Dear Speaker of the Saeima,
Dear Saeima members, ministers and participants,
I believe this has been one of the toughest periods of preparing and considering budgetary amendments in whole history of Latvia:
with ever changing gross domestic product decline forecasts;
with tax income fall by around 30%;
in talks with international lenders;
in discussions with social partners;
with elevated risk of causing social unrest in society.
Such was the background for preparing the budget, and thus there was also the largest interest in every possible decision by the Government which may affect any social group. Unfortunately, several speculations and rumours spread like wildfire, sometimes without any reason worrying and misleading people about further decisions.
It should be reminded that we have been brought to this difficult situation not just within last months and not even last year. Now we are facing the effects of irresponsible macroeconomic policy from previous years and we are forced to make very unpopular decisions.
How will we live after the cuts in the amount of 500 millions? Will Latvia receive well-needed international loan? How people from the most disadvantaged social groups will further survive? What will happen in fall when the heating season begins? What can businesses expect? What the government tax policy will be like in the future? The public wants to know answers to those questions already now. And that is reasonable. I will slightly keep your attention by providing my vision about those issues:
Within this considerable budgetary deficit reduction, which is a tough complex of decisions both to the employed, and the pensioners and the social benefits' recipients, the Government has made a strong commitment to introduce immediate expenditure reduction also in the public administration, clearly stating that central ministerial apparatus will be reduced by 30%, and the number and the administrative expenditures of agencies will be reduced by at least a half, whereas the councils of state-owned capital companies will be abolished at all. It goes without saying that the wage fund will be cut by 20%.
I will watch those processes, I will demand ministers to report about the achievements, but most importantly – actual and noticeable results. Within a month, all line ministries, agencies and budget authorities will have to present concrete numbers and expenditure positions, revealing actual outlook of our previous expenditures and our current cut expenditures: salaries, cars, communication costs, rent and other costs covered by tax payers. The society must know how the public administration will operate in austerity regime – and only then people will be ready to understand and believe. Only then we may hope for solidarity, as in this tense state finance situation protests are not the solution.
About planned Government’s activities aimed towards ensuring social stability in the upcoming fall/winter period. We have already prepared solutions how to ensure means of subsistence to the unemployed, families with children and the socially most disadvantaged groups of people in this crisis period. The period for unemployment benefit allocation has been extended to 9 months. We have designed a scheme according to which local governments can ask for necessary additional financing for ensuring guaranteed minimum income benefit payments. We have also good news – the gas tariffs from July will be reduced by 27%, thus also stimulating reduction of heating tariffs. The Government will strictly follow this matter.
With the attraction of co-financing from the European Social Fund, introduction of new measures from September/October 2009 are on the agenda. For example, granted jobs. Such measure is designed in line with good practice from other world countries which are facing similar socio-economic situation. Total financing in the amount of 20 million lats is planned from the European Social Fund and state budget resources.
As important support to the potential unemployed will be preservation of skills and working capacities of idled employees. That will be ensured through six-month training. The participants will also be paid training allowance in the amount of 90 lats. Procedure for training allowance payments will be set forth by State Employment Agency’s cooperation agreement with educational institutions. The total financing is 10 million lats.
By mid-August, the Ministry of Welfare together with the Latvian Union of Local Governments, the Ministries of Agriculture and Finance are expected to present to the Government an action plan on where people can seek aid. It is planned that representatives of newly-formed districts will involve in this process.
During the preparation of budget amendments we have found an opportunity to protect businesses from increasing tax burden whose business plans have already been affected by economic downturn, but increase in taxes may actually have destructive effects on Latvian economy in general. Despite the expenditure reductions, we have allocated additional 66 million lats for the EU fund co-financing.
Also further, in parallel to already launched economic activity stimulation measures such as:
loans and securities for improving the competitiveness;
introduction of export credit guarantee systems;
program for heat isolation of apartment buildings;
in order to reduce bureaucratic obstacles we have included in our agenda a number of efficient additional measures
elaboration of support programme for micro-enterprises;
state guarantees on business credits;
support to business capital and transfer of technologies;
measures for high-risk loan programme;
assistance for commencing self-employment and business.
Any economically thinking person is aware that only recovery of business activities will enable us to overcome this crisis. Therefore, also this Government will use its best endeavours to support businesses.
The coalition of the Latvian Government together with social partners and with active involvement by State President has accomplished its task for ensuring country’s solvency. We have reduced budget deficit by 500 million lats, revised Latvian economic stabilisation and growth revival program, presented formation forecasts and principles for the budget of next three years. A decision on granting a loan is on the side of the European Commission and the International Monetary Fund. The prepared measures create a good ground for further receipt of international loan and that has been publicly affirmed by the European Commission. The final decision will be made in upcoming days and persuasion about Latvian macro-economic stabilisation program and further receipt of loan will be at the top of the agenda of next European Council meeting.
These are tough and unpleasant budgetary amendments. Yet, if we will not adopt those amendments, the consequences will be much financially and socially much dramatic. Therefore I ask members of the Saeima to be aware of the gravity of the situation and their responsibility. Dear members of the Saeima, I appeal to you to vote “yes” for fiscal consolidation in 2009 budget which is a crucial and responsible decision for Latvia. I express my gratitude to the State President, social partners, ministers and officials without whose support this would not have been possible.
Thank you for your attention!