Kęstutis Girnius. Low taxation – low teachers’ wages

Kęstutis Girnius
DELFI / Šarūnas Mažeika

There is no ban on desires. However, neither protests, nor strikes, nor the donations of well-intentioned fellow citizens or the Conservative party’s support will have a decisive role.

The reason is simple and it could be read in a news agency’s message several weeks ago. Based on Eurostat data, in Lithuania the ratio of taxation to GDP remains among the lowest in the EU.

The ratio of taxes gathered, including social benefits payments, to the country’s GDP declined last year and remained among the lowest in the EU. In Lithuania, the metric was 29.8% of GDP in 2017, which is 0.2% less than in 2016, when it was 30%.

Last year, a lower tax to GDP ratio was only found in Ireland (23.5%), Romania (25.8%) and Bulgaria (29.5%). I do not know, why there is so little tax revenue in Ireland, but Bulgaria and Romania are the poorest EU countries. The EU average tax to GDP ratio is 40.2%, in Latvia it is 31.4%, Estonia – 33%, Poland – 35%. The situation was similar around a decade ago.

An almost iron rule applies: low taxation, poor country, low public sector wages, humble public services.

As I’ve mentioned already, demonstrations and strikes will not change this. Thus, it should come as no surprise that Lithuania is the only among the Baltic countries to have an average monthly wage prior to tax below 1000 euro.

Based on the Baltic States’ national statistics agencies’ data, the average monthly wage “on paper” in July-September in Lithuania was 936 euro, 1006 euro in Latvia and 1291 euro in Estonia.

Thus the Lithuanian average wage was 7% lower than in Latvia and 27.5% lower than in Estonia.

It is not only the government, who is responsible for the humble Lithuanian wages. The private sector employers contribute as well. The economies of the Baltic States and Poland are quite similar – all three countries are in the middle economic capacity group.

Based on GDP per capita, Estonia is first, Latvia and Poland are also ahead of Lithuania, thus theoretically can ensure better lives for their people by raising pensions and wages.

But Lithuania dedicates the smallest part of newly created wealth to wages and pensions, thus employees and retirees live worse off.

While it did not happen that Lithuania was left an impoverished country, from the beginning of independence, decisions were made that laid the foundation for the creation of a minimal state.

There were a number of factors, but among the most significant – the elite’s decision to reduce taxes to a minimum and establish a regressive tax system. A fashionable neolibertarian economic theory was employed, based on which the lower the taxes, the faster the economic growth, which in return increases budget revenue.

The theory is quite absurd – reduce taxes to zero and you won’t have any revenue at all.

Up to now, every government maintained a similar stance, thus the impression arises that disregard for social injustice has become a part of the Lithuanian elite’s DNA.

Proposals to improve the conditions of the less well-off often receive criticism because apparently they are impossible to implement, will harm the economy, reek of populism and so on.

Usually, Lithuania views IMF recommendations as heaven-sent directives. However, there is an exception.

The IMF has recommended taxing real estate and cars a number of times, its experts explaining that the taxes are proposed in consideration of the low luxury taxation in the country, their implementation would allow to more correctly distribute tax burdens and would ensure tax revenue. IMF urgings were ignored.

For long years, progressive taxation was avoided. Increases in the untaxed income size were the only recourse.

While those earning more paid proportionately more tax, it was not progressive taxation, whose goal is to gather more revenue from the wealthiest and not less from the poor. Untaxed income size, just like increasing children’s money is a positive step, but these expenses have to be covered in some way.

Raising children’s money from 30 to 50 euro will require an extra 130.2 million euro, meaning that this money can no longer be used in any other way.

A sort of breakthrough happened with the Seimas deciding to implement two stage – 20% and 27% progressive income tax. In some respects, it is just an imitation of real progressive taxation – higher taxes only applying to those, who earn around 130 thousand euro a year, thus a very low number of people.

However, it is assured that in a few years, a tariff will apply to those earning 56 thousand euro a year, albeit three stages are being rejected. There are seven stages in the USA – 10%, 12%, 22%, 24%, 32%, 35% and 37%. Most importantly, there is now progressive taxation, thus the ice has been broken. In the future, it will be harder to oppose efforts to expand the scope of taxation and easier to make the current imitation into the real thing.

You cannot distribute money that does not exist. You give more to teachers, less is left for doctors, firefighters, lecturers. And vice versa.

The number of schoolchildren roughly halved since 2001. Back then, there were around 604 thousand, now there is around 300 thousand. The number of teaching jobs was not decreased respectively. From 2006, teaching expenses rose by an entire 53%, proportionately more than the EU average is spent on teacher’s wages. We do not get much out of this funding. The achievements of Lithuanian students are among the lowest in the entire EU.

The Finnish, South Korean and Singaporean education systems are held to be among the best in the world. In these countries, children’s education receives exceptional attention. Only those can become teachers, who finish university in the top third of students. They are paid excellent wages. The average wage of a gymnasium teacher in Finland is around 4,000 euro per month. In Singapore, school directors receive large bonuses if their students perform well. If exam results are poor, however, they are fired.

We will eventually have to choose – many teachers, who work little or fewer, who earn more. And we will have to make difficult decisions such as which professions to support more and which – less. Or to continue increasing untaxed income sizes or children’s money.

Over the past years, tax has comprised an ever lower percentage of the GDP, thus making the country poorer.

Even if a different course is chosen, a significant improvement will take time.

Public sector staff must understand that it is futile to demand higher wages if at the same time they do not demand more tax revenue and reforms in their areas of work so that they would match the demands and demographics of today.

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