Raising budget expenditure deferred Tax Freedom Day to mid-June this year

The Lithuanian Free Market Institute (LFMI) announces the celebration of Tax Freedom Day on Tuesday in Lithuania. The fact that it is celebrated almost three weeks later than last year shows increased government spending.

Tax Freedom Day is a symbolic day of the year, revealing how many days a year we have to work to pay all taxes. For the past five years, this day has been commemorated in the second half of May. The COVID-19 pandemic has drastically increased public spending, therefore, this year’s Tax Freedom Day, according to the draft budget, will be celebrated 20 days later than last year, on June 15th.

“Every year, when calculating Tax Freedom Day, we want to draw people’s attention to the amount of taxes they pay and the areas of its use. It is important to remind both the people and the government that everything – pensions, education, sidewalks, fire brigades, the army – is paid for not by the state or politicians but by taxpayers,” says LFMI President Elena Leontjeva. Therefore, politicians and civil servants must manage this money as efficiently and transparently as possible.

For the past five years, the Tax Freedom Day has been celebrated in the second half of May, but the pandemic has moved the date to mid-June this year as public spending has risen and GDP growth has slowed.

“This was undoubtedly influenced by the COVID-19 outbreak – additional funds were allocated to reduce the direct consequences of the pandemic and to compensate for the loss of jobs and people’s income due to disrupted economic activities,” LLRI expert Lukas Stravinskas noted.

However, Lithuania‘s budget expenditure grew the most in the EU. The growth rate of Lithuania‘s public spending in the first three quarters of 2020 compared to the same period in 2019 is 23 percent while the EU average is 8 percent. “Public spending is growing at the expense of borrowed money. That is, last year alone, the amount per capita to cover the interest of the state debt was 154 euros,” Lukas Stravinskas emphasized. It is planned that the ratio of public debt to gross domestic product (GDP) will reach 52.3 percent at the end of the year and will only grow in the future.

Increasing public spending and debt may become a progressively difficult burden on taxpayers. To avoid this, there must be more transparency in the tax system. “Paradoxically, in order to ensure healthy and sufficient funding of state functions, we must reduce taxes and make them more transparent. Thus, they are evenly distributed, do not encourage to partake in shadow economy and consequently increase budget revenues, – said Leontjeva. – Our Estonian neighbours ensure a larger budget and redistribution through small and fair taxes, and the tax burden is proportionate and does not stifle economic growth.”

Tax Freedom Day is a relative indicator of government expenditure and GDP signifying the share of man-made goods that the government redistributes through the national budget and non-budgetary funds.

“Due to the effects of the pandemic on the economy, tax revenues no longer reflect the real size of the redistribution. Therefore, this year we calculated Tax Freedom Day based on official budget data and GDP forecasts of the Ministry of Finance,” explained LFMI expert Lukas Stravinskas.