Inflation and rising interest rates have impoverished Lithuania’s middle class, economists say, even though defining that group is less than straightforward. Amid the government’s tax reform plans, both proponents and opponents invoke the welfare of “the middle class” to argue their case.
A survey by Swedbank, presented this week, suggests that around one half – 54 percent – of the population self-identify as middle class.
People at a Vilnius farmers’ market have different ideas about what it means.
“You have to earn at least 5,000 or 3,000 [a month], then you’re middle class,” a man tells LRT TV. “If you only make a thousand, then no.”
“No, that’s way too much, 3,000,” a woman disagrees with him. “No no. If people make 2,000, that’s enough to live on.”
According to the OECD definition, middle-class incomes are those that range from 75 to 200 percent of a country’s average. In Lithuania, that would be between 1,100 and 2,900 a month, before tax.
People who fall into that income bracket make up 62 percent of Lithuania’s population.
“A record high proportion of the population can be classified as middle class,” says Swedbank chief economist Nerijus Mačiulis. “But if it’s record-high by size, its opportunities have very much been reduced and it cannot be compared with the middle classes of richer countries.”
In terms of purchasing power, about half of the middle class can only buy basic goods and services, according to the Swedbank survey.
The middle class has been impoverished by record inflation, which hit 20 percent last year, and rising mortgage rates. As a result, mortgage holders spend, on average, 3,000 euros more annually than before.
In terms of wealth, Lithuania’s purported middle class looks quite poor. While car ownership is growing, a third of cars owned by households are older than 20 years, according to Mačiulis.
Nine out of 10 people live in a home they own, but almost a tenth of them have no indoor toilet.
A third of the population has at least 2,000 euros in their bank account at all times. The rest have no savings at all and live from salary to salary.
As the government has drafted a package of tax reforms – which include higher rates for the self-employed and a real estate tax that would apply to half of the country’s properties – opponents argue it would disadvantage the middle class more than any other group.
But Finance Minister Gintarė Skaistė disagrees, arguing the reform would have the opposite effect, especially the proposal to raise the tax-exempt income threshold (NPD).
“Raising the NPD rate is aimed at increasing the incomes of working people. The number of people earning up to one average salary is 70 percent. They will all see a tax cut, and they are, to my mind, the middle class,” according to Skaistė.
Algirdas Bartkus, an associate professor at Vilnius University, also notes a high income inequality in Lithuania.
“This is not good. It means that income is not very evenly distributed here and that a rather small segment of society takes a large proportion of national income,” he says.
On the other hand, Bartkus says, when the country is facing a recession, raising taxes is not a good idea, while efforts to boost incomes may fuel inflation.
Newsletter
Every Friday morning.
