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The Latvian government budget for 2020 is now underway and will, according to Prime Minister Krišjānis Kariņš, exceed 10 billion EUR for the first time, helping to provide more spending here, there and, well, everywhere. Everybody happy? Nope. Expect trouble ahead and for several reasons:
1) Times are good, part one – the economy has grown for about nine years in a row and unemployment is down to its lowest level in ten years. But under such conditions the pressure for more spending is high: Health, education, civil servants in general. Everybody expects and wants more. Stopping fiscal profligacy will prove very difficult.
2) Times are good, part two – with the economy doing so well, tax revenues are very strong since many people are at work and most companies do well; both cases leading to much tax being paid. Still, however, spending is even higher than these very high levels of tax revenue or, in other words, Latvia still manages in these good times to run a budget deficit, see Figure 1.
