Riga, Sept 24 (LETA) - Local governments will be guaranteed personal income tax revenues in line with the forecast, Finance Minister Arvils Aseradens (New Unity) assured the leadership of the Latvian Association of Local Governments on Wednesday.

During the talks, special attention was paid to local governments' revenues and borrowing possibilities. According to the Finance Ministry local government tax revenues will continue to grow and are forecast to increase by more than EUR 150 million or 6.1 percent in 2026. The government guarantees that the forecast for the personal income tax, the main source of local government revenue, will be fully met.

In the negotiations, the finance minister has assured that local governments will be guaranteed the revenue from the personal income tax in line with the forecast. In addition, revenue in excess of the guaranteed amount will be earmarked for the repayment of local governments' loans, thereby strengthening financial sustainability. Personal income tax revenue is projected to grow by 6.7 percent in 2026 and by 5 percent on average in the following years.

The Finance Ministry also notes that in 2025, the situation of local governments can be assessed as stable, as harmonized revenue has increased by more than 10 percent or EUR 228 million, and no local government has an increase of less than 7 percent.

Also next year, the state budget is expected to fully compensate for the impact of the labor tax reform. Given that the reform has been implemented with better results than initially expected, the state budget will need to compensate local governments to a lesser extent, the ministry explains.

The main priority for borrowing in the medium term will remain projects co-financed by European Union (EU) funds, the Recovery and Resilience Facility and the Emission Trading Facility. The investment priorities identified by the government are security, such as the establishment of shelters; demography, such as the construction and expansion of pre-schools to reduce queues for pre-school places; and education, such as optimizing the school network and ensuring a sustainable education function.

The Finance Ministry will continue discussions with local authorities on possible changes in the implementation of the borrowing policy. The changes foresee that local authorities should provide their own co-financing of at least 15 percent for the priorities identified by the state and around 30 percent for their own development projects. Each municipality and city is offered the possibility to implement up to three of its priorities, or high-maturity investment projects, and the amount of borrowing will depend on the size of the population - from EUR 2 million for the smallest municipalities to EUR 10 million for Riga.

At the same time, new criteria have been set for municipalities to assess their financial capacity and sustainability: municipalities with debt burdens above a certain ceiling or liquidity problems will have access to new development loans through EU and recovery fund projects.

The Finance Ministry reminds that the government has already decided that EUR 3 million will be allocated to five EU external border municipalities in 2026 to strengthen external security. The largest amounts will be allocated to Ludza municipality - almost EUR 1 million, Kraslava municipality - more than EUR 780,000, Balvi municipality - more than EUR 580,000, Aluksne municipality - EUR 383,000 and Augsdaugava municipality - EUR 265,000.