Lithuania just finally needs a normal increase in the redistribution of the state budget. Without reinventing the wheel, but following the example of welfare states, the tax system needs to be restructured to be more socially just. Then there would be enough for national defense, an efficient health system, high-quality public education, and the reduction of social exclusion.
Now about everything in more detail. Both about the ongoing debates, about the ideas circulating in the Seimas and beyond, and about my proposals.
Proposals from left and right, business and banks, lobbyists abound. At the beginning of this year, Prime Minister Ingrida Šimonytė addressed the leaders of political parties, businessmen and trade unions, inviting them to find solutions on how to find more money for defense financing. The Minister of National Defense Arvydas Anušauskas proposed to undertake military infrastructure projects through the partnership of the public and private sectors. Liberal Vytautas Mitalas put forward the idea of a voluntary tax, a “defense subscription”, which, according to him, would add “tens of millions of euros” to defense needs. The Seimas members also came up with ideas to take as much money as possible from the shadows, invest, donate, tax pensions…
Borrowing is probably the most popular idea among politicians. As during the economic crisis in 2008-2009, I. Šimonytė and her cabinet team are most passionate about it. As an alternative, my fellow social democrats propose defense bonds, where the state could borrow from citizens at lower interest rates than in international markets, and the latter could thus contribute to the defense budget.
Of course, it is proposed to increase taxes as well, mostly value added tax (VAT), personal income tax and profit tax. The Minister of Foreign Affairs, Gabrielius Landsbergis, proposes to introduce a temporary defense tax, which would consist of borrowed funds and increased VAT and corporate tax rates.
However, politicians obviously avoid talking about specific numbers, how much they want to increase one or another tax. Perhaps before the upcoming elections, they don’t want to catch either residents or businessmen?
I will admit that I was disappointed by the proposals of the Bank of Lithuania, which were either socially insensitive or rather petty in accounting. Its manager, Gediminas Šimkus, proposes to review the relief for central heating, and instead of increasing the profit tax, to reduce the profit tax relief, the current rate of which is 5 percent, for small businesses. It is also proposed to revise the excise tax exemptions, including diesel used in agriculture, personal income tax exemption for life insurance and savings for third-tier pension funds, and zero taxation of gifts to relatives.
I am convinced that increasing the profit tax would change the situation in Lithuania, solving the problems of both social inequality and missing funds for national defense.
Let me remind you that now the profit tax in Lithuania is really very low – only 15%, while the lowest income tax rate for ordinary working people is 20%. A lower corporate tax rate in the European Union (EU) is only in Hungary – 9 percent, and Ireland – 12.5 percent, and the highest in Malta (35 percent), Portugal (31.5 percent), Germany (29.9 percent .) and Italy (27.8%), while the EU average is 21.3%. In neighboring Estonia and Poland, it reaches 20 percent. Therefore, if we increase the profit tax by at least 3 percent, we will not reach the EU average.
Now in our country, high income earners pay low taxes as a percentage compared to low income earners. This is also shown by indicators of social inequality. The income gap between the richest and poorest residents of the country reaches 6-7 times, while the EU average is 4-5 times. I mean the S80/S20 index, which shows the difference in income between the top 20 percent. of the richest and 20 percent the poorest population; In 2022, S80/S20 in Lithuania reached 6.39, while the EU average was 4.74.
In Lithuania, redistribution of the state budget remains one of the smallest in the EU. in 2022 state budget income amounted to 35.7 percent. (EU average – 46.3%), and expenditures amounted to 36.4%, of which 13.5% was allocated to social protection, and 2.1% to defense. (EU average – 49.6%, 19.5% and 1.3% respectively).
So, the numbers clearly show that politicians talk a lot about social justice, but when it comes to making decisions, it is forgotten, and the decisions that are made tend to benefit those who do not need that social justice, namely big business and its interest groups.
However, from the fact that politicians talk very slickly about increasing the corporate tax, and the Bank of Lithuania does not even mention it in reality, it is clear that the attitude introduced by the Lithuanian Free Market Institute at the end of the last millennium, that business should be given the freedom to operate, is still very strong in Lithuania. , because he works day and night to promote economic growth as much as possible, and everything else, like social inequality, will take care of itself or will be taken care of by the invisible hand of the free market.
Although the problem of social inequality in Lithuania does not really resolve itself, the spirit of the free market in Lithuania remains very strong. Remaining free market enthusiasts still insist that those who feel social injustice are guilty of being simply losers and lazy. Those in power claim that there is no such thing as a free lunch, and those experiencing poverty should work harder, show initiative and repay the state for social benefits.
Here, some of the readers will probably say: what other social injustice is there, when all citizens need it immediately get confused on defensebecause military experts predict that Russia will attack in 5-10 years?!
I will repeat: all that is needed is normal taxes and normal redistribution – enough for both defense and social justice. Of course, other European countries are now also starting to look much more seriously at their defense and looking for ways to increase the funds allocated to it, but many of them certainly have not and will not do so by sacrificing social security.
For the progress of social justice, it is only necessary to reduce livestock farming – to make the Lithuanian tax system more socially just. This is primarily the responsibility of the state. The security of the country – as well, because individually we will certainly not be able to defend ourselves against Russia.
Algirdas Sys is a member of the Lithuanian Social Democrats faction of the Seimas.
