On Wednesday, 2 December, the Saeima adopted in the final reading the Law on the State Budget for 2021 and the Law on the Medium-Term Budget Framework for 2021, 2022 and 2023.
Next year, the consolidated budget revenue is planned at EUR 9.58 billion with the expenditure amounting to EUR 10.76 billion. The basic budget revenue is expected at EUR 6.68 billion, while the expenditure – EUR 7.84 billion. Meanwhile, the special budget revenue is projected at EUR 3.15 billion and the expenditure at EUR 3.17 billion.
Next year, the drop in revenue is estimated at EUR 328 million, while the expenditure is to rise by EUR 744 million with the budget deficit increasing to 3.9 percent of GDP.
In 2021, healthcare will receive the most funding with additional 183 million earmarked for the previously planned increase in the salaries of the medical staff.
The salaries of teachers are also to rise – next year additional EUR 33.3 million, and starting from 2022 EUR 49.1 million, will be allocated for the purpose.
As regards welfare, additional funding of EUR 95.7 million is earmarked for ensuring the guaranteed minimum income for persons in need. EUR 70.7 million will be used to increase the minimum pension and state social security benefit, 23.8 million in local government budgets will finance the guaranteed minimum income and housing benefit, while EUR 1.3 million will be dedicated to increasing social guarantees for orphans and children left without parental care.
Next year, EUR 11 million will be allocated to strengthening the Ombudsman's Office, judicial institutions, the State Audit Office, the Constitutional Court, and other independent institutions, while EUR 8.3 million will be directed to the withdrawal of public media from the advertising market.
The crisis caused by the pandemic has highlighted the need to strengthen the social protection of those working in alternative tax regimes, therefore a larger share of income will be diverted to social insurance, as set out in the explanatory note of the Draft Budget. As of 2022, payment for intellectual property will be regarded as income from economic activity and recipients of royalties will have to be registered as micro-enterprise taxpayers or self-employed persons that pay taxes in accordance with the general procedure.
In order to increase the social protection of self-employed persons, starting from July 2021, the minimum social contributions of self-employed persons will amount to ten percent instead of the current five percent of the income.
The use of the patent fee regime will also be modified next year. It is planned that only pensioners and persons with Group I and II disability will be allowed to continue to use it at a reduced rate.
From 2021, the rate of mandatory state social insurance contributions is to be reduced by one percentage point - from 35.09 to 34.09 percent. The social tax will be set at 10.5 percent for employees and 23.59 percent for employers. The changes will also affect those using the micro-enterprise tax regime: from next year the regime will only be available to the owner of the micro-enterprise, while the labour tax for its employees will have to be paid in accordance with the general procedure.
As of next year, the minimum wage, which previously amounted to EUR 430, will be EUR 500 per month. The threshold of applying the differentiated minimum exempt from the personal income tax is raised from the current EUR 1200 to EUR 1800. Meanwhile, next year the maximum non-taxable minimum will be increased from EUR 250 to EUR 300 per month. The non-taxable minimum for pensioners will be EUR 330 per month instead of the current EUR 300.
The highest progressive rate of personal income tax will be set at 31 percent; so far, it was 31.4 percent.
For another three years – until the end of 2023 – the reduced rate of value added tax in the amount of five percent will be maintained for fruits, berries, and vegetables originating from Latvia. In turn, the excise duty on cigarettes will increase by an annual average of 5.8 percent over the next three years, and by 10 percent on cigars and cigarillos. Excise duty will also be increased for heated tobacco products, liquids used in electronic cigarettes and their components. Additionally, the natural resources tax will be raised for certain activities, including the disposal of domestic and hazardous waste in landfills.
The changes will also affect the transport sector. The vehicle operation tax on goods vehicles will henceforth be based on the amount of carbon dioxide emissions. The tax will increase for businesses using powerful cars, while the tax rates will be approximated for passenger cars and goods vehicles with the gross weight of up to 3500 kilograms.
According to macroeconomic forecasts, which take into account the crisis caused by the pandemic, and the implemented economic support measures, the gross domestic product at constant prices will decrease by seven percent this year. As stated in the explanatory note of the Draft Budget, in 2021, economic growth will resume with GDP growth reaching 5.1 percent, while in 2022 and 2023 it will stabilise at 3.1 percent.
The Law on the State Budget for 2021 and the Law on the Medium-Term Budget Framework for 2021, 2022 and 2023 will come into effect on 1 January 2021.
Saeima Press Service