The budget for the next year is the result of joint work and close dialogue with local governments - both in addressing such important issues as security, education, family support, road infrastructure, and passenger transport, and in seeking opportunities to save budget funds, said Prime Minister Evika Silina.
Today, Prime Minister and Chairperson of the Latvian Association of Local and Regional Governments (LALRG) Gints Kaminskis signed a protocol of agreements and disagreements between the Cabinet of Ministers and local governments regarding the budget for 2026 and the budget framework for 2026–2028.
After signing the protocol, Silina noted that a common goal is also the development of the economy in local governments and increasing the competitiveness of local entrepreneurs.
The Ministry of Finance reported that this year a number of important agreements have been reached in the protocol aimed at the development of local governments, financial stability, and sustainability. At the same time, disagreements remain between the government and LALRG regarding compensation for local governments for the impact of labor tax reforms.
The government previously decided that in 2026, 3 million euros will be allocated to strengthen the security of five local governments on the external border of the EU - approximately 1 million euros will go to the Ludza region, over 780,000 euros to the Kraslava region, more than 580,000 euros to the Balvi region, over 383,000 euros to the Aluksne region, and 265,000 euros to the Augsdaugava region.
In the following years, stable growth in tax revenues is forecasted for local governments - in 2026, together with compensations, the increase will amount to 151.4 million euros, or 6.1%.
The government also guarantees that the forecast for the personal income tax (PIT), which is the main source of income for local governments, will be fully met. Revenues exceeding the guaranteed amount will be directed to repay local governments' loan obligations to strengthen their financial sustainability. According to forecasts, with unchanged policies, PIT revenues will increase by 6.7% in 2026, and in subsequent years - on average by 5%.
Although the amount of compensation for the tax reform is recorded in the protocol as a subject of disagreement, compensation of 66.8 million euros is provided for 2026, 84.1 million euros for 2027, and 86.7 million euros for 2028. As emphasized by the Ministry of Finance, these figures confirm that the impact of tax changes on local government budgets has been more positive than previously anticipated, ensuring stable revenue growth for regions in the coming years.
Calculations for the equalization of local government finances (ELGF) have been conducted based on the current algorithm, and the average increase in equalized revenues will be 6%, or an average of 728 euros per equalization unit. The highest revenues under the ELGF system are expected in Riga and the Riga region - from 807 to 894 euros per unit, while the lowest are in the Kraslava, Ludza, Rezekne, and Augsdaugava regions - around 600 euros.
The difference in revenues under the ELGF per unit is approximately 1.5 times, however, the increase confirms that the local government revenue equalization system continues to ensure a balanced distribution of funding across the country, contributing to regional development, the Ministry of Finance notes.
At the same time, by March 1, 2026, a new ELGF model is planned to be submitted to the government, which will involve consultations with local governments for a more balanced distribution of resources among them and strengthening the development opportunities of regions from 2027. The new ELGF model aims for a fairer distribution of funds and a reduction in bureaucracy, the Ministry of Finance notes.
Leave a comment