Minister of Finance G. Skaistė: "Halfway Through the Term of the Government – Strategic Work Continues"
On Sunday, the Eighteenth Government of the Republic of Lithuania will celebrate the anniversary of its second year in office. According to Minister of Finance Gintarė Skaistė, recent years have posed a number of challenges – the coronavirus pandemic, later the hybrid attack organized by A. Lukashenka's regime, as well as the war launched by Russia against democratic Ukraine or the international energy price shock – but at the same time, they have motivated us to focus even more and work together to implement strategic goals.
"An exceptional global coronavirus pandemic that has caused great uncertainty and a slowdown in the world economy. Later, A. Lukashenka's action against illegal migrants. This challenge was followed by the start of Russia's war against Ukraine and constantly changing circumstances. Finally, Russia's manipulation of the gas market and prices, which led to the spike in inflation recorded across Europe. I am pleased that the Government and the Ministry of Finance, which have been working in such a context for the past two years, were able to focus and present the necessary solutions on time and also to work purposefully in implementing the set strategic goals," noted Minister of Finance G. Skaistė.
Draft Budgets Responding to Emerging Challenges
Perhaps the most important document of the country, the State budget, was presented six times in two years, including improvements. Such an abundance of draft budgets was caused by new challenges that required prompt solutions.
In response to rising inflation, the chosen strategy is to increase the income of people in order to preserve their purchasing power. Therefore, in 2022-2023, the minimum monthly wage (MMW) was increased from EUR 642 to EUR 840 or 30.8 %. Accordingly, net income of the MMW earners has increased from EUR 468.4 to EUR 633.2, i.e. EUR 164.8 per month or 35.2 %, since the start of work by this Government.
At the same time, the non-taxable amount (NTA) was increased from EUR 400 in 2020 to EUR 625 in 2023, or 56.3 %. The net income of persons subject to the maximum NTA increased by EUR 45 per month in the relevant period.
Within two years, sectoral wages were also increased significantly: salaries for teachers, other pedagogical staff in 2023, as compared to 2020, will increase by 26 %, allocating EUR 375 million for this purpose. A total of almost EUR 69 million was allocated for the increase in salaries for teachers and researchers in two years, they will increase by 26 %. EUR 47 million for increasing the salaries for culture and arts staff in the same period, they will increase by 33 %. Salaries for employees medical staff will increase by 25 %, with EUR 295 million allocated for this purpose, EUR 109 million were allocated to increase the salaries for officials of the internal service system, they will increase by about 29.1 %, as compared to 2020.
In the same period, the funds allocated to allowances, social benefits and social assistance also increased significantly – by 26-31 %, with EUR 435 million allocated for this purpose. A total of EUR 1.4 billion was allocated for the increase in old-age pensions, as compared to 2020, in 2023 they will increase by 44 %.
In the context of these two years, national security remained an undoubted priority. The budget for 2023 provides EUR 1.8 billion for national security and defence, where in 2020, EUR 1 billion was allocated for this. In the coming year, almost EUR 308.5 million will be allocated for strengthening security, of which by EUR 127 million more than in 2022 is allocated to the Ministry of National Defence (MoND), when the greatest attention was paid to fulfilling Lithuania's obligations related to NATO membership. In 2023, defence spending will be 2.52 % of GDP. In the event of an additional need for funds for military infrastructure projects aimed at promptly ensuring the reception of NATO allied forces in Lithuania, it is possible to borrow up to 3 % of GDP on behalf of the state, without worsening the Government's net change in debt obligations limit and the government sector balance indicator for 2023. As compared to 2020, appropriations to the MoND are higher by EUR 746 million or almost 73 %.
When Lithuania was facing a hybrid attack organized by A. Lukashenka's regime, a decision was made to build a physical barrier on the border with Belarus. For that, the State budget for 2022 provides EUR 123.6 million for strengthening the state border with Belarus. The project was implemented on time and according to the budget foreseen.
This Government has also succeeded in moving the national security issue neglected by the previous ones – x-ray systems at the borders. In September of this year, one of the most modern X-ray train control system in Europe started operating at the Kena customs railway station, which will contribute to one of the main goals - prevention of smuggling, as well as the national security interests of the country. The value of the Kena project is EUR 3.8 million.
