The Government Has Approved the Draft Budget for the Year 2007

Date

2006 10 09

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Vilnius, October 9, 2006. The Government having estimated macroeconomic projections of the country’s economic development, the envisaged impact of the amendments to the current laws on taxes on budget revenue and having regard to the country’s strategic objectives and priorities, today in the Government Meeting has approved the draft Law on Approval of the Financial Indicators of the State Budget and Municipal Budgets for the Year 2007.

The draft Law projects that in 2007 the national budget along with EU budget funds will receive LTL 22,082 million or by 14.4 % more than it is planned to receive this year. It is envisaged that next year the national budget will receive LTL 18,996 million of revenue or by 18.9 % more than in the current year, and subsidies from EU budget will make up LTL 3,086 million. The appropriations of the national budget for 2007 will be LTL 2,475 million or by 11.8 % higher than in the current year and will amount to LTL 23,523 million.

“Next-year budget revenue planned to be received due to economic growth will be designated for fulfilment of commitments assumed by the Government and the Seimas in 2005 and 2006, basically in social, health and education areas”, – states Minister of Finance Zigmantas Balčytis.

A great impact on revenue of the national budget for 2007 will be made by tax reform measures, the implementation of which started in 2006. During 2007, subject to reduction of personal income tax down to 27 %, the loss of the general government revenue will make up LTL 741.6 million. Similarly, it is projected that total revenue amount gained from personal income tax in 2007 will be by 25.2 % higher than that gained in this year – LTL 4,703.6 million, and it represents 24.8 % of the national budget revenue.

It is planned that the value added tax will still remain the major tax in 2007, the projected amount of revenue to be gained from the aforementioned tax will be about LTL 6,905.6 million (about 36.4 % of total national budget revenue), i.e. by 16.2 % higher than that received in the current year. Next year LTL 2624.1 million of revenue, i.e. by 17.6 % more than this year or about 13.8 % of total national budget revenue, is projected to be gained from excise duties, while the planned revenue amount to be received from the corporate tax will amount to approximately LTL 2,467.7 million, i.e. by 45.6 % more than during this year or it will account for 13 % of total national budget revenue. In 2007 it is also projected to receive about LTL 420 million of revenue from the social tax, which will be by 5 % higher than during this year.

 

State Budget

It is projected that next year the State budget revenue (EU funds excluded) will make up LTL 16,055 million or by 16.7 % more than in this year. In the subsequent year, the State budget revenue (EU funds included) will amount to LTL 19141 million or will be by 12 % more than in 2006, and State budget appropriations will amount to LTL 1,748 million or will be by 9.3 % higher than in the current year and will make up LTL 20,582 million.

The Ministry of Finance has prepared the budget for the year 2007, the same as the current year budget, in line with the EU budget. Next year, it is projected to receive LTL 3,086 million from the EU budget, while Lithuania’s contributions to the EU budget will amount to LTL 939 million.

“Growth in allocations and at the same time in competence, improvement of the quality of services, technical possibilities and environment in education, social security, health, public security and other areas should create conditions for society development and establish the basis for its long-lasting welfare”, – states Minister of Finance Zigmantas Balčytis.

The subsequent year budget is targeted at the improvement of the living standard and public services, in particular, in the area of health, education and social area and establishing conditions for a more rapid sustainable development of regions. Additional appropriations are envisaged for implementation of commitments undertaken and planned to be undertaken in the State budget for 2007.

The appropriation of LTL 1957.9 million is planned for social security in the budget for 2007, and it is by 49.6 % or LTL 648.7 million higher than that in the current year.

The amount of LTL 287.9 million or by 17.5 % higher than in the current year, i.e. LTL 1,928.3 million, is proposed in the draft State budget for education, higher schools included.

It is proposed to allocate LTL 102.7 million or by 8.7 % more as compared to the year 2006, i.e. LTL 1,285.1 million, for health care, including State budget appropriations designated for the budget of the Compulsory Health Insurance Fund.

