SAO Latvia provides the Government with an assessment of bonus calculations and costs during the spring emergency

26.11.2020.

Continuing to examine the solidity of the requests for additional budget funds allocated for the elimination of COVID-19 consequences and their actual use, the State Audit Office has compiled the results on the downtime benefit administered by the Ministry of Finance, and the downtime support benefit administered by the Ministry of Welfare, and extra payment of 50 euros to those benefits for each dependent child. Interim audit reports and proposals have been sent to the Government, which, according to the State Audit Office, should be taken into account now during the repeated emergency. The proposals aim both at observing the same conditions for potential recipients of downtime benefits and at simplifying the complicated administration of benefits and extra payments by making it more logical and cost-effective for the state budget.

The conditions for granting benefit need to be improved

The payment of the downtime benefit was entrusted to the State Revenue Service by allocating 101.8 million euros from the state budget, which was determined according to the calculations of the Ministry of Economics. Although the payment period for benefits turned to be almost twice as long as the planned initially two months and the range of beneficiaries was expanded over time, less than 54 million euros or 53% of the initially planned funding was paid in benefits. There were 52,867 employees and 2,381 self-employed individuals receiving it. The State Audit Office did not encounter any significant inconsistencies while verifying the compliance of the provision of downtime benefit with its intended purpose and laws and regulations. Nevertheless, in their proposal to the Government to ensure equal treatment of potential recipients of downtime benefit, the auditors point to some shortcomings one should have taken into account and not allow during this emergency.

During the emergency declared in March, the Government and other responsible institutions had to develop laws and regulations in a relatively short time to regulate the conditions for granting the downtime benefit and the related costs. The quality of the regulatory framework suffered from that. During the process, one had to make amendments to expand the range of downtime beneficiaries. Still, there was also a situation where potential beneficiaries were excluded.

The State Audit Office draws attention to the fact that micro-enterprise taxpayers were in a much more favourable situation than other self-employed individuals affected by the crisis. For example, to qualify for the downtime benefit, a self-employed individual had to be able to prove that they had previously paid the minimum national social security contributions. Still, it was not possible for micro-enterprise taxpayers to set the minimum national social security contributions because they had no obligation to pay those. At the same time, they qualified for the downtime benefit.

Unequal treatment also affected employees who worked part-time for several employers affected by the crisis, as an employee could receive downtime benefit from his or her average gross salary only at one employer affected by the crisis. Consequently, those working full-time for one employer affected by the crisis were in a more favourable position even though equivalent taxes had been paid in the past in both cases.

The administration of benefits should be entrusted to the institutions that have the necessary data

To support people who were denied downtime benefit or the amount of downtime benefit was less than 180 euros, the Government introduced a downtime support benefit. In its turn, while compensating the right to receive personal income tax relief for a dependent child, the Government granted an extra payment of 50 euros for each child to both the recipients of the downtime benefit and the recipients of the downtime support benefit. The State Social Insurance Agency (SSIA) ensured the payment of those benefits that amounted to 12.9 million euros. In this case, actual providing the benefits required only a quarter of the initially planned funding or 3.3 million euros. The non-fulfilment of funding forecasts was due to the uncertainty of the estimates used, as it was not possible to predict the number of beneficiaries, the duration of the support disbursement, or the funding required for the disbursement of the benefits reliably at the time the estimates had been made.

Although the audit revealed deviations in the planning of the necessary funding, the auditors were confident that the funding allocated for the provision of those activities including extra payment to the downtime benefit of 50 euros for each dependent child, downtime support benefit, and supplement to it had been used by laws and regulations.

However, the auditors assess that it is not clear why the Government defined those types of support as separate services by entrusting their administration to the SSIA. In the opinion of the State Audit Office, one would achieve a much more productive result if the Government had assigned the administration of those benefits to the State Revenue Service (SRS), including them in the downtime benefit namely if an individual has a dependent child, to increase the amount of downtime benefit by 50 euros for each child, as well as to determine the minimum amount of downtime benefit, instead of paying the difference as a separate benefit. In fact, during the emergency announced in the spring, the SSIA granted only an additional amount of support to this downtime benefit to the individuals whom the SRS had already granted a downtime benefit by using the SRS data on the granted downtime benefit and dependents.

Taking into account the audit findings, the State Audit Office calls on the Government not to allow the administration of one type of support to be further divided among several institutions. When introducing new types of support and determining which institution should be assigned to administer them, one should assess primarily what data will be required for the granting of support and which institution will be able to provide the support most efficiently.

During the emergency declared in the spring, the Ministry of Welfare also had to carry out three new activities: the payment of continuation of parental benefit to those parents who could not return to work at the end of parental leave due to the emergency, lump-sum extra payment of 150 euros to the state family benefit for disabled children, and the childcare benefit for a child aged one and a half to two years in an increased amount from 42.69 euros to 171 euros per month. During the audit, the State Audit Office gained assurance that the funding allocated for the provision of all three activities was spent in accordance with the laws and regulations.