Straujuma puts government's future on the line

With Latvia's budget for 2016 due to be handed to the parliament or Saeima in six weeks' time, ministries are putting in their bids for spending increases - while Prime Minister Limdota Straujuma on Wednesday issued a warning that failure to pass the budget as planned would mean the end of her government..

Speaking on public broadcasting's Latvian Radio on Wednesday Straujuma reminded her ministers that her main "red line" is a 1% of Gross Domestic Product (GDP) deficit.

"We cannot live on resources we have not earned. This is the line we will not cross,” Straujuma said.

While under the terms of the EU's 'Fiscal Compact' treaty states can run  a general budget deficit not exceeding 3.0% of GDP, Latvia is also bound by its Medium-Term budgetary Objective (MTO) of 1% of GDP.

According to Straujuma, if the parliament does not stick to the budget deficit goal of 1 percent of the gross domestic product, she will have no option but to step down as prime minister - effectively turning the budget vote into a vote of confidence.

Straujuma said that so far the coalition has demonstrated a wish to adopt the budget.

"However, life is life, and interests are showing. The budget will be presented to the parliament on September 30, and then the parliament will revise it. (...) I cannot promise that the coalition will not fall... The budget is a test for the government and sometimes governments fall due to the budget,” she said.

The Latvian government in a meeting on Tuesday approved the forecasts for macroeconomic indicators, revenues and general government budget for 2016-18. In line with forecasts, Latvia's growth will be 2.1 percent in 2015, 3 percent in 2016, and 3.6 percent in 2017 and 2018.

The draft government budget is due to be submitted to the parliament on September 30.

State institutions are seeking €547m in additional allocations for new policy initiatives in next year's budget, with the Defense and Interior ministries believing themselves to be the priority areas.

Discussion about how the extra money will be found via tax hikes or cuts elsewhere has been minimal so far.

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