Municipalities give money, but small values

Local governments have been promised a total of 1.71 billion euros in the total amount of personal income tax, real estate tax and state grants. Compared to this year, an increase of 52.3 million euros or 3.1% is expected. If the basket of municipal expenditures would correspond to the basket of goods and services, whose increase in the total price is called inflation, and if LB’s forecast is correct, which will be revealed only next year, then the increase of 1.71 billion euros will take 68.2 million euros. . In other words, municipalities will actually have 16 million euros less to pay next year’s prices for everything they pay for this year’s prices. Arithmetically, this is not possible, but the amount of money is large enough that such a shortcoming can be compensated or at least hidden by more agile changes in money.

The actual losses for local governments will be even greater, as the costs of their economic activity and other revenue items will increase. The Central Bureau of Statistics calculated that in 2020, local governments had a turnover of 2.77 billion euros, of which 4% is already over 100 million euros. It turned out that this is more than 90 million euros, as noticed by the government of Krisjanis Karins with 5% of the income tax income of citizens, whose distribution ratio between the state and local self-governments was changed in favor of the state a year ago. In that case, local governments, led by the Union of Local Governments of Latvia (LPS), at least tried to raise a fight and prevent such changes. On the other hand, this year the chairman of the GPS, Kints Kaminskis, said about the talks with K. Karinš and the Minister of Finance, Janis Reirs, said that the cooperation was good: “3.1% do not have a situation when we talked about reduction. In addition, six municipalities will have additional bonuses, which is good news. “

The turnaround in the relations between the government and the LPS is another proof of the advantage of inflation in relation to brutal deprivation, even if, as in Latvia last year, it cannot be legally called a robbery. These benefits are enjoyed by the state, which issues paper or non-cash money. Initially, the issuance of money coincided with its printing, but in the case of Latvia, the government does not print the money. Latvia has joined the monetary union, where money is printed in Frankfurt and issued to member states as gifts and loans in Brussels. Loans are raised in the belief that the Union will write them off, either by seemingly repaying them at the expense of subsequent and necessarily larger loans, or by the termination and failure to recover anything from the remaining, probably bankrupt countries.

The advantages of inflation for the state are that citizens notice the loss of value or purchasing power of money that the state has allocated only after some time spent with the satisfaction that more money has become available to them. It was only later that it turned out that the increase in money supply did not cover such increases in expenditures as announced by all other electricity suppliers to Latvia “Augstsprieguma tikls” on October 6: “In September, for the first time since the opening of the electricity market, 50 euros per megawatt hour 41.4% more than in August, but the price was more than three times higher than in September 2020. “The average price of gas in 2020 was about 10 euros per megawatt hour, but it has now reached 80 euros. CO₂ prices of emission permits – if last year they were around 25 euros per ton, now they are 60 euros per ton. Coal prices have also risen more than three times, “continued Guntars Balchuns, chairman of the board of Latvenergo.

Are these increases taken into account in the draft budget for next year? Yes, the LPS warned the government that current electricity prices mean an increase in lighting costs for streets, schools and other municipal institutions by 19 million euros. LPS sent a letter to K. Karinshu, who gave it to the Ministry of Economy with the task of forming a working group and “looking for a solution”. G. Kaminskis hopes the ministry or working group will find more than a proposal to add 10-20 euros to the benefits received by the poorest families so they can pay for electricity.

The LPS, for example, already has followers. The Latvian Association of Meat Processors has sent a request to the government to allocate money from the budget for 2022 to cover at least part of the increase in energy prices, because otherwise sausages will become so expensive that they will no longer have local buyers. The same can be asked by bakers from the government, who have just warned that bread prices could rise by a third in the near future. The prices of “other bread” or potatoes have already doubled and will increase further, if only because energy is needed for their storage and delivery from afar.

Even if the Central Statistical Office (CSB) calculates inflation of 4% in the same order, according to which the Bank of Latvia forecasts this 4%, it cannot have anything to do with the increase in real expenditures. The Bank of Latvia also felt something bad and soon added an explanation to its “inflation forecast” of 4%, “that the annual growth rate of consumer prices will slightly exceed 5% (not to be confused with the average annual inflation forecast of 2.8%” this year , but the next 4, 0%) ‘. Then everything is fine – inflation will really exceed 5% in 2022, and maybe it will really only “slightly” exceed 5%, if the review is compared 30 years ago. It was in 1992 with 410% of inflation recognized by the CSB. A 100% price increase in 2022 will also be just over 5%, compared to 410%.

Inflation next year is marked by an increase in government spending of 9%, but it is 40% more probable, which is why K. Karins decided to simply raise the salary of himself and all the officials needed to maintain the existing government.

G. Kaminskis confirmed that he knows many items of local government expenditures, which will increase with the increase of the prices listed here. For example, higher prices of electricity, bread and potatoes will not allow students to eat at current prices. Municipal officials will demand salary supplements so that they do not leave a job for which the salary does not cover the costs of food and heating. Construction costs usually have enough capacity to exceed the average rate of price increase.

The direction of the increase in spending is so much that it makes no sense to try to cover them and count how much extra money will be needed to repeat the same thing this year next year. The heating season that has just begun will show how much money will be needed to spend on citizens and heating companies so that we can all survive together until the end of this and the beginning of next season. They – citizens, companies, municipalities or the government – will spend the winter, they will be able to think about how to live on.