2019.09.04 14:03

Lithuanian president proposes €100m additional spending on social security

Vaidotas Beniušis, BNS 2019.09.04 14:03

Lithuania's President Gitanas Nausėda has proposed raising social security spending by 100 million euros next year. Most of the money would go towards raising pensions and disability benefits.

A package of proposals was presented to the country's parliament and government, said an adviser to Nausėda whose principal campaign promise had been to build a welfare state.

The president has suggested raising the additional funds to pay for his proposals by postponing planned cuts to income taxes, reducing the existing diesel fuel tax exemption for farmers, and raising taxes on non-meployment-related income.

The proposed changes are part of Nausėda's proposals for the parliament's autumn session agenda.

“This package could generate around 100 million euros of revenue and expenditure,” Simonas Krėpšta, the president's adviser on economic affairs, said in an interview with BNS on Wednesday.

“We are submitting a balanced proposal on ways to increase expenditure on reducing social exclusion and income inequality, and we are also putting forward measures to collect more revenue. Elder people and the disabled would benefit most.”

Additional funds to raise pensions

The president has proposed spending the lion's share of the additional funds on raising old-age pensions faster.

A formula introduced in 2018 links pension rises to increases in wages. Nausėda's proposal would see gradually raising the index coefficient so that pensions rise faster than wages over the coming five years.

“Pensions should grow a bit faster, by 1.5 or 2 percentage points, than the average salary. We propose a certain temporary period, perhaps five years,” Krėpšta said.

The president also suggests reviewing existing legislation to step up state support for disabled people without the necessary qualification period.

“The level of poverty among these people is also high. We are, therefore, proposing to faster increase assistance pensions for them, as well as supplementary pension payments and state-supported income,” the adviser said.

Slower tax cuts and repealing fuel tax exemption

The president has suggested raising most of the additional revenue by slowing down the planned tax-exempt income raises and by cutting exemptions of diesel fuel tax for farmers.

Under the existing law, the tax-exempt income level should rise next year from 300 to 400 euros per month. The president would have it raised by only about 30 euros. “It could probably grow by around 10 percent a year,” Krėpšta said.

The second source of funding would be smaller diesel fuel tax exemptions for farmers. Krėpšta says this exemption now costs the government 83 million euros per year. Under the president's proposal, it could be halved.

“It would make sense to repeal part of it,” the presidential adviser said. This proposal, he added, should also be seen in terms of environmental protection.

The third block of President Nausėda's proposal includes raising taxes on income from sources other than employment. These include self-employment, capital gains and dividends.

According to Krėpšta, under the proposal, the 15-percent tax ‘ceiling’ would not apply once a certain limit is reached, and the tax rate would rise progressively for higher incomes.

“The key goal is to make sure that a person's non-employment-related income is treated as similarly to employment-related income as possible,” the adviser said.

He believes such changes will not weigh down on investment, since major investors are more concerned about infrastructure and skills than the tax environment.

The government and parliament members have already been introduced to the new proposals, Krėpšta said. The president hopes they will be included into the bills the government is drafting, Krėpšta said. Otherwise, the president is ready to table these amendments himself.

Figures from the European Commission show that Lithuania spends less on social security than most EU members states. It also has one of the highest levels of income inequality.

Read more: Lithuanian president to propose tax revamp