Lithuania's President-elect Gitanas Nausėda has warned that high inequality poses a threat to social peace in the country, adding that planned income tax cuts may need to be postponed in order to raise social spending.
“The issue of social exclusion is becoming a matter of the state's integrity or social peace. If we do nothing in this area, we will not only lose people to emigration, but will also have a difficult social climate,” Nausėda told journalists on Wednesday.
He also said that social exclusion and education problems were given too little attention in President Dalia Grybauskaitė's State of the Nation Address on Tuesday.
According to Nausėda, the government's plans to raise the non-taxable income rate fast might undermine the implementation of social policy goals. The planned timeline of the cuts might therefore have to be slowed down.
“We might need to choose: either to implement the planned measures on child benefits and other things and at the same time considering not necessarily halting, but slowing the non-taxable income rate increase, or we just leave the tax reform as it is and give up on any significant social policy push,” the elected president said.
Nausėda says it is worth considering to make taxation more progressive, but just raising the existing rates or introducing new tax categories is not enough.
“Further improvement of the progressive tax system is not a taboo. I am just slightly worried about the proposals that we just need to introduce more rates and raise those top rates. To tell you the truth, doing such a thing in the existing situation means doing nothing, since the existing 27-percent rate now applies to such a small and disappearing group of people that it is in fact hard to speak about the existence of a progressive tax system in Lithuania at all,” Nausėda said.
It would be better to lower the income threshold from which a higher tax rate applies, he said, and progressive tax rates should apply to all income, not only to income from labour.
“To avoid a situation where people, who receive their income not from work, but in other forms, and for some hard-to-understand reason pay less tax than a person who works all day and their whole life,” Nausėda said.
The European Commission has said recently that income inequality in Lithuania is among the highest in the European Union, with older people, the disabled and single-parent families particularly at risk of sinking into poverty.
Brussels also praised the Lithuanian government for introducing child benefits, increasing certain social payouts. The progress, however, is limited, according to the EC.
Experts say that problems primarily arise because of social policy underfunding. The EC says the tax base could be expanded by introducing taxes on car pollution and real estate and also making the taxation system more progressive.