The appropriation of LTL 82 million is planned for implementation of the new salary payment system for teachers (for introduction of 1 additional hour to be paid for), and it will allow to increase the salary for teachers by about LTL 50. As of September of the current year, the appropriation of LTL 158.7 million is planned to be designated for increase in a service pay of teachers. As of 1 October of the current year, the appropriation of LTL 115.1 million is envisaged in the draft State budget for increase in a service pay of those employed in the area of culture and art, social workers as well as employees of other budget institutions. LTL 4.8 million is allocated for increase in librarians’ salaries by 20 %. The draft State budget envisages the appropriation of LTL 25 million for increase in a service pay of healthcare specialists as of 1 January of the subsequent year. The next-year State budget envisages the appropriation of LTL 24.6 million due to an increase in a minimum monthly salary up to LTL 600 as of 1 July 2006; another LTL 35 million is planned for a minimum monthly salary up to LTL 700 as of 1 October 2007.

As of 1 July 2007, the additional appropriation of LTL 35.5 million from the State budget is designated for increase in a service pay of lecturers and science employees. These appropriations will allow increasing the salary of an assistant, an associate professor approximately by LTL 220, and the salary of a professor, senior professor –by more than LTL 500.

After increase in a basic service pay rate from LTL 430 to LTL 442, it is envisaged to allocate LTL 66 million for the salary of public servants, public politicians, lawyers and public officials.

As of 1 January 2007, following the increase in a number of pension recipients, additional appropriation of LTL 67 million from the State budget is designated for state pensions of persons who suffered losses or injuries, as well as for increase in I and II grade state pension base by LTL 34 (from LTL 138 to LTL 172).

The appropriation of LTL 105 million in the State budget is designated for benefits and other payments due to increase in the basic pension (as of 1 July 2006, the basic pension increased from LTL 200 to LTL 230, and as of 1 July of the subsequent year, it will be increased up to LTL 260), increase in target compensation of nursing expenses from 1.5 to 2.5 of the basic pension rate and increase in a number of persons receiving payments. The appropriation of LTL 50.2 million is designated for payments to children due to recalculation of payments to children aged seven to nine, the payment of which started from 1 September 2006, and due to payments to children aged nine to twelve planned as of 1 September 2007.

The draft State budget of the subsequent year also envisages additional appropriation of LTL 15 million for financing active employment policy measures, LTL 3 million for adaptation of accommodation for disabled persons, LTL 2.5 million for financing children’s daily centres, LTL 65 million for increase of appropriations to the budget of the Compulsory Health Insurance Fund, of which LTL 63 million are designated for contributions for persons insured from state resources, LTL 5.8 million for organisation of children’s leisure in summer holidays and LTL 2 million for education of talented children and young people.

The appropriation of LTL 546.8 million is planned for leisure, culture and religion, and it is by LTL 99.9 million or 22.4 % more than in the current year.

The amount of LTL1,591.8 million is planned to be allocated for public order and safety and it is by LTL 164.2 million or by 11.5 % higher than the appropriation of the current year.

The budget appropriation of LTL 1,397.9 million, or by LTL 108 million higher than in the year 2006, is planned for the maintenance of the police, fire prevention services and rescue, imprisonment institutions.

The amount of LTL 1,270 million in the draft State budget is planned for defence, of which LTL 1,100.3 million for the programmes implemented by the Ministry of Defence, and it is by LTL132 million or by 13.6 % higher than in the current year.

The appropriation of LTL 404.3 million, or by LTL 49.9 million higher than in the year 2006, is planned for the programmes implemented by law enforcement institutions in 2007.

The next-year draft State budget envisages the appropriation of LTL 561.2 million for the programmes implemented by the Ministry of Agriculture, of which EU Structural Funds and State budget co-financing funds make up LTL 399.2 million.

The draft State budget for 2007 envisages the appropriation of LTL 1,755.8 million for the programmes implemented by the Ministry of Transport and those falling under its sphere of regulation, of which LTL 403.4 million is EU financial assistance funds, or it is by LTL 195 million higher than in the year 2006.

