Government has approved draft State Budget for 2016

Date

2015 09 30

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Vilnius, September 30. Today the Government of the Republic of Lithuania has approved the Draft Law on the Approval of Financial Indicators of the State Budget and Municipal Budgets for 2016 prepared by the Ministry of Finance. It is prepared having regard to the economic development scenario aimed at fulfilment of the Government commitments to maintain the stability of public finances. The Draft will be submitted to the Seimas.

It is envisaged that in 2016 consolidated total revenue of the State budget and municipal budgets (including the planned EU and other international assistance of almost EUR 2.006 billion) will make up EUR 9.289 billion or will be by 0.2% higher than planned to receive this year, while expenditure will amount to EUR 9.875 billion or will be by 2% higher than in 2015.

Larger amounts of revenue are expected to be generated from an improving tax collection, increase in wages, economic growth, therefore it is planned that revenue from taxes will make up around  EUR 6.666 billion, i.e. it is expected to receive around EUR 326 million or by 5% more than in  2015. It is planned to collect around EUR 617 million of other revenue, i.e. by over EUR 10 million or by almost 2% higher revenue than in 2015.

It is projected that the State budget revenue combined with the EU and other international assistance will amount to EUR 7.899 billion.

In 2016 the State budget deficit will be EUR 586 million. The planned total public finance deficit will make up 1.3% of GDP.

The budget indicators are drafted based on the economic development scenario that in  2016 GDP will grow by 3.2%, the average annual inflation will reach 1.4%, wages will grow by an average of 5.3%, and the unemployment rate is planned to fall to 8.8%.

“One of the main peculiarities of the budget for 2016 is that in pursuing fiscal discipline, we will continue to focus great attention on social and national defence issues. Therefore, by increasing the minimum wage and the tax-free income threshold, raising salaries for  cultural and social workers, nursery education and pre-primary education teachers, public health specialists and continuing to increase the funding for national defence, we must also maintain the national financial stability and not increase the state debt”, Minister of Finance Rimantas Šadžius elucidated.

In implementation of the agreement on defence financing between the parties, the amount higher by almost EUR 150 million than that in 2015 was planned for this sector – in total over EUR 574 million.

Additional amount higher by EUR 33 million than that in 2015 was planned for contributions to pension schemes, and almost double higher total amount of such contributions paid from the budget is planned for the next year and it will make up EUR 70 million.

To increase the minimum wage in two stages from 300 to 350, the amount of almost EUR 39 million is planned for the State budget appropriation managers and municipalities.

For an increase in wages of the staff employed in the fields of culture and the arts (by EUR 71 each), wages of social workers (by EUR 50 each), the minimum wages of the staff employed under employment contracts in budgetary institutions,  the additional amount of almost EUR 24 million is planned in the budget.

The additional amount of almost EUR 453 million for the implementation of the provisions of legal acts and for other necessary needs is planned in the budget for 2016. “We must finance the defence costs under the current agreement on defence financing between the parties, fulfil the Government commitments to the people of Lithuania ‒ to improve their quality of life”, Minister of Finance Rimantas Šadžius commented.

It is planned that in 2016 debt on behalf of the State servicing costs will amount to EUR 602 million, i.e. by approximately EUR 16 million less than in 2015.

Next year the Government plans to borrow around EUR 1.6 billion or by half less than this year. The largest amount – around EUR 1.1 billion – is planned to be borrowed on the domestic market by issuing the Government securities (GS) and savings notes for retail investors (primarily for residents). It is planned that the State debt will make up around EUR 15.8 billion or 40.8% of GDP at the end of 2016.

Revenue from taxes

The value added tax (VAT) will represent the largest portion of consolidated total revenue of the State budget – around 42% – EUR 3.054 billion. The figures are forecasted in view of the projected VAT collection this year, tax incentives to be in force next year, the impact of changes in refunded and outstanding VAT amounts on actual revenue, final consumption expenditure growth, which is expected to reach 5.7% next year.     

