It’s summertime. Come to think of it, we could well change into swimming gear, kick off our shoes and relax at the seaside, like Boniface the lion did in a famous cartoon. This is what Skvernelis has actually done. He has played a risky game challenging the limits of democracy and can now enjoy his sojourn in a cheap Spanish seaside resort. He has earned it, after all, hasn’t he?
I often hear questions about the tax reform. What happened? Why was all the fuss made? Indeed, the process of adoption was odd even to observers at the Seimas Plenary Chamber. None of the Farmers and Greens spoke in favour of the reform. Statements aside, Stasys Jakeliūnas and Tomas Tomilinas even voted against. Strange, isn’t it? What sort of a mystical reform is it, if nobody has anything to say about it and the key figures from the governing majority in the Seimas committees are voting against?
However, irony aside, I must admit this was truly a reform. And it does not simply amount to words. This was probably the most radical budget reform since Lithuania regained its independence. Once it is implemented, that is, once a part of the taxes from the Social Insurance Fund is added to the State Income Tax and the non-taxable minimum salary is counted on the basis of that sum, all earners with salaries under EUR 2,000 on paper will gain a little more money. This will mean an increase from EUR 5 to EUR 20 in the pockets of the citizens. In other words, the citizens will pay LOWER TAXES. Already fetching your wooden clogs and straw hat for the dance of joy, huh? There’s no rush, I would say.
It is no coincidence that I’m saying this reform is serious. On the top of it, the reform is an eye-opener on the real ideology of the Prime Minister. Truth be told, it differs from the one he vowed to pursue during his electoral campaign. The reduction in taxes will cost the state budget a jolly EUR 320 billion next year. Mind you, we have also pledged to increase the defense budget as well as pensions, which are indexed. Add to this concoction a lower tax collection due to lower taxation, and you will see that we are not likely to benefit from the foreseen budget increase so much next year.
I am telling you, the reform has demonstrated what Skvernelis’ ideology really is, as it answers one of the essential questions on whether we are a large-scale or a small-scale country in terms of the public budget. A state with a small-scale public budget provides a minimum of public services and has a small budget. Money remains in people’s pockets and citizens can decide whether and where they purchase additional services. A state with a large-scale public budget, in turn, offers more and better services, provides more people with them, but needs a more sizeable budget for that, too.
Up till now, all Lithuania’s governments were trying to find their way between the Scylla and the Charybdis. We wanted to offer high-quality services accessible to all, as large-scale budget countries do. However, what we avoided to acknowledge was that Lithuania’s budget allocated for the purpose was insufficient for mounting such services in the first place. We turned a blind eye on the recommendations of the European Commission to stop behaving as if we had enough money to offer due services to citizens and take real action: either reduce the size of our ambition for the provision of public services, or increase the budget for the purpose. However, there has so far been no serious debate on whether Lithuania is a large-scale or a small-scale budget country.
Not until the government under Skvernelis answered the question in very simple terms: Lithuania was to be a small-scale budget state (mind you: this is a serious and meaningful shift in our public life, is it not?). In the context of lower tax collection and contracted increase of the budget, the only question we need to answer is, what part of our ambition shall we leave unsatisfied? This is exactly what the governing majority avoids talking about. To be more exact, it says that the reform will pay off on its own. Unfortunately, we will eventually have to curb our appetites. I believe the reply as to what exactly we will have to drop is simple enough. We will scale down on good schooling, good salaries to medical staff, and good infrastructure (insofar as it relies on our own money, rather than EU funding). It all costs a lot. By shedding EUR 1.9 billion from the state budget over a three-year period to increase people’s income by one or several dozen euros, we will compromise on the opportunity to make essential advancement in education, healthcare, or any other area that depends on the public budget. This will translate into no salaries for medical staff and resident doctors and no improvement for schools to bridge the gap between the best schooling facilities in the capital and the moribund regional schools, distant and forgotten. By this reform, the state is cutting the branch it is sitting on.
It is hard to define the exact number of people in Lithuania who are dependent on public services. My guess would be 99 %. They attend public schools, public healthcare centers and universities, and use other public services. Opportunities for building a better future for all of them and their offspring are now reduced. A sum of EUR 10 per month will not be sufficient to provide for some better schooling or university education for a child. In contrast, if we invested EUR 320 billion into the education system, we could achieve real change. But we will not. If this reform is a conscious act of will, this means that the current government has decided that the new middle class will provide for a better life to itself on its own, for a mere EUR 10 per month. Many of them will. Outside Lithuania, though.
Many emigrants, upon return, remark that the most apparent difference between Lithuania and the Western Europe is the attitude to citizens on the part of the state. This is particularly evident in hospitals, schools, and municipalities, especially for people who reside abroad for brief periods of time. So, ladies and gentlemen, those of you who expect to see any change in Lithuania after you return from emigration: forget it. This is not meant to be.
I believe teachers will protest in rallies at the Seimas this very autumn, as the new model of payment for full-time work in schools without additional funding will, in fact, decrease their real income. Forgive my frankness, dear teachers, but if you are hoping for change, forget it. Nothing will change. Nobody can create a better life for all in a country with a low-scale public budget. However, the Prime Minister will never tell you this. Because he has already bought electoral votes this spring to secure himself a post of the President of the Republic from the money we all paid in taxes. And, by the by, any debate on minor adjustments can be discarded as inessential, as the main reform has already been implemented: do whatever you want with your additional ten euros per month!
What is more, I had some conversations with several businessmen who suffered from some serious pressure to increase salaries for their staff and were consistently raising them over the past several years. Next year, they will no longer do it. Even if they do, they will raise the salaries at much a slower pace, because, owing to the new tax reform, the employees will get a rise in salary anyway, be it only by several euros. “If Skvernelis wants to do it for us – let him do it!” they say. So much for the Skvernelis’ reform, a move that, allegedly, will pay off on its own without doing any damage to the budget. To be frank, these changes are naturally beneficial for the liberals alone. But they did not summon the courage to say it out loud in public, so maybe they are celebrating in private.
And before I end, here is some more food for thought for you: Estonia, with a population of less than 1.5 million, collects almost EUR 1.5 billion more in taxes, compared to Lithuania. There are multiple ways of achieving this. But we are unwilling to equal Estonia in budget size. We are likewise unwilling to catch up with Estonia on the education system that is well better off, too. I will not even speak of other public services in Estonia, which, by their quality, are way more similar to those provided in Western Europe. No, we decided to go in quite another direction.
After the social democratic rule, it seemed that the situation needed improvement. Now, after the Farmers and Greens in the current term in office, it is clear that if we want to have a Western country and a strong middle class, Lithuania will definitely need a strong change in course. What’s more, the reform implemented by the farmers as the governing majority will need to be abolished altogether.