Estimating budget and social costs of psychoactive substance abuse in Latvia (2018)

Project duration: 2018

Research team: Anna Pluta and Anna Zasova

Funded by Latvian Centre for Disease Prevention and Control (latv. – Slimību Profilakses un Kontroles Centrs)

The aim of this report is to provide an estimate of the consolidated general budget and external or non-budget costs of illegal drug use in Latvia for 2017. This is the second time such an estimation is done for Latvia. The first estimation was done in 2010 and covered the costs of drug abuse in 2008 (BICEPS, 2010).

The estimated costs consist of three main components: consolidated general budget costs, foregone budget revenues and non-budget costs. Section 4 of the report deals with consolidated general budget costs. As the initial source for general government budget expenditures on drug-related measures we use labelled expenditures, i.e. expenditures allocated by central and local government to drug-related initiatives, which are reflected in their budgets. In order to calculate labelled expenditures, first we identify the institutions involved in combating drug abuse and illicit trafficking, and then use the budget reports of these institutions or the information received on request on these institutions’ actual expenditure on combating drug abuse and illicit trafficking.

In addition, we estimate non-labelled drug-related expenditures, which are included in the programs with broader objectives and do not appear in the state and local government budgets as separate expenditure items. These expenditures can be identified as related expenditure, such as expenditures encountered by the police, the prosecutor’s office and the courts while investigating crimes related to illegal drug abuse, prisons’ expenditures on supporting people incarcerated for drug-related crimes, probation expenditures on work with people accused of drug-related crimes, expenditures on inpatient and outpatient treatment of drug dependency and associated diseases, expenditures on drug education in schools, and other types of costs.

Total drug-related budget costs in 2017 are estimated to be at least EUR 32.6 mln, or 0.33% of consolidated general budget expenditures. By COFOG classification, the expenditures were mainly concentrated in the fields of public order and safety (70.1%) and health (27.5%). The expenditures on public order and safety mainly consisted of the costs of the State Revenue Service Customs Police Department related to combating illicit drug trafficking, costs related to investigation of drug-related crimes encountered by the police, and costs of supporting persons incarcerated for drug-related crimes encountered by the Latvian Prison Administration. Expenditures on health mainly consisted of expenditures on compensated medicines for the treatment of diseases and infections caused by injecting drugs – HIV / AIDS and viral hepatitis B and C.

When classified by Reuter’s classification, expenditures on law enforcement (70.1%) represent the biggest group. Treatment expenditures accounted for approximately one fifth (21.1%) of total expenditures, but expenditures on prevention and harm reduction accounted for 5.0% and 4.1%, respectively.

Section 7 of the report deals with foregone budget revenues. This component of drug-related costs is generated by problem drug users’ spending on illegal drugs. If this money were spent on legal goods and services, the government could raise extra tax revenues. According to our estimations, drug-related foregone budget revenues amounted to around EUR 2.6 – 3.9 mln. Thus the net budget effect (expenditures plus foregone revenues) of illegal drug use is estimated at EUR 35.2 – 36.4 mln., or 0.13% of GDP.

Finally, Section 8 of the report is devoted to estimation of external or non-budget costs of drug abuse. These costs are due to the fact that problem drug users are more frequently non-employed, they tend to have higher mortality and morbidity risks, they have lower productivity at work and higher absenteeism. Total non-budget costs are estimated at EUR 43.1 – 60.6 mln., or 0.16-0.22% of GDP. The main source of non-budget costs was a low employment rate among the problem drug users.

Total costs of illegal drug use in 2017 amounted to EUR 78.3 – 97.0 mln., or 0.29 – 0.36% of GDP.