Nausėda: Lithuania needs progressive taxes

Lithuania needs to adopt progressive taxes, because on the other hand, the social divide will only increase, two states will start forming and economic life may only exist in Vilnius, Kaunas and maybe Klaipėda. Dr. Gitanas Nausėda, who is the adviser of the President of SEB bank, stated in a TV conference with DELFI.

He introduced the report on Lithuanian macroeconomics, which was compiled by SEB Bank analysts, where they provide the prognosis of macroeconomic indexes, emigration and regional policy and other important changes in global economy.

Progressive taxes would help

The graph on the people divided by their income showed that nearly half of the working people in Lithuania earn 400-700 Euros. However, G. Nausėda emphasized that the group with the lowest income decreased by 62 per cent, the graph shows that we have two Lithuania’s. “Yes, those wto Lithuania’s will be separated even more if we leave everything as it is. Now that is unavoidable. If we do nothing, then in 2-3 years we won’t have to do anything, because economic life will only exist in Vilnius, Kaunas and maybe Klaipėda. So now is the time when we need an active regional policy” said he.

Due to progressive taxes, the salaries could rise to the ones that earn the least.

G. Nausėda imagines the progressive taxes like this: the tariff could be lowered to those, who earn up to 2500-3000 Euros per month without taxes, and the tariff that is left as it is or even increased for those who earn 3000 Euros and more before taxes.

“It’s true, I wasn’t always the supportive of progressive taxes, but I don’t see o0ther options in going from talking to doing when the social divide is only increasing and will continue to increase, if we do nothing. A merge would increase the mass and then there would be more space for differentiating (tax – DELFI)” said he.

However, it’s difficult to give exact numbers as it’s unclear what will the peoples income be, if we merge the fees that are played buy the employee and employer to “Sodra”. According to the economist, if the tariff of the Personal income Tax (PMI) will remain 15 per cent, then the workers could pay less, 10 per cent PMI and if they earned more, the current PMI, which is 15 per cent, would be implemented. If “Sodra” taxes would be merged and 6 per cent of health insurance would be added to PMI, then 16 per cent would be counted with lower income and 21 per cent from a higher one.

Overall, he doesn’t know if the merge of taxes will be useful in decreasing shadow economy.

Maybe there would be more interest people if taxes weren’t hidden. But the fees, net pay, and even the employer don’t feel a change. But let’s not fool ourselves: the paycheck shows how much the employee gets and how much the employer pays. It’s doubtful that he will see a different number in the paycheck and decide that h has to stand up and fight.

If the employee believed that the fees that are paid to “Sodra” have an impact on the pensions and will increase them, then he might be motivated. However, I doubt that it’s linked to the merge of taxes”, wondered the economist.

The increase of PMI won’t help

When G. Nausėda was asked whether the increase of ATEI would also result in the increase of the lowest income and if it would be beneficial, he said that there would be more space, but it wouldn’t solve the issue:

“However, we’re not honest to one another. ATEI was for several year stated as a substitute to the idea of progressive taxes tariff, when everyone talked about the inequality of taxes and the increase of PMI was suggested.

The tariffs of progressive taxes could help reach the same goal as ceasing the rise of ATEI, for example by making it fixed or increasing it to 380 Euros. If the effect cannot be reached by increasing ATEI, then we can discuss about decreasing the PMI for those who have a smaller income.”

The state could protect itself from “two Lithuanians” case by strengthening other economic centres.

G. Nausėda said that there could be 10-12 economic centres in Lithuania, that were chosen by certain criteria, like if they have a school for professional training and what specialists are educated there.

“If we look at Lithuania, we have existing FEZ’s (Free economic Zones- DELFI), 10-12 to be exact, but not all of them are as effective. For example, there’s Kaunas FEZ, but the Panevėžys LEZ is less economic life. We have the Tauragė industry park, it attracts foreign investors and it needs to be expanded. But then we have Ramygala that is more like a farm and wouldn’t attract investors.

Here we have an issue. Informational policy has to have direction, where regional policy is emphasized, electricity and transportation infrastructures have to be supported and fee policy has to be favourable. Now it’s still impossible to buy land in a FEZ. It’s a hurdle that makes it harder to invest in the regions” said he.

However, in order to decrease the social division, we need to talk about maintaining social relations.

“We’re talking about the Labour Code, social model which gives more flexibility, but at the same time I approve for union representation. Nowadays unions have no opportunities to go on a strike, or preconditions that are possible in theory but not in practice. If the unions don’t have leverage, then the employee has no initiative to pay a members fee, and it won’t be able to defend him” stated he.

Minimum pay has to increase

G. Nausėda also stated that minimum pay has to be increased, even though it was raised twice in 2016.

“It must rise, because the average pay is rising. We can’t pause. Because of the limited weight of the unions, the minimum pay is necessary to Lithuania as an instrument and we can’t say that we won’t regulate it” he emphasized.

He added that the average pay will increase but not as fast as it did last year. The speed was caused by the adoption of Euro.

However, the inflation is stated to be 5 times larger than in 2016, so the part of the increasing pay might be “consumed” by the rising prices.

“We have to admit that (it sounds frightening) that last year’s inflation was 0,3 per cent, and this year we increased the prognosis by 3,3 per cent. This is caused by three things: global oil prices will be 15-20 times bigger than in 2016, the pay is quickly increasing, and the decisions of the Government, like the increase of alcohol fees, might increase the inflation by 1 per cent” said he.