V.Šapoka on the impending financial crisis: if there is no second wave, we will recover, but taxes will not decrease | Deal

Lithuania is a good debtor

– There is increasing talk of the looming financial crisis looming in the fall. According to you, is a crisis waiting for us or not?

– When it comes to forecasting, this is the most ungrateful thing to forecast right now. Basically, it all depends on how you handle the pandemic, and hardly anyone would dare predict this. In terms of economy, various scenarios are being implemented. The baseline scenario is that this year the Lithuanian economy will shrink by about 7%, and next year there will be a similar jump. If there is not a big second wave, then economic growth will be slower, there will be a recession, and unemployment will rise. However, all the measures taken by the government and the companies will yield results and Lithuania will recover very quickly.

I believe in our business, its flexibility and creativity. They will definitely be able to reorient and move forward. As a result, there is no reason to fear the financial crisis as it was 10 years ago. We are talking about a deep economic recession, but now we see that the country’s economy is beginning to recover, the situation in the labor market is improving and expectations have stopped falling. As a result, there are certainly reasons to look forward positively.

– We are all administrators of our accounts and we know what is happening there. You see the state budget and its collecting, what do you see there, in that wallet?

– As a result of the pandemic, part of the economy simply froze, so tax collection stagnated. There was an opportunity to defer practically all taxes. Five-month statistics show that about 7 percent is collected. Less income than last year and 13 percent. less than we predicted before the pandemic. In numbers, this exceeds 500 million euros.

However, the government is taking steps to obtain a mandate from the Seimas to borrow as much as necessary. We are doing this successfully to guarantee a stable society, help the most vulnerable and invest in the future to emerge from the crisis with more force.

– Probably in political circles it is believed that loans in this way are not very popular, because then the opponents can blame. But we know that during a pandemic, foreign banks lend on very favorable terms, what?

– Those conditions are very different and it all depends on the financial reputation of the country. As Lithuania’s financial policy has been particularly prudent and responsible in recent years, we are taking record concessional loans, even during a pandemic.

Since the beginning of the year, Lithuania has already borrowed € 4.5 billion. The weighted value added is ten years, and the average interest rate is approximately 0.4 percent. Those figures are known to be not comparable to a decade ago, and this has been driven by responsible financial management.

How do we get out of recession?

– Public finances are also significantly determined by the purchasing power of citizens and their consumption. I see this distraction: there are people who plan to buy something: an apartment, a car, a computer. But some things are a little stopped. How would you advise citizens?

– If you are in the field of personal finance management, you should always think about what would happen if. You must have a reservation to continue living normally, for example if you lose your job. When the situation is uncertain, in that case, of course, there is no need to make hasty decisions and make long-term commitments to feel stable. Options should always be weighed, especially when there is a high degree of uncertainty.

At the state level, the state behaves very similarly. Before the pandemic, as a responsible family, I had accumulated reserves for a black day. At dawn, the state began using reserves and borrowed money to mitigate the effects of the pandemic.

– Is it not a danger at this time that, as in the last economic crisis, the tax system is changed and drastic decisions are made? Then there was the financial shock. Are there any special changes now that you don’t anticipate?

– Of course, those situations are very different. If we compare the 2008 crisis with the current situation, Lithuania is now incomparably better prepared. We are behaving as a responsible state should be. In the event of such an economic shock, the health system must be addressed first. Because there is a pandemic, resources have been concentrated there so that we can save as many people as possible. Assistance was then provided to small and medium-sized enterprises and investments were also made in the future. It is necessary to activate those projects that are already underway, and this has been done. The DNA plan for the future economy has also been drawn up, as the pandemic has not only caused shock and crisis in the world, but has also opened up opportunities.

– It is predicted that the crisis will be L-shaped, that we will fall, U – we will be at the bottom and suddenly V – we will resist from the bottom and we will rise.

