The Ministry of Finance in Latvia has developed a new financial equalization model for local governments following discussions with various municipal associations, including the Latvian Association of Municipalities and the Association of Large Cities. This new model has been submitted for approval to relevant ministries and municipalities and is intended to improve the financial autonomy of local governments. One of the key components of this proposal is the exclusion of property tax revenue from the financial equalization system, allowing local municipalities to retain this revenue in full, fostering a direct link between tax payments and local development.

The Finance Ministry argues that this approach has garnered support across all municipal groups, as it strengthens the fiscal autonomy of local governments. By keeping property tax revenues within municipalities, local governments will be better positioned to plan for infrastructure maintenance, enhance public spaces, and attract investments tailored to their specific needs. This model is set to potentially redefine the way local governments manage their finances, thereby improving their operational capabilities and responsiveness to community needs.

Additionally, the proposed model includes changes to the distribution of personal income tax. This aspect is likely to impact the financial flow to local governments, further altering the landscape of local public finance in Latvia. Overall, the new financial equalization model reflects an evolving strategy to empower municipalities, allowing them greater control over their revenue streams while aiming for more targeted investment in local development efforts.