Latvia's prime minister hailed tough budget savings today as preventing state bankruptcy and said a parliament vote on the cuts could be brought forward as the country seeks to avert crisis and possible devaluation.
He said work would start soon on cuts in the 2010 budget, showing the urgency of Latvia's situation as it faces a near 20 per cent fall in economic growth and the need to ensure continued funding from the European Union and International Monetary Fund.
Parliament was today to consider laws accompanying the amended 2009 budget, which includes the cuts, as it has decided to consider the second reading of the bill in two sessions.
A final vote on the bill is due on June 17th, though Prime Minister Valdis Dombrovskis said this could be brought forward.
“Yes, with yesterday's decisions the state has really been saved from bankruptcy,” he told public radio.
“The signals we have been getting from the European Commission are positive," he added at a conference on the Baltic economies.
He spoke after the five-party coalition government agreed with social partners such as unions and employers on Thursday on ways to find savings of 500 million lats ($1.01 billion).
The cuts include a 10 per cent lower old age pension, a whopping 70 per cent cut in the pensions of pensioners who still work and a 20 per cent cut in state sector salaries.
The tax-free minimum will also be cut and allowances for parents reduced by 10 per cent. The parties decided against introducing higher income taxes this year.
The agreement did not include the launch of a progressive income tax to replace the current flat tax of 23 per cent, though Dombrovskis told the radio this issue would be further discussed.
A higher property tax and a tax on capital gains will be introduced from 2010, the government has already decided.
The savings are a condition of getting €1.2 billion later this month or in early July from the EU and IMF, part of a €7.5 billion rescue package agreed last year.
The funds are vital to keep Latvian finances afloat during the recession and prevent a devaluation some economists see as inevitable given the pressures on the country.
“We are considering the possibility of accelerating this process and for parliament to vote (the final vote on the second reading) on Monday already,” Dombrovskis told LNT television.
He said government parties and social partners would start work soon on 500 million lats of cuts in the 2010 budget.
Reuters