In 2007 the appropriation of LTL 2,414.3 million is envisaged for the Ministry of Agriculture and institutions falling under its sphere of regulation, of which State budget funds make up LTL 1,011.8 million or by LTL 149.3 million higher than in the year 2006. The amount of LTL 278.9 million, or by LTL 100 million higher than in 2006, is planned for additional national direct payments.  

The appropriation amount designated for payment of compensations for the land, forests and water bodies bought out by the State is by LTL 34 million higher than that in the previous year, i.e. it makes LTL 171 million or is by 24.8 % higher than in the year 2006. The appropriation of LTL 72 million is envisaged in the draft budget for compensations for residential houses bought out by the State, parts thereof, apartments and for execution of state guarantees to tenants ejected from residential houses, parts thereof, apartments returned to their private owners, and payment of compensations for the real estate bought out by the State to religious communities. Next year, commitments assumed by the State to owners and tenants will be basically fulfilled.

In order to continue the Savings Restitution Programme, in 2007 it is envisaged to appropriate LTL 534 million (this year – LTL 216 million), of which LTL 388 million –the Privatisation Fund resources and LTL 146 million – the State budget funds.

The draft Public Investment Programme for 2007–2009 proposes the next-year allocation for investments to total LTL 3,097million, of which the State budget funds will make up LTL 3,058.5 million (of which EU funds will amount to LTL 930.6 million), loan funds – LTL 38.5 million. It is envisaged to allocate loan funds for financing only the investment projects whose implementation has only started, but is not completed yet. There are no plans to take new loans for investments.

It is projected that the next year’s revenue of municipal budgets will make up LTL 5,117.6 million. As compared to the year 2006, it will be higher by LTL 398.6 million or by 8.4 %, respectively.

 

Proposed amendments to laws

The Programme of the Government of the Republic of Lithuania for 2006–2008 stipulates a gradual reduction of personal income tax and analysis of possibilities to reduce the basic tax rate down to 20 % (according to currently valid decisions, as of 1 July 2006 the personal income tax rate is reduced from 33 % to 27 % and it will be reduced down to 24 % starting from 1 January 2008) as one of the major tasks.

The draft Law on the Amendment to the Law on Income Tax on Individuals, which proposes to increase the basic non-taxable income rate (NIR) from LTL 290 to LTL 320 per month, accordingly (about 10 %) it also proposes to increase individual NIR and extra NIR for children raised, is submitted along with the draft State Budget for 2007. After approval of the aforementioned draft Law, personal income will increase, and according to preliminary estimations, in 2007 the general government budget loss will make up approximately LTL 114.4 million.

At present there are no financial means to additionally reduce the personal income tax rate in 2007, as it would impede the fulfilment of the financial commitments already assumed – in the event of minimal reduction (if the reduced income tax rate of 24 % were established earlier and introduced as of the 4th quarter 2007), the general government would lose about LTL 200 million, due to this it would be necessary to appropriately reduce financing for the programmes planned for implementation. Therefore, it is proposed to leave the basic income tax rate of 27 % effective in the year 2007.

Besides, the draft Law on the Amendment to the Law on Excise Duty, which proposes as of 1 March 2007 to increase the excise duty on cigarettes by 30 % (thus, the price per pack of the most popular cigarettes will increase by approximately 14 %), has been submitted along with the draft State Budget for 2007. The draft was prepared in view of Lithuania’s commitment to gradually reduce the excise duty on cigarettes until 31 December 2009 to reach the minimum rate set in EC acquis, thus evading a sharp rise in prices of cigarettes. The excise duty on tobacco products and alcohol, as goods that do not match the principles of healthy living, is applied in the EU in order to attain the goals of wellness of society. It is preliminary envisaged that after the adoption of this amendment to the Law, the State budget will receive additionally about LTL 20 million of revenue in the subsequent year.

 

Public Relations Division