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Rezekne Municipality Faces Financial Challenges in 2026 State Budget

Strategic Insights

— 2 min read

Rezekne Municipality is facing a worrying financial picture, according to Deputy Chairman of the City Council Janis Tutins, who participated in a meeting with Minister of Finance Arvils Aseradens. Tutins pointed out that nominal revenues are increasing, but local governments will continue to struggle for survival due to declining tax revenues and rising expenditures. The municipality's financial situation is exacerbated by the forecasted decrease in state special grants and the lack of a unified position on the implementation of the new financial equalization model.

Key Takeaways:

  • The 2026 state budget framework outlines several significant challenges for local governments, including declining tax revenues and rising expenditures.
  • The nominal revenues of local governments are increasing, but they will continue to struggle for survival due to declining tax revenues and rising expenditures.
  • The state special grant, planned as compensation for the tax reform, will remain at the 2025 level for 2026, despite being previously planned to be twice as large.
  • The share of local government taxes in the state budget continues to decline and will be only 17.2% in 2026, down from 19-21% a few years ago.
  • The growth of local government revenues is almost two times lower than in the state basic budget, and the share of expenditures is growing much faster.
  • Raising the minimum wage significantly increases local government expenditures, since more than half of local government total spending (50 percent in 2024) is for compensation.
  • The inequality in terms of wages is a significant concern, as while in the state administration only less than 5% of employees receive less than 780 euros, in local governments this is almost every fourth employee.
  • The new financial equalization model is uncertain, and the government does not have a unified position on its implementation.
  • Real estate tax revenues are excluded from calculations, the proportion of state grants is increasing, and the transition to a new system creates unpredictable risks.

Statistics:

  • The forecasted increase in personal income tax (PIT) is 6.7% or 1.3 million euros compared to 2025.
  • The share of local government taxes in the state budget will be 17.2% in 2026, down from 19-21% a few years ago.
  • The growth of local government revenues is almost two times lower than in the state basic budget.
  • Local government expenditures are growing much faster, with over 50% of total spending going towards compensation.
  • Almost every fourth local government employee receives less than 780 euros per month, compared to less than 5% in the state administration.

Sources:

  • Rezekne Municipality website: https://rezekne.lv/

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