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In the “Monetary Affairs” program, Ieva Valeškaitė, a senior expert at the Lithuanian Free Market Institute (LFMI), noted that we may want to follow one fiscal route, but debt will force us to take another.
“Debts do not recover on their own and we will have to pay them ourselves or our children. This debt, as people say, is not a wound and will have to be healed. And it will probably have to be healed by increasing taxes, because we will not get much money from where. The problem is that for us that freedom of maneuver is somewhat limited by our growing debt, “says I. Valeškaitė.
The professor, sociologist, economist Romas Lazutka pointed out that the chosen fiscal route will depend on the imaginary model of the welfare state.
“But if we listen to the president and most of the parties, everyone talks about the need to solve social problems: better funds for health, social security, pensions, education. If the state needs more funds, then more taxes must be collected, ”says R. Lazutka.
The cattle are not in order yet
Speaking about the Lithuanian tax system, R. Lazutka pointed out three directions from which more revenue could be obtained. First of all, it is a shadow where it is too big.
Romas Lazutka
“It is better for those who hide in the shadows and do not pay or pay much less to pay, but also for others, certain groups that use tax exemptions, differentiated rates,” said Lazutka.
Here he highlighted the so-called “livestock farm”, where income is taxed differently according to activities.
“I read how I was looking for teachers in private schools and that they offer me a job according to an individual activity certificate. Why not under an employment contract? Because the tax regime is more favorable and is being abused. It is necessary to solve these problems, “he said.
Another option is tax progressivity. This is a higher tax for those who earn more.
“When it is said that highly skilled labor cannot be taxed, because the price of labor is increasing, but most of the work is not even taxes, but the income is already received after taxes and wages in Lithuania they are low.
The progressive tax along with the personal income tax (PIT) is important. Several parties advocate the approximation of tax regimes: individual activities, dividends or other income. And the same uniform progressivity and tax-free minimum, is opaque.
We have made the system more transparent by no longer separating Sodra contributions and clearly showing how much social security costs, but the tax-free minimum is very opaque in the sense that people don’t know how much GPM pays because it has to be calculated based on a formula. In other countries, the tax-free minimum is the same for everyone, because the state recognizes that a person needs to cover basic expenses and that amount of income does not need to be taxed, and there are already steps and progressive rates on top of that. In Lithuania they do not dare to introduce this progressivity up the stairs, it is done through the tax-free minimum ”, commented the professor.
I. Valeškaitė also noted that party electoral programs speak of increasing tax progressivity, but in his opinion, the correct way would be to reduce labor taxes, that is, to increase the amount of non-taxable income (NPD).
A global property tax is agreed
As I added I Valeškaitė in the program “Monetary Affairs”, the party programs also show ideas about the universal real estate tax (RE).
“The truth immediately dilutes it and says that we are not going to tax everyone, we will exclude the most socially sensitive groups, now large families are excluded, which again is a bit contradictory. Either we have it universal, or we have many exceptions, which makes tax evasion so attractive, ”added I. Valeškaitė.
R. Lazutka pointed out that the perception of the real estate tax of all parties is different. However, it is forgotten that it is a community tax.
“It just came to our notice then. Many say they promise to increase social spending or better finance health care, this requires a real estate tax. The real estate tax is by nature a community tax, a municipal tax and people pay a certain tax on real estate for the local government to put its infrastructure in order: streets, environment, parks. And all countries get relatively little from it. In other words, everything will be financed with this tax: education, pensions and a increase of the army, it is silly, you just have to go back to the fact that the municipalities have low incomes, they complain that they are poor, they do not have autonomy, because most of them come as a subsidy from the central government. This would help them with the real estate property tax ”, assured R. Lazutka.
It’s about reducing income tax, reducing VAT
The program also noted that some parties promise to reduce the value added tax (VAT) on essential foods.
“There were many arguments that this does not work, it is not appropriate for Lithuania to differentiate VAT, but the objective in all countries is that basic products and goods, without which it is impossible to do without, would cost less. That is, if it works in several countries and it does not work with us, then the market does not work well with us, there is no competition. But this would reduce the income of the state budget, and that reduction must be compensated with something ”, said the professor.
“Regarding the value added tax or the reduction of the general rate, although there is a debt with our population since the last crisis, it is difficult to talk about it, because it immediately empties the country’s budget,” added I. Valeškaitė.
Ieva Valeškaitė
A senior LFMI expert notes that the promised reduction in revolving corporate tax on some party programs would be bought back by new investments attracted.
“The consensus is in the creation of high value-added jobs. It is gratifying to see that most of the parties have signed up for their programs and plan not to tax reinvested earnings, applying a tax system like Latvia and Estonia.
As for corporate taxes, it is likely that they will allow us to increase this investment attractiveness, attract foreign investment and act as an incentive. Even more so because corporate tax is not a pillar of the country’s budget, “he says.
According to her, additional funds could be found by optimizing the public sector, eliminating unnecessary jobs.
“The State Audit, now analyzing what happened in the reform of the public sector, sees that the number of institutions there has decreased by 25%, while the number of employees in them has decreased only by 8%. This means that we are formally cutting institutions, merging them into one, but employees continue working in them, possibly moving to another workplace and things like that, but that qualitative leap unfortunately does not occur, it is a fact that the reserves of savings are great. When we talk about better education, better health services should look at things like what is happening in our schools where this inefficient network is, ”said the expert.
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