Monday, September 07, 2009

Finance Minister amazed by economic reality

The Latvian TV show Nekā personīga (Nothing Personal) showed the Minister of Finance Einārs Repše expressing surprise that total budget spending had not decreased despite sharp cuts in the basic state budget. The money, it turns out, was all being spent through the so-called social budget comprised of pension payments and unemployment benefits. The economic crisis and rising unemployment -- some of it fed by laid-off government and municipal employees -- was increasing demands on the social budget at the same time as lower wages and fewer employed are available to fund the social budget through so-called social contributions (another name for taxes).
"Surprisingly, and I was surprised by it too, our reduction in expenditure in the basic budget is almost precisely compensated by the increase in expenditure in the social budget. So the reduction and all that we have done with our combined efforts last year and this year has reduced the basic state budget, that is, the expenditures for state administration and related spending. But purely by chance, the social expenditures have grown by the same amount," Repše told the TV3 reporters.
What a surprise, especially for a Finance Minister one would expect to know a little economics! And didn't he say that that any downward spiral of tax revenues and rising social costs had been taken into account when making drastic budget cuts? So we only seem to have cut LVL 500 million and are back to square one. What else will surprise the Finance Minister next?


Maris said...

Not the first year you are in. I am surprised about your surprise.

investmentgardener said...

Interesting document to read on the Latvia bailout. Don't know how widely available it is in Latvia.

Mr.Key said...

Yeah, thats funny. Like a car driver who slams on the brakes and calls "hey, the braking distance is longer when wheels are blocked". What a surprise, isn't it?