In the context of the challenges experienced, it is very important to strengthen the activities of organizations concerned with the national security. Therefore, since the beginning of the work of this Government, the budget allocated to the Lithuanian Rifle Association has been purposefully increasing and in 2023, it will reach EUR 10.8 million. This is 5 times the budget of 2020, when EUR 2.037 million was allocated.
The war started by Russia in Ukraine showed how focused and quick to react we can be. Undoubtedly, one of the most important priorities this year is assistance to Ukraine. The Ministry of Finance actively contributed to the mobilization efforts of urgent financial assistance to Ukraine in the context of international financial institutions, EU initiatives and on a bilateral basis. In 2022, Lithuania (including payments that will be made by the end of this year) through international financial institutions, EU initiatives and on a bilateral basis will provide Ukraine with EUR 28 million non-refundable financial assistance and EUR 23 million of the state guarantees. Since the beginning of the war, Lithuania has provided various aid to Ukraine, including military weapons, for EUR 660 million, which is about 1.01 % of GDP.
Russia, which started the war, also began manipulating the gas market, artificially raising energy prices, which turned into additional pressure on people and businesses. In response to increasing price pressure, people were offered compensation for part of the increase in electricity and gas prices, as well as VAT compensation on centrally provided heating, additional larger funds were provided for payments and heating compensations. The business was also offered partial compensation for the increase in electricity prices. For all these measures EUR 2.14 billion were allocated in 2022-2023.
In the same period, a wide range of business support measures were proposed: support for business and affected sectors through the provision of guarantees, transition from polluting fossil fuels to renewable energy sources, subsidies for energy-intensive companies, loans under the war communiqué, loans for the agricultural sector, the possibility of concluding tax loan agreements with reduced interest rates and the suspension of recovery of tax arrears for energy-intensive companies – EUR 1.59 billion.
Two Years of Fundamental Reforms and Investments Are the Foundations for the future of Lithuania
The New Generation Lithuania Plan, created within just four months and highly rated by President of the European Commission Ursula von der Leyen is gaining momentum. The first advance payment was received last year – 13 % of the planned financing or EUR 289 million – for digitization and innovation, and after completing half of the reform actions this year, which are much more time-consuming, a request for payment was submitted. In case of a positive assessment from the EC, Lithuania would receive subsidy in the amount of EUR 565 million.
Calls for half a billion euros have already been announced for both the private and public sectors, and by the end of 2023, it is planned that the calls will be announced for almost the entire amount of the New Generation Lithuania Plan – EUR 2.1 billion.
At the same time, in response to the dynamic geopolitical and international economic situation, it is planned to use the possibility of a borrowing instrument and the funds of the REPowerEU initiative and to invest over EUR 1 billion in energy independence, renewable energy resources (RES), sustainable mobility fund and cyber security.
In addition to the New Generation Lithuania Plan, the 2021-2027 Investments of EU funds – almost EUR 8 billion – were approved. We will invest in energy security, innovation and green economy – areas that will ensure high income for people, quality educational, social and medical services for both city and regional residents, creating jobs and a decent life.
Almost 47 % of the total EUR 8 billion planned for 2021-2027 will be provided to investments in innovations and green transition – sectors that will create the greatest added value for the Lithuanian economy in the long term.
The other 30 % will be aimed at strengthening human capital, solving the challenges of social inclusion and improving achievements in the fields of education, health, culture and ensuring high employment rates in the labour market.
Over EUR 2 billion will be allocated to the regions to plan their own investments and enable communities to agree on the necessary projects among themselves. Special attention will be paid to 10 regional centres in Lithuania. The development of these centres is expected to have a positive impact on the surrounding areas as well.
Focused Work in the Field of Tax Proposals
Considering the geopolitical context and the increased risks in the region, which affect the country's economy and the prices of energy resources, possible changes in the tax model have been temporarily suspended. The Ministry of Finance maintained the principle position that the predictability and stability of the tax system, especially in a period of great uncertainty, is a value and it would not be rational to talk about possible tax changes at such a time. Despite the difficult times, the Ministry seeks to implement the recommendations of international organizations - the World Bank, the International Monetary Fund, the Organization for Economic Cooperation and Development - and the commitments made in the Government's programme to move to the introduction of taxes that are less harmful to the economy, e.g. immovable property or environmental taxes. The package of proposals prepared by the Ministry of Finance has been presented to the coalition partners - after receiving their approval, the package is expected to be presented to the public in the spring session of next year.
