2019.09.06 09:00

Lithuanian president's tax proposals met with praise and scepticism

LRT TV naujienų tarnyba, LRT.lt2019.09.06 09:00

Building a welfare state and reducing inequality were President Gitanas Nausėda's principal campaign promises. His package of spending and tax reform proposals presented this week is a step in that direction.

Having recently celebrated solidarity on the 30th anniversary of the Baltic Way, Lithuanians should show solidarity in tax and welfare policies, the president believes, suggesting to increase spending on welfare and retirement pensions by 100 million euros annually.

Poverty, especially among the elderly, and gaping income inequality are among the biggest problems in the country and featured prominently in Nausėda's presidential campaign.

His proposals to the government and parliament also include sources to to fund the extra spending. Chief among them – taxing all income equally.

Read more: Lithuanian president proposes €100m additional spending on social security

“At the moment, dividends and capital gains are taxed at 15 percent. Our suggestion is to gradually raise the rate to 20 percent and then make it equal to the income tax,” the president's chief adviser Simonas Krėpšta said to LRT TV. “It is not a significant change, but we believe it is a fair one.”

The president would also like to equalise payroll taxes and income taxes paid by the self-employed, once their incomes exceed a certain level.

Other suggestions include scrapping diesel fuel tax exemptions for farmers and slowing down the planned raises to tax-exempt income level.

Praise and criticism

Nausėda's proposals have so far been received cautiously. Members of the ruling coalition say that the president's goals agree with their own intentions of “improving people's lives”, but raising taxes for some parts of the public requires more thought.

“[The president] did not look at the full picture, because we need to add up all the kinds of income and then see what to do,” says MP Valius Ąžuolas who chairs the parliamentary Committee on Finance and Budget. “If we touch the self-employed, small businesses – we realise that any tax raises are a sensitive issue.”

Another MP, Tomas Tomilinas, who sits on the Committee on Social Affairs and Labour, believes that big businesses should bear a bigger share of the burden.

“We should use other countries' experience and agree among ourselves which groups should show more solidarity with our welfare state. Be that supermarket chains or banks,” Tomilinas tells LRT TV.

There are also those averse to any tax raises. Finance consultant Taurimas Valys says that equalising tax rates is a welcome move, but it would be better to round them down, especially as some countries are cutting taxes in anticipation of an economic slowdown.

“The road to hell is paved with good intentions,” Valys tells LRT TV. “We live in a global society and the European Union allows the free movement of persons and companies. If we press too much, there's a risk of business migration. We've got many rich people who are no longer Lithuanian citizens.”

Tax overhaul much needed

Economist Raimondas Kuodis, deputy board chairman of the Bank of Lithuania, believes that President Nausėda's proposals are a serious step towards overhauling the current system which he compares to ‘animal farm’: different tax rates and exemptions lead to “some people robbing others, eventually leaving everyone worse off”.

People are emigrating, businesses can't find enough employees, the population is aging and the state is severely underfunded, Kuodis says.

“Well, I'm glad that things are moving forward, because it's already impossible to ignore these problems. The country lives with a government budget that is inadequate in view of its current and future functions,” Kuodis tells LRT TV.

President Nausėda's proposal would be a step towards a serious tax reform rather than a simulation that the current ruling majority is attempting, according to Kuodis.

Meanwhile Finance Minister Vilius Šapoka has commented that slowing down tax cuts in the form of higher tax-exempt income level would disadvantage families in the country's regions. Prime Minister Saulius Skvernelis has been cautious, too, saying that at least any tax hikes for farmers would be out of the question.

Krėpšta, the president's adviser, says that the proposals have been presented to the government and parliament members. If they are not included into their legislation, the president's office will itself draft the necessary bills.

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