Experts – on the first months of government work: made a serious mistake, it is clear what tax reforms to expect

Delfi.lt The political and economic experts interviewed unanimously agreed that most of the current government’s tasks are dictated by the uncertainty of the situation in a pandemic. At the same time, however, he highlighted the characteristics of the work of the Cabinet of Ministers that had emerged during the first months of work. The optimistic desire to simplify the tax system by eliminating inefficient tax exemptions, fragmentation, communication difficulties and the struggle with the Presidency were the first months of the government described by the interlocutors.

Time is difficult, but there are extenuating circumstances

“This government came to power at a difficult time, it has to devote all its energy to managing the pandemic and it does not have a very clear plan on how to do it. We see a bit of distraction, where we handle the pandemic too softly, sometimes too harshly. Other plans have been postponed, ”said Kęstutis Girnius, a political scientist at the Institute of International Relations and Political Science (VU TSPMI) of Vilnius University.

He also highlighted one of the major errors in the rules. According to the political scientist, possibly the mistake is made in a completely unnecessary way when getting involved in the struggles with the Presidency.

“It just came to our notice then. Disputes over Lithuania’s representation in the European Council are not a hot topic. The prime minister has quite arrogantly rejected the president’s proposals to pay taxes, saying this is not the time for that. It could have been done more smoothly.

There are quite a few problems to solve and where it is not very clear what to do. For example, we hear it said that you only need to wear medical masks, which is quite strange: everything was in order all year, and now suddenly not. These jumps can undermine people’s confidence. It would be better if at that time there were calmer relations in Lithuania without unnecessary fights, ”said K. Girnius to the tensions between the Government and the Presidency.

The political scientist pointed out that the work of this government in the first months was accompanied by communication problems, when the decisions were incorrectly explained or replaced without further explanation. According to K. Girnius, this is due in large part to the dynamic and rapidly changing situation of the pandemic.

“We just realized that I was watching television and seeing the President of the United States in a cloth mask. That is, if we are suddenly told not to wear cloth masks, let them explain why those masks became obsolete, even though they were allowed to use. “New scientific information may have emerged, but in that case the government has a duty to report,” he explained.

However, K. Girnius emphasized that, from the political perspective, the current situation also has certain aspects that facilitate the political situation of the rulers.

“The conditions for this government are very favorable due to the collapse of the opposition: the Social Democrats seek a new leader after the resignation of Gintautas Paluckas, Viktor Uspaskich disqualified with homophobic speeches, and Ramūnas Karbauskis was wrong to leave the Seimas because he is now trying to govern the peasants. In that sense, the conditions are very favorable for the government, since there is no serious opposition, “he explained.

Optimistic snippets

The new government supported a proposal to increase funding for higher education and increase the regulatory cost of studies. It is planned to review the functions of the Employment Service by transferring the administration of the compulsory health insurance to another institution. The Ministry of Finance will decide whether it would not be worth waiving state incentives for those who accumulate an additional pension. Incentives for farmers will be reviewed, value-added tax incentives for hotels will be considered, and increases in pollution taxes will be considered. This is the exemption from the reduced VAT rate for heating and firewood, as well as the exemption from real estate and territorial tax benefits. These messages related to government activities have appeared in the public sphere in recent months.

The economist, Professor Romas Lazutka, commenting on the government’s speeches in the field of finance, assured that so far we are seeing some fragmented proposals, but not systemic reform plans. According to him, this is explained, at least in part, by the situation of the pandemic in the country.

“We see certain passages. Some of the proposals do not even come from the Government, but from members of the Seimas or from individual ministers who represent the ruling majority. What we are seeing so far shows fragmentation and we do not see clear systemic solutions. On the one hand, This can be explained by the fact that there is now a pandemic and the government really has to deal with fire fighting.

On the other hand, during the elections we heard rumors that he would propose to change the tax system in a systematic way, instead of plugging some gaps. It is at this point that we see discussions, not visions. Now we hear about the preference review, but we do not see the model presented.

So far fragmented proposals are being tested, but there are no major reforms. And it is also difficult to evaluate the fragments, ”said R. Lazutka.

