ensured, as planned within the scope of the tax reform, (up to EUR 230 per month in 2019) for income up to EUR 440 per month, as well as the increase of the allowance for dependents (EUR 230 per month in 2019) and increase of the non-taxable minimum of a pensioner (EUR 270 per month in 2019);
- the allocation of the personal income tax revenue among the State and local government budgets will continue - 20% and 80%.
To ensure correct performance of calculations and technical preparation of the temporary budget, the Ministry of Finance (the MoF) has developed the key principles to be observed, when calculating the temporary budget indices. Primarily, the calculations are carried out by the responsible structural units of the MoF, involving the line ministries, as necessary. After performance of all the necessary calculations, the order of the Minister for Finance on the temporary budget will be prepared. To ensure the availability of information and informing of the legislator, within the period of five business days after the approval of the temporary budget, it will be posted on the internet website of the MoF and sent to the Budget and Finance (Taxation) Commission of the Saeima.
To receive the authorisation for making payments in accordance with the temporary budget appropriations, the ministries will have to manage to prepare and submit to the Treasury the financing plans by January 1. The implementation of the temporary budget will start on 2 January 2019 and it will proceed in accordance with the conditions for implementation of the budget prescribed by law.
It must be noted that the temporary budget is the technical budget, which provides for implementing the previous policy, without changing it. Temporary budget does not provide for any policy changes, new initiatives and new solutions. Proposals for policy changes and new measures will be initiated by the new government, incorporating them into the Draft Annual State Budget Law for 2019. It is to be submitted to the Saeima not later than within four months after the Saeima would have given the new Cabinet of Ministers a vote of confidence. The new draft budget will have to be coordinated also with the European Commission. Upon coming into effect of the law On the State Budget for 2019, all authorisations granted by the temporary budget will become null and void, and all expenditure from the beginning of the economic year will be registered in accordance with the new Annual State Budget Law.
The changes in the legal framework adopted by the Saeima on December 6 have been drafted by joint efforts of the MoF, the Budget and Finance (Taxation) Commission of the Saeima and the Legal Bureau of the Saeima. Notwithstanding the protracted new government formation negotiations, the legislator and the executive authority have managed to expediently find an optimal solution oriented towards public interests in forming the temporary budget.
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