The Seimas tends to reduce taxes: how your salary would change

In May, President Gitanas Nausėda proposed a half year at 15 percent. reduce the GPM rate by applying it to labor income below 3 average wages (VMU) per month (4,143 euros on paper).

He also proposed bringing the increase in the amount of tax-free income (NPD) to € 400. As you know, the NPD per capita is now calculated according to the formula: 350 – 0.17 x (salary – monthly minimum wage). In the bill presented by the President, the formula looks like this: NPD = 400 – 0.19 x (DU – MMA).

Suggestions sent

Members of the Lithuanian Peasants and Greens Union (LVŽS) faction supported G. Nausėda’s proposal to increase the NPD, but opposed the goal of reducing the tariff.

This is the Government’s position, whose conclusion explains that the tariff reduction is not in line with its program. “If the proposal is approved, there would be a significant gap between the benefits received by the low and high income population: the benefit of reducing the rate from July 1, 2020 for a person who earns MMA would reach 77 euros and for a person who earns 4 thousand “. EUR – 1117 EUR, that is and. almost 14.5 times more, “the document read.

The Seimas Committees on Social Affairs and Labor and Budget and Finance also spoke in favor of increasing the NPD, but against reducing the tariff. They also rejected other proposals submitted by Seimas members.

BFK’s position on Tuesday was supported by the majority of Seimas members. There were 78 votes in favor, 2 against and 4 abstentions.

During the discussion before the vote, BFK member Mykolas Majauskas said he was skeptical about this proposal put forward by the President.

“We are increasing Lithuania’s budget deficit, which means that the sustainability of Lithuania’s finances is deteriorating in the eyes of international investors.” We have to do this very carefully, since the deficit is already planned to be one one of the largest in the European Union and one of the largest in the history of Independence, “he said.

M. Majauskas noted that due to N. Nausėda’s proposal, his salary would increase.

“But I don’t think it will be better for Lithuania in this situation.” It is important to note that people who have higher incomes, have more wealth, live better, and are more likely to save. In this case, they would be less inclined to spend, thus stimulating the economy, which is the purpose of this law, ”said a member of the Christian Democratic faction of the National Union-Lithuania.

Povilas Urbšys, who belongs to a mixed group of Seimas members, said the president’s proposal is an opportunity for parliament to decide who he is.

“Is it just a one-time cash coronary-dose factory that sees people as a society of dependents where attacks of social sensitivity generally occur before the election. Are we still seeing ourselves as representatives of a free nation, whose goal is to help people build their own future and regain their dignity, “he said.

According to P. Urbšis, G. Nausėda’s proposal would allow him to follow a new path, in which a person would have the opportunity to earn money for himself.

BFK member Rasa Budbergytė said the president offers direct support to the poor and needy.

“Support is provided to workers. We all reward: and retirees <...> Let’s look at the whole package: the people who would benefit the most are those with such a small and large income, “he said.

A group of parliamentarians (Rimantė Šalaševičiūtė, Rimantas Sinkevičius, Vytautas Kamblevičius, Andrius Palionis, Irena Šiaulienė, Juozas Bernatonis, Antanas Vinkus, Bronius Bradauskas, Rimas Andrikis, Ona Valiukevičit.

Another group (Povilas Urbšys, G. Kirkilas, Rasa Budbergytė, Irena Degutienė, Naglis Puteikis, Algirdas Butkevičius) proposed 15 percent. apply to 1 VMU.

In the graphics you can see how each of the proposals would affect the resident’s income “in the hands”.

For example, an employee who receives around € 800 “in their hands” would receive a supplement of almost € 8 due to the increase in NPD.

Assuming NPD increases to € 400, all other scenarios (a 15% rate at 1, 2, or 3 VMUs) would provide the same benefit, around € 54 per month.

The scenarios for different VMU ceilings would primarily affect those with higher incomes. For example, about 3 thousand. If a VMU cap is approved, a person who wins EUR “hands” could expect a supplement of EUR 69.05, a supplement of EUR 138.1 million for VMU and a supplement of EUR 207.15 for VMU.

The Seimas did not approve alternative proposals on Tuesday.

For his part, Seimas member Aušrinė Armonaitė proposed introducing 10 percent. GPM rate for people who have not worked for 3 years (for example, returned migrants, youth, or long-term unemployed). She withdrew this offer.

Arguments

G. Nausėda, who initiated the tax reduction, explained that the objective is to reduce one of the greatest risk factors of the COVID-19 crisis, the decrease in aggregate demand, based on the classical principles of countercyclical fiscal policy.

“Robert Shiller, a professor at Yale University in the United States and Nobel laureate in economics, compares the rapid changes in economic activity to a viral epidemic and argues that addressing the economic crisis caused by COVID-19 requires addressing both the virus and fear and a wave of pessimistic narratives. Therefore, according to the Nobel Prize in Economics, measures to stimulate the Lithuanian economy should be aimed first of all at the diffusion of positive narratives, which would strengthen the confidence of the country’s population in the state.

Looking back on historical experience, the Great Depression, which began after 1929, stands out among all economic crises. It was in the process of solving this crisis that the famous economist John Maynards Keynes clarified countercyclical fiscal policy. An anti-cyclical fiscal policy is needed, with an increase in spending and a fall in taxes, in times of significant economic recession, with low inflation, low interest rates, falling incomes and increased unemployment, “says the explanatory note.

A temporary reduction in PIT is estimated to lead to a loss of € 322 million in the second half of 2020. The increase in NPD will lead to a loss of € 84 million in tax revenue. euro income

“Part of the loss of income will be offset by a temporary reduction in the personal income tax and an increase in the NPD due to an increase in income from consumption taxes (value added, special taxes),” said the president.

The technical implementation of the provisions proposed in the bill would also require 170,000. additional funds from the state budget for the modification of two information systems of the State Tax Inspection system.

Currently, 20% is applied to labor income of up to 7 VMUs per month (9667 euros on paper, about 5850 euros on hand). GPM rate. The portion of income that exceeds this limit is taxed at 32%. tariff.