Government Watch. Budgetary Profligacy and Lack of Priorities

The Lithuanian Free Market Institute has examined the Draft Law on the Approval of Financial Indicators of the State Budget and Municipal Budgets for 2016 and the Draft Law on the Approval of Financial Indicators of the State Social Insurance Fund Budget for 2016. In LFMI’s view, the following are the major issues that need addressing.

  • The budgetary deficit of 2016 will be €651.5 million, nearly double to that of 2015. As such, it will be the highest deficit over the past five years.
  • Given a €580million (7.9 per cent) increase in the projected expenditure (excluding EU funding), the growth rate of the price of public services will be 5.6 times faster than the forecasted growth of general price levels (1.4 per cent).
  • Budget allocations of €206.5 million for defence, refugee integration and increasing salaries in the public sector account for 56 per cent of the increase in the total expenditure or 32 per cent of the deficit.
  • The proposed increase in the minimum monthly wage will require additional budgetary expenditure of €27 million, have a detrimental effect on the employed as well as pose a significant additional tax burden on the self-employed.
  • The proposed increase in excise taxes on alcoholic beverages will create incentives to choose illegal products, boost the shadow economy and have a negative impact on revenue collection.
  • As compared to 2014, the operating costs per pension of the State Social Insurance Fund Board will increase by €15.54 (27.5 per cent). This raises serious concerns about the efficiency of the institution.
  • Given the Government’s failure to keep its promise to seek for a balanced budget, there is no possibility of ensuring sustainability of public finances.

Given the aforementioned, the Lithuanian Free market Institute recommends to:

  • identify clear priorities and reduce the expenditure on non-priority areas;
  • reduce the projected increase in budgetary expenditure by means of redistribution;
  • reduce the deficit and comply with the commitment to reduce public expenditure and balance the budget;
  • abandon the plans to increase the monthly minimum wage and excise taxes on alcoholic beverages;
  • optimize the activities of the State Social Insurance Fund Board and seek for a gradual reduction in the operating costs per pension.

The full position paper (in Lithuanian) may be found at