Lithuania’s major cities have seen an impressive rise in the wealthy, with Vilnius even being a leader in this among Eastern European capitals. By the way, wealthy individuals, who count their monthly incomes in the tens of thousands, are increasing in number not only in Vilnius but also Kaunas, Klaipėda and Panevėžys. However, at the same time, a more unfortunate metric also rises – the income gap between the rich and the poor, Donatas Brimeris writes in tv3.lt
Few Lithuanians can buy a new car from a single month’s income after tax, but in Vilnius, the number of such individuals has been rising at an impressive pace. Over five years, the number of families that can enjoy luxury goods has risen by 50% in the capital. Five years ago, they numbered at just 3 thousand, while last year the number neared five thousand. This count numbers those, whose legal annual income exceeds 135 thousand euro or a monthly income above 11 thousand euro.
“A very good showing, particularly Vilnius. The number of wealthy households has risen by 45% in comparative pricing. This was one of the fastest-growing cities in the Central and Eastern Europe region,” Euromonitor International analyst Vytautas Razvadauskas says.
Over Lithuanian cities are not far behind Vilnius
A growing economy, increasing wages, favourable taxes and foreign investment are factors that have been increasing the ranks of the wealthy in the capital. However, the ranks of the wealthy have been increasing at a similar rate in the country’s other cities – Kaunas, Klaipėda and Panevėžys.
“These are very high incomes, from this point, individuals and households should be able to participate in the luxury market,” the analyst observes.
He also has an optimistic view of the future. It is forecast that in the coming five years, the ranks of the wealthy will expand even faster and in five years, will number around 7 thousand in Vilnius, over 2 thousand in Kaunas and over a thousand in Klaipėda. Some economists say that there’s nothing to envy of wealth because of the more wealthy individuals in a city, the better for the city itself, for the region and the country.
“One of the main factors as to why it is very pleasant to see the ranks of wealthy individuals growing is that they are officially declaring incomes and living in Lithuania. These are Lithuanian taxpayers. A different situation can be seen to the East of Lithuania. In Ukraine and Russia, most wealthy individuals emigrate and live in the West, with no one the wiser,” economist Žygimantas Mauricas believes.
Bad news – the income gap is also on the rise
However, other economists urge to not overlook another metric, which shows the price in the increase of the wealthy – the increasing income gap between the top fifth wealthiest and fifth of the poorest. The incomes of the two groups are already separated sevenfold, while the EU average is only fivefold.
“There is little state intervention. This adds up – income inequality has been created in the market and the state does little to even it out. Thus, we have the result – one of the largest income inequalities in the EU and the world among developed countries,” economist Romas Lazutka states.
“Large income inequality harms economic growth, people feel uncertain. In part, this can be linked to a wave of emigration. If inequality in a company between the employees and heads is large, there is little motivation, productivity declines and some choose to emigrate,” Bank of Lithuania economist Vaidotas Tuzikas says.
Start with reforming the taxation system
While the government is considering whether to implement real estate and car taxes and raise children’s money by 20 or 30 euro, Bank of Lithuania specialists urge to look into businessmen operating under individual economic activity certificates, who pay at least three times less tax for the same work than hired staff:
“If you do analogous work, but based on an individual economic activity certificate, sometimes your tax burden is minimal and even declines as your income rises. Why is this bad? The type of company is chosen not based on your activities, but in order to optimise taxation. When this spreads, it puts a strain on the budget.”
While the majority is only discussing, what taxes to supplement the budget with, Vilnius has already taken a lead among Central and Eastern European capitals in terms of the rise in wealthy individuals. Growth is only higher in Bucharest, while Riga and Tallinn have long been surpassed.