The economist Sigismund Mauric admitted that although it is still difficult to assess the activities of the Cabinet of Ministers, according to him, what is heard and seen still creates a rather optimistic picture.

“Judging by the information that is disseminated in the public space, the messages provoke more optimism than pessimism. This is, first and foremost, the desire to simplify the tax system by eliminating inefficient tax incentives. I think this is really the way Lithuania should go. Another thing is the perception of trends that for a small economy on the periphery of the EU to remain competitive, it is simply necessary to have low taxes on both capital and labor.

Questions arise from the desire to increase redistribution and particularly ambitious plans are related to increasing pensions, public sector wages. The question is what actions will be taken in this area, because the main reason we redistribute little is the shadow. It seems that the black economy can grow during a pandemic. This is likely to be one of the biggest challenges.

As for tax reform, I am glad that there is no rush. The changes, even more significant, are not likely to take effect until 2023. This solution is good enough, because it doesn’t add enough kerosene to the fire at this stressful time, ”Ž said. Mauricas.

Still with cosmetic changes, especially to attract talent to Lithuania, Ž. According to Maurico, it would be worth rushing.

“We must hurry on the side of tax cuts, because this crisis is unique because it will change the migratory flows of the population and emigration from large cities will also continue this year. This is the biggest opportunity for Lithuania to attract people by applying a more favorable fiscal policy to them, ”he explained.

According to the economist Ž. Maurico, it is not enough to have low taxes on capital at this time, the states already need to have low taxes on labor, because now it is not the workers who move after the investment, but the investment after them. Lithuania should not miss this opportunity and it would be worth reacting rather quickly to the current situation.

2008 the shadow of the crisis?

After the announcement in the public space about plans to reduce benefits, increase the cost of studies, waive state incentives for those who accumulate additional pensions, speeches were heard about the decisions of the Conservative Government adopted in 2008-2009. during the crisis. It is doubtful that a “belt-tightening” policy will be enforced again.

Delfi.lt The interviewees highlighted that in 2008-2009. the crisis was different and it is still difficult to predict what measures the government will take to balance public finances, as this will largely depend on external factors.

“The 2008 crisis was more dangerous for the Lithuanian economy. The government was forced to adopt strict regulations to manage finances. The difference now is that Lithuania’s finances are very strong. There will be a budget deficit for a while, but that is it is manageable. In 2008-2009, as the Social Democratic government had spent a lot of money before, there was a really serious financial crisis in Lithuania. Now we have a big epidemiological crisis, but not a financial one, “political scientist K. Girnius assessed the situation.

Economist Ž. According to Maurico, the narrative seems to be different from 2009. The narrative, he says, is that we first put out the bonfires, then we stand up and only then are we already considering tax changes, what kind of state we want, how much we want to finance it. This debate is likely to carry over to 2022.

“The narrative that exists must not be spoiled, because hot news is so popular in Lithuania, it is completely unnecessary to hear rumors that belt-tightening is coming. However, the emphasis must be placed elsewhere. It is more important to think of an exit strategy from quarantine. All objectives must start with a strategy. If weekly or daily statistics are used, there is a lot of uncertainty and the further the benefits are, the less. When the number of cases no longer falls so fast, there is a lot of uncertainty and that strategic vision when it comes to fire suppression is the most deficient.

It is important to have visions and narratives and tell people about them so that people will believe, because reducing the number of new coronavirus cases to 25 is not narrative. This is not a narrative as there was no narrative in 2009-2012. crisis. For the people, the budget balance was not a sufficient narrative at that time, for the Ministry of Finance it was sufficient, but at the governmental level it was insufficient and we saw the consequences ”, Ž. Mauricas.

According to R. Lazutka, it is premature and difficult to predict what actions the government will take in the near future, and much will depend on the situation in financial markets and decisions in the European Union.

“The situation is very changing: we expected the second wave to stop, and now we see that it does not stop. The reality is unpredictable. The government may not be able to carry out major reforms because it is restricted.

All countries are borrowing and spending money quite easily, and international organizations also warn against reducing it so as not to deepen the economic recession.

We know the experience of I. Šimonytė, which is treated differently, but she herself emphasized that even then it depended on conditions and was not a completely free choice. This is likely to be a completely free choice, ”recalled Professor R. Lazutka.