Economist Vītols: Small Savings Won't Be Enough for Latvia's Budget, Structural Change Needed

As Latvia increases its defence spending, it is becoming harder to balance national security against funding for other important areas. This was explained on the TV24 programme “Naudas cena” (The Price of Money) by Guntars Vītols, an economist, adviser to the finance minister and a deputy elected to the 15th Saeima (Latvia's parliament) from the Unity List. He stressed that small budget savings alone will not be enough and that the state needs to take far more significant decisions.

Symbolic steps and deeper problems

Vītols said that cutting individual small expenses does not materially affect the state budget. Such decisions still carry symbolic weight, he noted, because they show the public that politicians are willing to address issues that cause frustration. In his view, certain items may look minor against total spending but create an impression of unjustified spending and fuel distrust in public administration.

At the same time, he stressed that symbolic steps are not enough. Structural changes are needed that would cover the wider system of state spending. Such decisions are politically the hardest, he said, because they cannot rely on finding solutions that please everyone.

Scale of defence spending

One of the main challenges is the sharp rise in defence funding. According to Vītols, defence used to receive roughly 2% of gross domestic product (GDP), but in the current geopolitical situation that share has increased significantly. The additional 3% of GDP he cited corresponds to about 1.5 billion euros. He compared this sum with ministry budgets: it equals the budgets of two Ministries of Culture and one Ministry of Education and Science, and is slightly below the budget of the Ministry of Health.

Vītols sees the problem as spending in many areas of public administration having been mainly increased for a long time rather than reviewed or cut. If funding is topped up every year but earlier expenses are not assessed, costs keep rising with inflation. As a result, when the state needs to raise defence funding sharply, it is hard to find resources without enlarging the budget deficit.

A challenge for other countries too

The economist noted that this is not only a Latvian problem: other European Union countries, including Germany, face similar challenges. Financing defence adds pressure on budgets, especially when education, healthcare and cultural services must be maintained at the same time.

Vītols also recalled that Latvia has adopted an approach under which up to 5% of GDP is directed to defence needs, and this funding is understood more broadly than narrowly military spending. A similar approach exists in the other Baltic states, he said.