On February 28th European Business Network held a networking event at the Austrian Embassy, where adviser to the president of SEB Bankas Dr. Gitanas Nausėda gave a presentation on the macroeconomic outlook for Lithuania in 2013-2014.
Mr. Nausėda started this speech with an overview of ideas for introducing progressive income taxation in Lithuania. The three alternatives he proposed are: 1. Raising tax-exempt minimum and cutting personal income tax (PIT) rate for less-paid employees; 2. Reducing PIT rate for less-paid employees and raising it for higher-paid employees; and 3. Raising PIT rate for higher-paid employees.
However, according to G. Nausėda, the share of “better-off” employees is too small to achieve solid redistribution by progressive taxes.
Further, G. Nausėda compared the taxing systems in Latvia and Estonia, which are direct competitors for Lithuania in terms of their tax systems. He said that Estonia plans to reduce current 21% PIT tax rate to 20% in 2015, Latvia plans to reduce PIT rate from 25% to 24% in 2013, then to 22% in 2014 and to 20% in 2015, Estonia and Latvia do not plan abandoning flat PIT rate systems and if Lithuania decides for the second or third alternatives, tax burden for skilled employees would become uncompetitive.
Therefore, Mr. Nausėda is in favour of the first alternative for the progressive income taxation in Lithuania, which is raising tax-exempt minimum and cutting PIT rate for less-paid employees.
G. Nausėda also explained why introduction of previous value added tax exemptions had contradictory effect on consumer prices. According to him, it had a positive effect for businesses, but not the consumer’s budget.
After the discussion on taxes, SEB chief economist went on to speak about the economic growth. He stated that economic development maintains rather swift pace, GDP by expenditure approach is alarming about investment decrease and despite euro zone’s recession, Lithuania’s exports continue growing buoyantly, because they are well-diversified.
G. Nausėda expressed his concern about the continuity of fiscal austerity after the Government’s elections and the stubborn inflation which remains due to high global commodity prices. Mr. Nausėda believes that Lithuania will hardly meet the Maastricht criteria without targeting them on a purpose.
After the presentation G. Nausėda kindly agreed to answer a couple of questions.
Could you indicate a couple of economic processes that could have an impact on Lithuanian Government in the next couple of years?
First of all, we should notice that Eurozone economy is still in relatively complicated stance. Situation is not very encouraging, because for the Eurozone 2013 will be one more year of recession. It means that our foreign trade partners in Eurozone will not do so well and it means big pressure on Lithuanian companies working in the Western markets.
But some balance or some chance for Lithuania is good diversification of Lithuanian export and we always have a possibility to compensate possible potential loses in the Western markets by improving our situation in Eastern markets. We did it in 2011, we did it in 2012. I think, having in mind that Russian economy will grow, however, not so fast as in previous years, but it will grow in the future. I think it allows us to talk about relative stability of Lithuanian exports, which will remain the driver of economic growth in 2013.
But we also can do something in the domestic market in order to restore the consumption. Some steps towards this direction are already done. First of all, the increased minimal wage, but I hope that there also will be some decisions in the tax policy, which will improve the financial situation of the lower paid houses in Lithuania.
Thank you.
EBN reporter Edgaras Savickas