European Commission: Draft Budgetary Plan of Lithuania Is Realistic, Still, Fiscal Discipline Rules Should Be Followed

Date

2015 11 18

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Brussels/Vilnius, 17 November. Today the European Commission (EC) has announced its assessment of the 2016 Draft Budgetary Plan of Lithuania, which was carried out in the analysis of the indicators planned in the 2016 Draft Budgetary Plan of Lithuania and the projections of the indicators of the 2016 Budget of Lithuania made by the European Commission itself.

The EC in its conclusion notes that the 2016 Draft Budgetary Plan of Lithuania is prepared based on plausible macroeconomic assumptions. Following the EU Regulation, the Commission had the right before 30 October to return the budget for 2016 to the Member State as being inconsistent with the requirements of the Stability and Growth Pact; however, the budget of Lithuania was not returned. Neither the Commission asked Lithuania to adjust the Draft Budgetary Plan as in such cases it is established by the EU procedures.

The EC foresees that according to the current year budget execution trends, in 2015 Lithuania will comply with the requirements of the Stability and Growth Pact, i.e. there will be no deviation from the medium term objective, which was achieved in 2014, and also the EC notes that economic growth of the country may be slower in 2015 (in 2015 GDP growth will represent 1.7%, while in 2016 it will accelerate up to 2.9%).

In its assessment of the 2016 Draft Budgetary Plan of Lithuania, the EC also expressed an opinion that there exists a risk of deviation from the structural general government balance indicator and proposes that measures be taken so that management of public finances continues to meet the provisions of the EU Stability and Growth Pact.  The EC also emphasizes that such a conclusion was formed before taking into account the effect of the tax administration reform being implemented by the Government. The EC also notes that recently in Lithuania a number of measures have been put forward to strengthen the tax administration; in particular, the EC highlights a better VAT collection measure to identify risky transactions between business entities introduced in mid-2015.

The Ministry of Finance recalls that by implementing the tax administration improvement measures, the aggregate revenue plan of the State budget and municipal budgets in 2015, even in case of slower than projected economic growth, is in surplus. The tax administration reform will be continued also in 2016.

The EC in its conclusion also emphasizes that the 2016 Draft Budgetary Plan of Lithuania foresees reduction of the tax burden on labour. It is done by increasing the non-taxable income rate to improve the financial status of low-income individuals.

The EC in its conclusion notes that while comparing the earlier Draft Budgetary Plans of Lithuania (prepared in 2013) and the current ones, Lithuania achieved significant progress in reducing expenditure on interest on general government debt. It, inter alia, was predetermined by lower Lithuania’s risk premium achieved as a result of consistent implementation of a disciplined policy of public finances.

 

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