With an unchanged tax policy, the total increase in tax revenues in local government budgets is expected to be faster than in the state budget next year, representatives of the Ministry of Finance (FM) promised at the meeting of the Local Government Consultative Council on Thursday.
As the LETA agency was informed by the FM, in 2025, the increase in tax revenues in the state basic budget is planned to be 5.9%, while in the municipal budgets – 6.6%. The largest increase in tax revenues will be the projected increase in personal income tax, which is the largest source of revenue for local governments.
On Thursday, at the meeting of the Consultative Council of Municipalities, the representatives of the Latvian Union of Municipalities (LPS) and the delegated chairmen of the municipal councils, together with the Minister of Finance Arvilas Ašeraden (JV) and representatives of the FM, discussed the overall financial situation of municipalities, the new fiscal management framework of the European Union (EU) and the new financial equalization of municipalities. (PFI) model.
The meeting also discussed the most current information on tax revenues and factors influencing them this year, which were taken into account when preparing Latvia’s Stability Program for 2024-2028.
LPS and local governments individually have been expressing for a long time that there is a catastrophic lack of funds in their budgets, because the state has imposed several new functions, and besides, the cost of living is increasing.
LPS board chairman Gints Kaminskis met with experts from the Organization for Economic Co-operation and Development (OECD) this week, and both parties then highlighted the need for stable funding for municipalities. LPS criticized that currently the municipal equalization fund is a “self-help fund” in which something is taken from one and given to another.
OECD experts pointed out that the municipal equalization fund is not a bad mechanism, but municipal revenues should be more predictable, and local authorities should address this issue in political negotiations with the central government. As one of the solutions for stabilizing the funding base, experts suggest allocating a larger share of tax revenues to municipalities.
At the same time, the development of local companies and raising the efficiency of local governments is also necessary. On the private sector side, the main problems are the lack of adequate workforce, sufficient funding and infrastructure. In the local government sector, the quality of the services provided, the school network, the issue of cadastral values, the attractiveness of public sector work and remuneration need to be improved.
Experts believe that both entrepreneurs and local governments should cooperate more and “put resources together”. This applies both to the implementation of joint infrastructure projects and to changing the qualifications of the workforce and improving the digital skills of the population.
Tags: Ministry Finance promises faster increase funds local government budgets year state budget
