With the elections less than two weeks away the Lithuanian Free Market Institute looks at some of the key points of the Labour Party electoral programme and their significance.
Kęstutis Daukšys of the Labour party during TV debate on LRT
© LRT stopkadras

Improving state governance
· 20% reduction in the number of civil servants over 4 years.

· Merging or liquidation of institutions with similar administrative procedures, reduction in the number of administrative institutions, both saving funds and increasing effectiveness.

· Remove unnecessary administrative and utility functions from ministries, leaving only functions related to forming and implementing policy, as well as overseeing policies.

· Implement a law that makes all state institutions report to society on public spending

Seeking to reduce bureaucracy and the number of bureaucrats by gradually reducing their numbers is laudable. If not done, the aging society and decreasing population count that pays taxes will leave the remaining employed citizens unable to bear the tax burden. Removing utility functions from ministries and perhaps leaving them to the private sector is also a positive move, so is the demand to report on the usage of state funds, it would help improve the confidence of citizens in the government.

Verdict: proactive politics – a proposition that will have positive outcomes in the future
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A system of income taxation that will attract investment

· Business reinvestment will be tax-free

This would mean that income invested back into the company would no longer be taxed. This would provide momentum for investment and creating jobs, creating state competitiveness and attractiveness. The counterargument that this loses the state €60 million is no reason to reject this proposition, with this tax currently only contributing a small fraction of the state budget, particularly since in a similar case in Estonia, the investment attracted balanced out the lost tax revenue in just a couple of years. This means the budget impact is short term, while the message sent to potential investors is powerful.

Verdict: the proposition provides an opportunity for bigger earnings now and ensures financial freedom.

New taxes only after a warning period of at least half a year

· Tax projects which raise the tax burden on tax payers come into power no sooner than half a year after passing, only excepting tax projects that reduce tax or administrative burdens.

· Aim to have legislative project provide information about influences on business, citizens and the budget.

The unstable tax system of Lithuania with tax legislation changing along with budget projects has long been a major problem for Lithuanian businesses. With businessmen often planning their activities and budgets for the entire fiscal year, any changes in the tax environment can have a particularly detrimental impact. The unpredictable tax environment has long been a major complaint of investors, which has led to much capital departing the country.

Verdict: proactive politics – a proposition that will have positive outcomes in the future.

Decreased Sodra ceiling – more and better paid jobs

· Sodra [social security] payments are calculated based on up to five average wages

Currently this is done for wages exceeding ten times the average wage, but this only benefits less than 1000 individuals in the country and is something of an unfair practice with the Sodra benefits payments being limited in size. This change would encourage declaring larger wages and would make benefits not based on cash which make wages look smaller less appealing.

Verdict: proactive politics – a proposition that will have positive outcomes in the future.

Sharing economy – new opportunities for business

· Creating legislative and financial incentives for both start-ups and traditional businesses to work and adapt to sharing economy (providing loans, carpooling services, real estate renting and sharing other services or materials)

The Labour Party has understood the potential of the new branch of sharing economy to increase citizen’s earnings. If a flexible legislative base is created to allow the proliferation of internet platforms, citizens will be able to earn extra income easily.

Verdict: the proposition provides an opportunity for bigger earnings now and ensures financial freedom.

Higher tax-free income size – less taxation for the lowest income earners

· Those earning the minimum monthly wage will no longer pay income tax; minimum monthly wage will equal the tax-free income size

This is an excellent means of increasing the incomes of the lowest earners. For those earning the minimum monthly wage this would be a €30 pay rise and a more efficient raise than an increased minimum monthly wage would provide because the increases in minimum wage would simply be chipped away by taxes.

Verdict: proactive politics – a proposition that will have positive outcomes in the future.

New grant for those coming of age – at the cost of parents

· Each youth who turns 18 will be given a one-time 2000 euro grant to start their lives

Next year 32,000 youths will celebrate their 18th birthday. This proposition would thus cost the state €65 million and would have to be contributed by none other than the parents of the youths. There are around 1,2 million employed citizens in Lithuania, each of them would be contributing €50 to such a birthday gift.

This would be provided regardless of income or wealth already in possession (not infrequently, 18 year old already have work experience). A €2000 grant will not solve all the problems of those starting individual lives, instead potentially creating an illusion that income is decided not on individual effort, but that it can be gained as a “birthday gift”. It would be more suitable to help those most in need.

Verdict: the proposition is most taxing on the taxpayer and has a considerable negative influence on the budget.

No oranges for those eating in state institutions?

· Amendments to the public procurement law to ensure that food offered in hospitals, educational institutions and other state caterers would be based on Lithuanian produce.

Why the Labour Party wants exclusively Lithuanian produce in state catering services is unclear. From the economics side, this goes contrary to core EU principles, namely the free flow of goods. If the goal is to ensure quality standards, then imports shouldn’t be limited, but quality standards should be enforced rather than creating unjustified protectionism. From a more domestic notion, this would prevent schoolchildren from eating common fruit – oranges, peaches, pineapples, etc. Clearly this is a poorly thought out proposition.

Verdict: back to the past - a return towards planned economy.

Heating infrastructure – in the hands of the state

· Create a competitive Lithuanian energy system by prohibiting municipalities from renting or otherwise allowing the privatization of heating infrastructure

The Labour Party should first figure out how it would create a competitive heating infrastructure while reducing competitiveness. Deprivation the heating infrastructure is simply protectionism toward state owned companies, which do not always provide services at a lower price or with better quality. It would instead be best to ensure the most accessible services possible by ensuring high competitiveness.

Verdict: the proposition looks good on paper, but has harsh consequences. It can have unforeseen consequences.

Universal declaration – added administrative strain on citizens

· Implement universal income and property declaration for individuals earning €24,000 or more annually.

The tax administrator and other institutions already have access to data on individual incomes and property that has mandatory declaration.

If universal declaration is aimed at fighting the black market, it is dubious whether those in such a field will hurry to declare their property, furthermore the €2000 bar is also a peculiar choice, with many participating in the black market officially earning small incomes.

With declaring large gifts and loans becoming mandatory this year and banks automatically providing data on account balances, this would further encumber common citizens.

Verdict: the proposition can have unforeseen consequences.

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