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Lithuania Continues its Fiscal Consolidation: 2010 Budget Approved by Parliament

Date

2009 12 10

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Lithuania's Parliament has approved the Government's 2010 budget.

The 2010 budget will put into effect decisive measures for reducing public sector spending while maintaining expenditures at a sustainable level.

These new measures, which include trimming public sector wages and cutting social benefits programmes, will shrink the deficit by more than 2 billion litas (2.5 per cent of GDP) and limit the 2010 budget deficit to 4,930 mln litas, or 5.9 percent of GDP.

“This 2010 budget keeps a lid on the deficit and sets public finances at manageable levels. It proves that we can keep our fiscal house in order”, Lithuania’s Finance Minister Ingrida Simonyte said.

According to the newly approved budget plan, national budget revenues in 2010 are expected to total 24,398.9 mln litas (EU support included), with expenditures foreseen at 29,328.8 mln litas.

EU structural support fund absorption will rise to 7,891 mln litas, an increase of 1,474.5 mln litas over 2009. These funds will be invested in all sectors of the economy and lead to a significant boost in competitiveness.

Cuts of a progressive nature to the 2010 budget of the Social Security Fund have also been approved by Parliament (on December 9), thus protecting the most vulnerable social groups from the brunt of the adjustments. These savings will help trim the Social Security Fund budget deficit by an amount equalling 1.5 percent of GDP.

Planned steps to improve the efficiency of spending in the health, education, and social welfare sectors will yield additional savings.

Taken together these fiscal consolidation measures will put the general government deficit at 9.5 percent of GDP in 2010.

Combined, the budget consolidation measures in the 2009 and 2010 budgets amount to almost 12 percent of Lithuania's GDP.

Lower corporate taxes

Lithuania is bringing one of the lowest corporate tax levies in the EU.An amendment to the Law on Corporate Tax that was passed by Parliament on Wednesday has reduced the 2010 corporate profit tax rate to 15 percent, down from 20 percent in 2009 (5 percent for small businesses, down from 13 percent in 2009.)

According to research carried out by the Ministry of Finance, these new rates will not have any significant adverse effects on tax receipts.

These tax reductions will promote entrepreneurship by Lithuanians and, importantly, send a strong welcome signal to potential foreign investors.

  

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