(adds Finance Ministry's comment)

Riga, Sept 16 (LETA) - At a meeting of the Saeima public administration and local government committee meeting on Tuesday, heads of several local governments accused the Finance Ministry of not fulfilling its promises and demanded an open agreement on which functions could be left unfulfilled or the quality of services reduced.

Gints Kaminskis (Latvian Farmers' Union), Chairman of the Latvian Association of Local Governments, informed the committee about the situation with the budgeting of local governments next year.

Kaminskis stressed that last year it was agreed that local governments would receive compensation to mitigate the effects of the tax reform, and local governments are counting on this. This agreement was reached for the three-year budget plan.

However, this year, information suddenly emerged that municipalities would not receive the planned EUR 58 million compensation next year and that this reduction would be included in the reduction of state budget spending and would account for a third of the planned savings.

Kaminskis voiced regrets that the state could no longer be relied on to reach agreements.

Opposition MP Ugis Mitrevics (National Alliance) pointed out that the municipal budget would make up one fifth of the total state budget, while the municipalities' share of the budget cuts would be one third. This proportion seems wrong, Mitrevics said.

Valmiera Mayor Janis Baiks ( Valmiera And Vidzeme), gave a very emotional speech. He stressed that it is high time to say openly what municipalities can do with less or less quality and requirements.

Valmiera municipality has a EUR 7 million increase in tax revenues from 2022, but this will only cover some of the increased spending, for example in education. Moreover, no more schools can be closed in Valmiera because the number of pupils in the municipality is growing.

Seven new factories have been set up in Valmiera, the region is developing economically, but with all these activities the municipality is being driven towards insolvency.

Recently, many municipal employees have moved to state institutions, as the difference in salaries for the same jobs is EUR 400-500, said Baiks.

According to the law, in 2027 municipalities will have to ensure a minimum wage for their employees, but municipalities cannot do this because they do not have the funds.

Meanwhile, Finance Ministry's representative Inta Komisare pointed out that the situation for local governments does not look so bad. Both next year and in the following years, an increase in tax revenues for local governments is forecast.

Shew acknowledged that municipalities have needs but the ministry does not see a critical situation.

The Finance Ministry told LETA that when working on the 2026 budget, the government guaranteed that local governments' revenue from personal income tax would be provided in full or 100 percent of the forecast, which is very important as this tax is the main source of revenue for local governments.

The ministry also underlined that the financial situation of local governments in 2025 should be assessed as stable.

Also in 2026, the state budget is expected to fully compensate for the impact of the changes in the labor tax policy that came into force at the beginning of this year, explained the ministry. Including the expenditure cuts approved by the government on August 26 this year, with unchanged policies, an increase in municipal revenues of more than EUR 150 million is forecast for 2026, which will enable municipalities to continue their development and provide the services needed by their citizens.