Some of the planned changes actually have already been implemented or have started to be implemented. For example, during the last two years of the term, the Government undertook to significantly increase the non-taxable amount, which not only leads to higher wages for the lowest income earners, but also directly reduces labour taxation, which in this case is shared by the state with employers. Compared to 2020, the NTA increases from EUR 400 to EUR 625 in 2023, or 56.3 %.
At the same time, by the end of the year, the Seimas is expected to adopt a draft law that opens up borrowing opportunities to self-government even more widely, expanding the currently existing regulation and creating conditions for the faster implementation of investment projects financed with the funds of the European Union. In other words, municipalities will have the opportunity to borrow up to EUR 377 million for the 2021-2027 financial perspective, thus not only implementing the necessary changes, but also stimulating the economic engine.
The update of the immovable property tax was also presented to the public, which will allow the municipality to secure even higher income, since the tax for the owned property would not go to the State, but to the municipal budgets. With the approval of the Government and the Seimas, the tax returns of an average of EUR 14 for the first home would reach the residents from 2026.
So far, in this term the three-year excise plan, as a document outlining the longer-term direction, ensuring policy stability and predictability, has been successfully approved. The plan aims to reduce the availability and consumption of alcoholic beverages, tobacco products and their alternatives, especially among young people, and contribute to the implementation of public health policy goals through tax measures. It is planned that due to this decision during the entire period by the end of 2024, the budget should be supplemented with more than EUR 104 million.
Lithuania Reducing the Shadow Economy and VAT gap
The European Commission reported that the value added tax (VAT) gap in Lithuania continues to decrease consistently. According to its assessment, the reduction of the gap in the country in 2021 is the largest during the entire calculation period and will amount to 14.3 %, i.e. by 5 percentage points less as compared to the year 2020.
The gradual reduction of the VAT gap in Lithuania was contributed by both the growing trust in the state and the increasing awareness of taxpayers, as well as the consistent work of the administrator, preventing tax violations in real time.
In this context, the plan prepared last year and approved by the Government to reduce the shadow economy and VAT gap is important. Modern technologies make it possible to look for the shadow smarter in real time, prevent it and manage risks more effectively where there were no such possibilities before. Therefore, the plan focuses on digitization processes - high-quality data collection, analysis and their synchronization in the databases of different institutions, creating a wide information network that will help to accurately identify risks.
Decisions Are Needed for Strategic Priorities
The Ministry of Finance presented a number of proposals that will create conditions for tax justice and the reduction of the administrative burden.
One of the examples is the submitted amendments to the Law on Tax Administration, which implement the decision of the Constitutional Court that fiscal legislation submitted with the budget can enter into force no earlier than 6 months following their adoption. The amendments also provide for digital platform operators to provide information to the STI about sellers receiving income from activities on the platform.
At the same time, from next year, after the amendment to the Law on Official Statistics, Statistics Lithuania will become the State Data Agency, responsible not only for statistical data, but also for the high-quality collection and use of additional data in making decisions important to the state. All state data will be collected in one place, so it will be presented even in a more convenient, prompt and comprehensive way not only to public authorities, but also to the public.
The updated Accounting Law adopted by the Seimas last year not only changed its name to the Financial Accounting Law, but also for the first time since 1993 was fundamentally updated - digitized submission of documents has been expanded, specialists have been given more freedom to organize accounting and choose the necessary internal control measures, facilitating business administration. The quality of reports is also improved, managers' responsibilities are expanded, and international recommendations are implemented. These changes will ensure greater transparency, data traceability and reliability.
In addition to the aforementioned draft legislative amendments, last year the Ministry of Finance prepared the Strategic Management Methodology, which was approved by the Government. The methodology will ensure efficient planning and management of state finances, as well as Lithuania's progress and its assessment. The methodology stipulates that every planned investment is justified and funds are allocated only to activities that will create the greatest benefit. The Strategic Management Methodology lays the foundations for effective planning and use of the financial resources of the state in order to achieve the set goals of the state.
Last updated: 13-02-2023
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