RIGA, Oct 3 (Reuters) - Latvia's government decided on Saturday to cut next year's budget expenditures by 225 million lats to ($461.9 million) achieve a consolidated cut of 500 million and aim for a budget deficit of 8.5 percent, reports Latvian news agency BNS.
Last month the government decided a cut of 275 million lats would be sufficient to reach the 500 million lats consolidation cut target, but introducing tax changes and amended cuts to the 2009 budget has lead the government to lower the planned 2010 budget cut.
The government decided to make several changes to taxes such as a 10 percent capital gains tax applicable also to dividends, an increase of the real estate tax on land to 1.5 percent of the cadastral value, increase of excise tax on wine and to extend the personal income tax refund term from three months to 12 months.
This way the government hopes to raise an additional 58 million lats to next year's budget.
Prime Minister Valdis Dombrovskis was reported as saying he hoped the decision would buy the government enough time to convince the international lenders to allow for Latvia to go ahead with its 2010 budget plans.
According to an agreement signed with the international lenders Latvia should cut its expenditures in 2010 by 500 million lats, but the government has consistently defended its position to cut less and introduce taxes to raise revenues instead.
Elena Flores, a senior EU official who supervises the financial assistance package to Latvia, told Reuters recently that the Latvian government should stick to the agreement signed and cut 500 million lats of expenditures in 2010.
'The numbers should be the numbers which are in the commitment,' she said.
Latvia, facing an 18 percent economic decline this year and 4 percent in 2010, is dependent on funds from a 7.5 billion euro rescue agreed with the IMF and European Union last year to finance its budget deficit, keep its currency, the lat, and the banking sector stable.
The small Baltic nation in end of August received 195 million euros from the IMF in the second tranche of payments.
Though Latvia is one of the smallest EU nations, its economic woes have caused concern in Sweden due to the exposure of the Nordic state's banks.
Eastern European markets have also been rattled by fears a devaluation in Latvia would cause a chain reaction in other countries with a fixed currency peg, but the country's central bank governor Ilmars Rimsevics has time and again rejected the possibility of a such a move.
(Reporting by Jorgen Johansson) ($1=.4871 Latvian Lat) Keywords: LATVIA ECONOMY/ (Riga news room; phone +371 29137505) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
Last month the government decided a cut of 275 million lats would be sufficient to reach the 500 million lats consolidation cut target, but introducing tax changes and amended cuts to the 2009 budget has lead the government to lower the planned 2010 budget cut.
The government decided to make several changes to taxes such as a 10 percent capital gains tax applicable also to dividends, an increase of the real estate tax on land to 1.5 percent of the cadastral value, increase of excise tax on wine and to extend the personal income tax refund term from three months to 12 months.
This way the government hopes to raise an additional 58 million lats to next year's budget.
Prime Minister Valdis Dombrovskis was reported as saying he hoped the decision would buy the government enough time to convince the international lenders to allow for Latvia to go ahead with its 2010 budget plans.
According to an agreement signed with the international lenders Latvia should cut its expenditures in 2010 by 500 million lats, but the government has consistently defended its position to cut less and introduce taxes to raise revenues instead.
Elena Flores, a senior EU official who supervises the financial assistance package to Latvia, told Reuters recently that the Latvian government should stick to the agreement signed and cut 500 million lats of expenditures in 2010.
'The numbers should be the numbers which are in the commitment,' she said.
Latvia, facing an 18 percent economic decline this year and 4 percent in 2010, is dependent on funds from a 7.5 billion euro rescue agreed with the IMF and European Union last year to finance its budget deficit, keep its currency, the lat, and the banking sector stable.
The small Baltic nation in end of August received 195 million euros from the IMF in the second tranche of payments.
Though Latvia is one of the smallest EU nations, its economic woes have caused concern in Sweden due to the exposure of the Nordic state's banks.
Eastern European markets have also been rattled by fears a devaluation in Latvia would cause a chain reaction in other countries with a fixed currency peg, but the country's central bank governor Ilmars Rimsevics has time and again rejected the possibility of a such a move.
(Reporting by Jorgen Johansson) ($1=.4871 Latvian Lat) Keywords: LATVIA ECONOMY/ (Riga news room; phone +371 29137505) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
© 2009 AFX News