– I have no doubt that Lithuania will recover much faster than the old western countries. Lithuanian business is much more flexible and creative. The government approved a DNA plan for the future economy and plans to invest $ 6.3 billion over a year and a half. EUR in key areas such as investment in human capital, digitization of the economy, research and innovation, infrastructure of the future economy to attract foreign investment and, of course, investment in climate change and green energy. I think we have no right to miss this opportunity and we need to invest in these areas to exploit them for the benefit of the country.

In light of the pandemic, it has become very clear that the EU is overly dependent on China and some other countries. As a result, the EU wants to regain strategic autonomy in the fields of pharmaceuticals and medical equipment. Furthermore, those broken value chains have shown that Asia’s dependency is too great. As a result, some high-tech companies will return to Europe, and Lithuania has great opportunities to be one of the leaders in both attracting investment and developing ecosystems, which are currently very excellent but small.

– Bankers predict that it may happen that Lithuania will outperform southern European countries, like Greece, or western countries, like Portugal. How do you evaluate such predictions?

– I think this is a fact that has already happened in practice. Lithuania is much more active. The reforms launched and the decisions made in recent years show that Lithuania is one of the leaders in these EU careers. We like to prepare ourselves and forget to rejoice that in the last 10 years, Lithuania’s economic growth per capita has been the fastest of all OECD countries.

– You mentioned an impressive amount of support. Is it possible to feel what those areas are? How should we work, how should we reorient ourselves so that we can expect it?

– Some examples. Investment in human capital. Very significant sums will be allocated to help people change and increase their qualifications for greater added value. In other words, what happened a decade ago, when a large amount of money was also allocated, but an employee such as a hairdresser was retrained as a manicurist. This is not the highest value added, especially if there are too many manicurists.

This time there is a different approach. The needs of the market are taken into account, it is taken into account that the qualifications have to go to the next level. Invest in people so they can adapt more quickly to the needs of the future economy.

Quantities are also allocated for research and innovation. New laboratories will be established in the field of biotechnology, where we will exploit the full potential of our researchers and entrepreneurs. Digitizing the economy will allow the public and private sectors to reorient and deliver services electronically much more quickly. In many of those areas, the amount is impressive, so I invite you to read the plan.

– Am I not mistaken in saying that the financial support strategy is changing a little now?

– When it comes to the use of EU funds, we sometimes like to whip ourselves in Lithuanian that everything is wrong. But according to international organizations, Lithuania is one of the countries that uses EU investments most effectively. Of course, there were also spoons of tar in that support barrel.

In the current period, we have initiated as many collaborations with the business as possible to attract additional resources. In recent years, Lithuania has become a leader in financial engineering. When both the state invests and private companies contribute to the investment. The money comes back and turns again.

I think this achievement is really good for the future, because the support will decrease. I sincerely hope that after some time it is possible to say with pride that we no longer need support, we can support others.

No need to wait for tax cuts

– These are not bad forecasts. But I want to go back to household items. Previous year’s tax returns are currently ongoing. I know that some are receiving alarming signals because not all of them have the funds to stop projects. What to do if before July 1st. a person has to declare income, pay taxes, but lacks funds?

– Because we worked with the ITS, they showed that those people who had paid their taxes honestly before had great opportunities to benefit from state support. Recoveries stopped automatically and efforts were made to help everyone. Those who are still experiencing difficulties can talk to the STI about other tax deferrals. All possibilities are.

– Won’t it be the case that robots will impose fines and interest from the first day?

– Certainly not.

– What about taxes? We individualists and small businesses are waiting for tax cuts. It has been promised, there is talk, now there is speculation that the personal income tax is too high, it needs to be reduced. Do you expect a reduction? Is it rational to talk about it or close this topic?

– In my opinion, when the situation is uncertain because we do not know how long the pandemic will last and how many public resources it will require, the income base cannot be jeopardized. In this case, the tax review issue should simply be closed. Especially before the elections.

Of course, we must help the most vulnerable in society, make efforts to save as many jobs as possible, invest in the future, but not risk the country’s future financial stability. A simple example: If we dramatically cut taxes, then the children we want to help will pay that help in the future with twice the increase in public debt.

We must be responsible for this. It is not a sprint, it is a marathon, so we must have a very clear plan for the future and not take risks.