Economists critical of G. Nausėda‘s proposals: starting from the wrong end

New proposals from President Gitanas Nausėda on how to reduce social poverty and improve demographic conditions have been met with criticism from economists. They believe that G. Nausėda’s proposals do not appear responsible and have little to do with a welfare state. The president and his team are apparently only seeking to take the easier road, Lina Brazauskienė writes in lrytas.lt

President G. Nausėda has proposed that mother and father days off would be granted for parents raising a single child up to the age of 12. Currently, the day off is only available for parents raising at least two children up to the age of 12.

Luminor bank chief economist Žygimantas Mauricas says that neither children’s money nor days off for parents raising children will help achieve goals. “People will have neither more time nor more children. This is starting from the wrong end,” he remarked.

Employers could begin to discriminate families

Economists believe that parents raising a single child is content with the new regulations and would not oppose the proposal. This would help people balance work and family life. However, it could become an extra incentive for employers to discriminate families with children.

“You must not go too far because, in the eyes of employers, this could become a negative (I mean having children). More and father days would be time spent away from work and the employer would have respectively a harder time planning work. We can only hope that harm is not done in an effort to do good because part of employers could begin discriminating people with children,” economist Ž. Mauricas said.

He is echoed by Swedbank chief economist Nerijus Mačiulis: “We must understand the side effects of such measures. First of all, it is related to lost labour in the workplace. In some cases, employers could be disincentivised to create jobs for families with children.”

According to Ž. Mauricas, the state should invest in infrastructure so that there would be kindergartens and schools near homes and in these educational institutions, there would be good education quality, so that parents would not have to take their children across the city. Parents would save vast amounts of time this way. Also, he urges to aim to reduce queues at healthcare institutions.

Advise to invest in education

“With these issues resolved, there perhaps would be no need for those days off [mother and father days]. This is a micro-level challenge, particularly in Vilnius, where there are many children, unlike some of the other largest European Union cities. If we have the poor infrastructure to raise children when in a demographic sense, our regions are declining, such decisions will impact the situation of all of Lithuania,” he commented.

The economist believes that the Seimas could approve the president’s proposal. “With the same enthusiasm as the Seimas approved November 2 as a day off, they could easily accept. The easiest path is to propose, it costs nothing or very little. I would not be surprised if all sorts of similar initiatives were thought up, but they will eventually have to be withdrawn. It is better to take harder toad and improve infrastructure. This would ease balancing work and family.

Of course, this path is harder, longer costs more and of course, it can’t always be implemented quickly, for example within one term, which is why nobody does it. Just look at the difficult situation in Vilnius: new suburbs are emerging, ten or twenty new apartment blocks, but not a single kindergarten built.

There is no sustainable system, particularly if you seek to create a welfare state. One thing is said, another is done. If you are creating a welfare state, it must be as in the Scandinavian countries – most go to state kindergartens, willingly pay taxes and the education quality is good. Here we do the opposite – increasing the gap between public and private education,” Ž. Mauricas spoke.

Slowing NPD, abolishing of exemptions – irresponsible

President G. Nausėda proposed to Seimas to increase social security spending by a further 100 million euro next year, allocating most of these funds for more rapid growth in retirement and disability pensions.

The president proposes to gather most of the extra funding by slowing the growth of the untaxed income size (NPD) and by reducing the diesel fuel tax exemption for farmers. Based on current legislation, the NPD should rise next year from 300 to 400 euro. The president proposes that NPD growth next year would be around 30 euro instead. “The proposal to not increase NPD is definitely flawed. Increasing social benefits while reducing the income of working citizens looks rather irresponsible. It is definitely not the picture of a welfare state that most imagine.

We should, on the contrary, seek more opportunities to increase the NPD even more than planned, not just to 400 euro, but more like to 500 and above. For example, in the USA, the first 1000 dollars a month are completely untaxed. I believe that in the long run, this should be sought in Lithuania, to have the first 1000 euro tax-free. In regard to abolishing tax exemptions, this could be one of the income sources,” N. Mačiulis spoke.

About the incomes for retirees

According to economist Ž. Mauricas, on increasing the burden on low-income earners, but somewhat increasing incomes for retirees and the disabled, the poverty levels among the latter groups may drop but would increase among those in employment. The impact would be very low.

“This would mean raising taxes for those earning the least. This shift from one pocket to another will not help those living close to or beneath the poverty line. We also have a major emigration challenge and among those in employment, there is a significant number living under the poverty line. The decision to not increase the NPD is bad. Raising the minimum monthly wage, but not increasing the NPD, we automatically increase tax burdens on those earning minimum wage. This means that the president is proposing to increase the tax burden on those earning minimum wage while moving a part of that funding to retirees and disabled individuals earning minimal incomes,” he commented.

According to the economist, the removal of exemptions regarding marked diesel or differing tax tariffs applied based on differing income sources likely will not happen. They do not increase economic efficiency, distort the market and reduce trust in the system. “I doubt that there will be resolve to do this prior to the elections. There is doubt whether such proposals will pass in Seimas, considering that the elections are already next year. A significant part of the electorate makes use of these exemptions. I believe that the proposals will be dismissed and the path to not raise the NPD will be chosen, in practice just moving funds from one pocket to another,” he explained.