PM insists Lithuania’s 2015 budget bill does not breach Fiscal Discipline Law

“According to the Finance Ministry’s information made available to me, this budget bill does not actually contravene the Fiscal Discipline Law. The European Union (EU) has recently adopted a new procedure for calculating the structural fiscal deficit, which may lead to certain differences in opinions,” Algirdas Butkevičius said in an interview to LRT Radio on Tuesday.

The National Audit Office said in conclusions published on Monday that the Law on Fiscal Discipline would only allow the 4.8 percent growth in appropriations, as outlined in the budget bill, if the government deficit were to be reduced by 1 percentage point.

As a result of methodological changes, the government sector includes the Deposit Insurance Fund from this year. As estimated by the Audit Office under this approach, the government deficit should reach 1.3 percent of GDP this year before going down by just 0.1 percentage point, to 1.2 percent in 2015.

However, the budget bill drafted by the government excludes the Deposit Insurance Fund from the deficit to GDP ratio so as to improve the deficit figure. As a result, the government comes up with different estimates. In particular, it expects the deficit to reach 2.6 percent of GDP this year before falling 1.2 percentage points, to 1.4 percent next year.

According to Butkevičius, changes in the methodology used to calculate fiscal deficit sparked extensive discussions in the European Commission. In particular, the UK’s Prime Minister David Cameron claimed that the methodology applied to assess fiscal policy could not be changed with the budget bills for the next year already prepared.

However, Lithuania’s prime minister noted that the government would be able to reduce spending planned for next year if it were necessary.

“We have certain reserves. We may even reduce the public administration expenditure by further 5 percent or so,” he told the LRT Radio.

According to the budget bill, consolidated revenue of the central government and local governments (including nearly 2.3 billion euros in EU and other international aid) will come close to 9.2 billion euros in 2015, which is 5.9 percent above the revenue target set for 2014.

Consolidated budget expenditure, including EU support funds, is planned to reach 9.558 billion euros.