Why won’t Lithuania be as cheap as Poland: are we to blame for rising prices because we buy more?

As the holidays approach, people head to Poland to shop, and some plan to spend the New Year there too. In Poland, they say, both food and accommodation are cheaper. But, at the same time, experts calculate that shopping in Poland does not pay off, Vilija Mačiulskytė writes at tv3.lt news portal.

Economists say that a lower value-added tax (VAT) on food in Lithuania would reduce prices, like in neighbouring Poland. But it would also reduce the salaries of public sector workers, such as teachers, or the population’s pensions. 

Experts also calculate that Lithuania will never be as cheap as Poland because we do not have particularly large supermarkets.

Too few Lithuanians shop in Poland 

Economist Marius Dubnikovas is convinced that frequent Lithuanian shopping in Poland does not result in significant losses for most Lithuanian businesses.

“Only the border businesses feel it. They find it harder to compete and therefore charge lower prices because Polish shops are close to those residents.

Meanwhile, Lithuanians living further away from the border do not go to Poland to shop. And if they do, it’s not for the economic benefits but for fun. 

For people living farther away from Poland, it is simply not worthwhile to go to Poland, as it requires both fuel and time,” the economist pointed out. 

According to him, the flow of Lithuanian buyers to Poland remains stable and is not increasing. 

“This is due to the rising incomes of the population. Next year we will see that income growth will probably exceed inflation. Therefore, the need to go shopping abroad may decrease,” the economist predicted. 

According to Mr Dubnikov, when people go to another foreign market, they compare different products. 

“They take milk, cottage cheese, butter and compare not analogous products but products of different quality. For example, they often compare expensive Lithuanian brands with unknown and cheap brands in Poland. This results in a higher price difference. However, we have to understand that these are not comparable products. In Lithuania, we can also find both very cheap and very expensive food products”, he commented. 

Economist Alexanderas Izgorodinas echoed him. He also said that travelling to Poland does not threaten Lithuanian entrepreneurs. 

“Very few Lithuanians regularly shop in Poland. This is not a mass phenomenon and does not affect Lithuanian consumption statistics. All the more so because next year the situation in Poland will change, there will be good and bad things. 

Next year the euro area will be in recession. This is likely to affect the zloty, and it will fall. This will be an incentive for Lithuanians to buy goods in Poland. They will be cheaper there because the euro will be stronger. On the other hand, Poland is already borrowing heavily from the financial markets.

Next year, interest rates could rise even more, and Poland may be forced to abandon the VAT exemptions it currently applies as an anti-inflationary measure. This could make goods more expensive next year”, the economist commented. 

In general, he said, Lithuanians’ consumption expectations are very high. 

“Christmas shopping may surprise in a positive sense, even though we are all discussing the impending crisis. However, when we see the retail sales figures for December, we will lose heart, but in a positive sense. The results will probably be much higher than everybody expects”, said Mr Izgorodin. 

Tax cuts would also reduce salaries, pensions, benefits 

According to Mr Dubnikov, tax cuts in Lithuania would also reduce the price of products in our shops. 

“VAT is added to every product, and if it were reduced, the price of products would be reduced. 

But VAT is the leading tax that the state lives on. If it is reduced, we will have to accept that we will not have the means to finance public spending. And that includes the salaries of teachers, police officers, and doctors, pensions and various benefits. So the economist warned that our well-being would be undermined, and we would have to cut some spending”. 

He suggested that the population should be guided by the saying: “Don’t be afraid of high spending, but be afraid of low income.” 

Dubnikov said that currently, in Lithuania, we have many supermarket chains competing with each other on quality and price. 

“It is doubtful that a new chain would change anything. We have already seen the arrival of new retail chains. There is competition between them, but it has not changed prices”, the economist said. 

According to Izgorodin, a new player on the market would lower prices, but not for long.