RIGA, June 10 (LETA) - Given the current budget expenditures, the state will not be able to make significant contributions to the Fund for the Equalization of Local Government Finances, President Edgars Rinkevics stressed at a meeting with Prime Minister Andris Kulbergs (United List) at Riga Castle on Wednesday.

Rinkevics said that contradictions had emerged during his visits to the regions and meetings with representatives of the Latvian Association of Local and Regional Governments. In particular, there are municipalities that rightly want to receive additional funds to cover various social needs, the costs of which are rising along with other costs. There are municipalities, mostly in Pieriga, where the number of residents is increasing, which means that these municipalities need more money, and then there is "the capital city of Riga with its individual functions."

"I see different opinions. Of course, everybody would be satisfied if more money was paid into the fund. Unfortunately, we see what the costs are," said Rinkevics, pointing to challenges in the demographic situation and education, healthcare, and defense spending.

Raising taxes is also not the way to go, said the president. He believes that discussions so far have identified both solutions and contradictions.

According to Rinkevics, Kulbergs' government should prepare and submit to Saeima a bill on the fund for the equalization of local government finances.

Saeima speaker has confirmed the parliament's readiness to also work in the summer, but this matter could be discussed by Saeima during its fall session as it would also have an impact on next year's state budget, said Rinkevics. He believes that this process should at least get under way.

"I would be pleased if the government submitted such legislation to the parliament. We would start discussing it in the parliament, but it is clear that, whatever the solution is, not everyone will be happy. I think that there is a certain balance that is emerging at the moment, which could serve as a basis to improve the system," said the president.

One idea, which the president has already discussed and will continue to discuss with ministers, as well as outlined during the meeting with the prime minister today, is that tax policy, namely personal income tax and possibly also corporate income tax, could be designed in such a way as to give municipalities some incentive to promote entrepreneurship.

The prime minister stressed that this was a controversial issue, hence the different opinions. The situation is further complicated by the approaching elections. He acknowledged that there were no easy solutions and that none of the options was perfect. According to Kulbergs, he and the president have discussed the example of Estonia, which decided to increase taxes, but this has not worked very well, therefore he would not want Latvia to follow suit.

As reported, Kulbergs believes that the current solution for equalization of local government finances is not the best and needs to be reviewed. A compromise will definitely have to be found, Kulbergs said in an interview with Latvian Television earlier today. He thinks, however, that a perfect model is not possible.

Kulbergs also expressed his concern whether this "issue that has been unresolved for years" could be resolved in four months.

LETA also reported that in March, even before the resignation of the government of Evika Silina (New Unity), the promotion of a new model for the equalization of local government finances stalled due to numerous objections.

Local governments had many objections to the draft law prepared by the Ministry of Finance to improve the system. The ministry informed at the time that it had therefore decided not to advance the draft law to the government for consideration at this stage, and that in the period ahead it was planned to continue dialogue and explanatory work with local governments, as well as with parliamentary fractions, on the basic principles of the model, which in general envisaged significant improvements and a reduction in administrative burdens.

At the end of May, the Minister of Finance of the resigned government, Arvils Aseradens (New Unity), highlighted the development of the new local government financial equalization model as one of the achievements of the former government, stressing that its aim is to ensure a more balanced and fairer system of financing local governments, while maintaining incentives for economic development in the regions.