Latvian and Estonian budgets side by side

It's become a popular complaint in Latvia that nearly everything is better in Estonia.

Our northern neighbors are held up as examples of fiscal discipline, prudent spending and educational excellence. Their presidents are admired from afar and their ability to generate positive headlines about their hi-tech sector is envied.

It sometimes seems that in everything except food and drink (Latvian ice cream is famously superior and Estonians enthusiastically drive south to stock up on booze) Latvia lags. But is the anecdotal evidence backed up by data? 

That question is at least partly answered by new research from the Latvian Institute of International Affairs (LIIA) which directly compares the budgets of the two countries.

The report is written by Aldis Austers and edited by Dr. Andris Spruds and titled: "National budgets of Latvia and Estonia: Less is not always less" shows considerable differences in the ways the two countries collect and distribute taxpayers' cash.

The starting point is a remark made by Latvian President Raimonds Vejonis in April this year which he asked why Estonia's budget was more than 10 billion euros but despite Latvia having a larger economy and a larger population by around 700,000, the budget is only around 7 billion euros.  

It seems the president may have been slightly misinformed as in 2015 Latvia's consolidated state budget amounted to 9 billion euros, whereas Estonia's was 8.1 billion euros.

However, Vejonis may still have a had a point as Latvia's economy and population are indeed larger in comparison than those figures might suggest. (1.3 million residents in Estonia compared with just under 2 million in Latvia)

A major difference is the amount each state spends per resident: €4,500 in the case of Latvia but €6,200 in the case of Estonia.

The discrepancy between the states becomes even greater if one looks at the central government budget, which for 2015 was 5.5 billion euros for Latvia but for Estonia 7 billion euros.

This points to one of the main differences between the two systems, namely the much greater role played by taxation and expenditure at local government rather than central government level in Latvia. 

And in areas such a defense the spending differences are even more pronounced. According to the two states' budgets for 2017, Latvia will spend 448 million euros on defense (227 euros per resident) while Estonia, a leader in NATO, will spend 424 million (324 euros per resident).

Estonia's success in projecting its image overseas might also be partly due to the fact that its foreign ministry has a larger budget than Latvia's (62 million compared with 61 million).

What then follows is around 40 pages of comparison that tends to back up the anecdotal evidence that things generally run a little more efficiently north of the border, particularly when it comes to tax collection, concluding with the startling statement that:

"Hypothetically, if Latvia's development conditions were the same as Estonia's and the government was equally effective at tax collection and in the other parts of the business environment, Latvia's consolidated state budget for 2017 would be around 14.4 billion euros instead of the 10.2 billion euros expected. May it come to pass!"

Luckily the report is currently available only in Latvian. God forbid that it should be translated into Estonian.

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