 It is projected that in 2016 the budget will receive EUR 1.477 billion of revenue from the personal income tax (PIT) or around 20% of consolidated total revenue of the State budget. Its estimation was based on the forecasts for the annual wage fund growth by 6% and the tax change impact on revenue from this tax was also taken into account.

Excise duties rank third by importance. Their planned revenue is almost EUR 1.161 billion, i.e. around 16% of consolidated total revenue of the State budget.  The forecast is drawn up on the basis of the multi-annual data on sales of excise goods in view of the envisaged increase in excise duty rates applied to tobacco products and alcoholic beverages from 1 March 2016.

Based on GDP growth, anticipated trends of the payment of the advance corporate income tax, in 2016 it is projected to generate over EUR 560 million from the corporate tax.

Appropriations, investments

The European Union investments and other international financial assistance, which will continue to be allocated to all economic sectors in order to maintain viable economy of the country and to promote job creation, will comprise a significant share of revenue in the State budget for 2016. 

Appropriations from the EU and other international financial assistance will exceed EUR 2 billion. This assistance is as follows: 2014-2020  EU Structural Funds and other European Programmes assistance (in the budget for 2016 ‒ EUR 947 million), EU support for agriculture  (EUR 782 million), EU assistance for the implementation of internal policy objectives (EUR 213 million in the next year’s budget), which includes the resources of the Ignalina Programme, External Borders Fund, the Return Fund, the European Refugee Fund as well as the funds of the European Economic Area and the Norwegian Financial Mechanisms and the Swiss Cooperation Programme (almost EUR 62 million).

The largest portion of the EU and other international financial assistance for 2016 is allocated to the economy – more than EUR 1.461 billion. These funds will be used for promotion of small and medium business and exports, modernisation of transport infrastructure, energy efficiency enhancement and information society development. In order to enhance competitiveness of the economy, a significant share of funds in the State budget for 2016 is planned for R&D and innovation promotion.

Due to the start of a new Structural Funds financing period, when projects are developed, but funding is not received, the projected appropriations for 2016 from the EU and other international financial assistance  will be lower by EUR 317 million (14%) than in 2015.

Municipal budgets

It is projected that next year municipal budgets will generate by EUR 94 million more revenue from PIT than this year, of which almost EUR 55 million – additional revenue due to economic growth and almost EUR 40 million – due to wage increases and financing of other needs.

The total PIT share for municipalities also increases ‒ from 72.8% this year to 75.49% next year.

“A new, in accordance with the Constitutional Court decisions formed procedure for allocation of revenue from the personal income tax is clear and transparent, and municipalities become stronger and stronger. This will undoubtedly be felt by residents. Law amendments will also increase the interest of municipalities in economic development promotion in their territories, as the provision limiting municipal budget revenue growth was eliminated, namely, from now on the municipalities, which better manage their money earned, will be able to keep this money for their local needs”, Minister of Finance Rimantas Šadžius noted.

In 2016 all municipalities will have guaranteed sources of revenue for financing additional changes in expenditure, and their revenue for 2016 will not be lower than those they had in the budgetary year 2015.

Special target grants of EUR 1.055 billion are planned for financing specific municipal expenditure. This amount, as compared to that for 2015, is by EUR 179 million higher for the next year. From 2016 these grants will also include the EU and other international financial assistance.

In 2016 the revenue of municipal budgets from all revenue sources would amount to EUR 2.509 billion. As compared to 2015, it would increase by 13% or by more than EUR 288 million.

The interest of municipalities in fostering economic development and tax revenue growth in their own territories should be also promoted by the provision regarding no longer limitation of projected revenue growth of municipal budgets proposed in the Draft Law.

In accordance with the provisions of the Constitutional Law Implementing the Fiscal Treaty, which set the requirements for municipal budgets with aim to ensure fiscal discipline, the limits for municipal debt, borrowing and guarantees are set for the year 2016.  

The requirements for municipalities on suppressing arrears, and for Vilnius City Municipality – on their reduction are also established.

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