One million people in Latvia could be effectively insolvent as early as autumn

If government support is targeted at households with incomes of up to €508.57 per month, 938,700 people would be eligible, the Ministry of Welfare has concluded in an informative report on support measures to mitigate the impact of rising energy prices and general inflation on vulnerable groups.

The experts have proposed a number of forms of support in response to the Prime Minister's request, but almost all of the proposals have a number of shortcomings, such as a high administrative burden for public authorities and a very high burden for municipalities and their social services, according to the document.

Half of Latvia could receive support

According to the Prime Minister's resolution, support should be planned for groups whose income does not exceed €508.57 on average per household member and who would be effectively insolvent without support. The Ministry of Welfare's report indicates that in 2022 the income threshold for a poor household in Latvia is €272 for the first or only person in the household and €190 for the other persons in the household. In 2023, the Ministry of Welfare proposes to increase the income threshold for a poor household to 50 percent of the median minimum income, which would be €313 for the first or only person in the household and €219 for the other persons in the household. Each municipality is entitled to set the income threshold for a low-income household at no higher than €436 for the first or only person in the household and €305 for the other persons in the household, but no lower than the income threshold for a poor household. The Ministry of Welfare points out that

the income thresholds for low-income households vary from municipality to municipality, which means that people have unequal access to state support.

Therefore, it would obviously be inappropriate to use the low-income status to provide state support at a national level.

The Ministry of Welfare, using the information provided by the Central Statistical Bureau, has estimated that the number of persons with an income of less than €508.57 per household member per month in 2020 was around 900,000. The number of children in such households was 210,700, the number of people of working age was 476,700 and the number of pensioners was 251,300. If the support is targeted at households with incomes within these limits, then 938,700 persons will qualify, which is about half of Latvia's population.

Proposed changes to housing support

One of the options proposed by the Ministry of Welfare is to change the eligibility criteria for housing support. In order to improve access to housing support and to enable more people with higher incomes to receive it, the Ministry of Welfare proposes to introduce two coefficients from September 1, 2022, the application of which will make it possible to set a higher threshold of the guaranteed minimum income for receiving housing support. To receive this support, one member of the family will have to go to the social services and submit a number of documents, including detailed bank statements on the income of all family members. This may, of course, discourage families from contacting the social services if they have not done so in the past.

From next year, the Ministry of Welfare also plans to set the guaranteed minimum income threshold at 20 percent of the median minimum income, respectively €125 for the first person in the household and €85 for the rest of the persons in the household. Increasing these thresholds will also provide additional support for housing costs, as this is part of the formula for calculating the amount of housing support, i.e. the higher the household's guaranteed minimum income threshold, the more households with higher incomes qualify for housing support. Also, from January 1, 2023, a co-financing of 50% of the guaranteed minimum income and housing support paid to municipalities is planned.

The main advantage of this offer is targeted support for low-income families, but the disadvantages are that it does not reach the defined target groups and increases the workload of municipal social services.

Support for some pensioners

Although seniors rightly point out that pension indexation is not a special support in the context of the soaring cost of living, as it only partially balances the purchasing power of pensions, the Ministry of Welfare report identifies pension indexation as one of the supports for pensioners. The government is proposing to index pensions one month earlier, while a new proposal to index two months earlier has already been tabled in Saeima. So far, however, the amendments to the pension law have not been approved by the Saeima. The indexation as planned by the government will cost €104.3 million.

The report proposes

one-off support of €200 per year with the income test for pension receivers in 2002 and onwards.

The lump sum would be paid in December of each year, starting in December 2022, so that the pension, remuneration or state social security benefit together with the lump sum would not exceed €508.57 per month.

Automatic support would be a heavy burden on services

The Ministry of Welfare also proposes the introduction of a new form of support: automatic support for a household, based on information in national registers and information systems on persons living in the same dwelling and their income up to a certain income threshold. The income level up to which a household would qualify for support would be €743 for the first or only person in the household and €520 for the other persons in the household. The exact amounts of support are still to be specified.

There are also proposals for automatic reduction of bills (gas, electricity, heating) for households up to a certain income threshold, and for the payment of aid based on household self-declaration for households with a higher income threshold than under social assistance. The income level up to which a household qualifies for support is €743 for the first or only person in the household and €520 for the other persons in the household.

However, these options, like some others, have several drawbacks, such as the risks involved in complying with the conditions for processing natural persons' data and the cumbersome, lengthy process of coordinating the regulatory framework with the State Data Inspectorate. This will be a very significant burden for municipalities to set up and administer the applications, as well as a burden for households to complete and submit the applications and, depending on the option chosen, to submit the energy bills.

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