The cabinet’s tax and public sector policy is not contributing to resolving income inequality issues, Bank of Lithuania board chairman Vitas Vasiliauskas says.
Vitas Vasiliauskas
© DELFI / Kiril Čachovskij

The chairman points to the Ministry of Finance online calculator, which shows that in terms of percentages, lower income citizens may receive more, but in absolute sums, the situation is the opposite.

V. Vasiliauskas stated that the tax system changes this year and the delayed decisions on public sector financing will only make income inequality more acute and also urged the government to focus more on public sector problems.

In December, the cabinet formed a negotiation group on public sector financing up to 2025. This step was taken with a month of continuing teachers' strike regarding changes to their wage payment model and demanding higher wages.

Sky isn't falling, but...

V. Vasiliauskas notes that currently, expectations of an economic slowdown are prevalent. He notes, however that it is only levelling out now, following a peak in 2017 and will not bottom out in a while yet.

"Our rhetoric regarding next year's state budget says that the sky isn't falling and we can't speak of crisis yet, but there is a natural cooling and it must be responded to," he stated.

Bank margins on the rise

The central bank's board chairman also pointed out that for a time now, bank margins in the home loan segment have been on the rise in Lithuania. He explains that this could be linked to demand and market saturation.

Inflation in Lithuania

V. Vasiliauskas met with journalists following Thursday's European Central Bank sitting, which the Bank of Lithuania head described as among the most important in 2018.

"Though as predicted, nothing changed. The quantitative easing programme has been completed. It was decided by general consensus that we will signal on investment duration, stating that there will be investment and for a sufficiently long period. At the same time we will be signalling an increase in interest rates. The main goal is to exit the programme neutrally in terms of risks," he stated, pointing out that the programme's main impact was in softening borrowing conditions.

As for inflation, V. Vasiliauskas urged patience, stating, "Yes, the gap for transmission to happen is fairly lengthy, but considering our intermediate term forecasts, inflation will appear, nearing the European Central Bank goal of 2%. It just takes time. By the way, considering the recent period, a not insignificant role was performed by decreased oil prices."

The Lithuanian central bank's chief noted that in Lithuania, somewhat different factors influence inflation due to the country's economy moving toward convergence.

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