The month of June was full of deleterious initiatives, tabled by decision makers before they left for summer vacation. A government-proposed “three-layer” creation of the second-pillar of the pension system is a glaring example in this respect – the thing barely seen not only in Europe, but also around the globe. Are you having difficulties to put two and two together? We also made efforts to understand what bicycle for senior people the government was trying to invent. But it’s as plain as day – we’ll see the promised restoration of the decreased social security contributions to pension funds to 5.5 percent as our ears, while “additional” pension savings in pensions funds will be encouraged via coercing money from people’s own pockets, plus adding a respective portion of all taxpayers’ money. Such a move is conspicuous redistribution which would pervert and discredit private saving for pensions. It would force people to search for shelter in social security rather than care for their old age independently. We warned the public and the policy makers about the vices of the proposed scheme of pension savings. We found out from the media that we are the only institution in Lithuania, providing consistent criticism of pension reform in Lithuania. In a press conference we presented the results of our annual sociological survey of public perception of smuggling and consumption of excised goods. This year’s poll uncovered that Lithuanians ignore the government’s fight with smuggling: illegal products continue to be brought into Lithuania, while the ranks of their consumers are only swelling. It’s bad news for legal businesses; however, according to the poll, it’s a source of salvation and living for low-income families in our country. It’s quite probable that social explosion didn’t happen during the economic crisis just because we live near the EU’s external border and can play on all its “advantages.” By allowing the police to use confiscated fuel, the government demonstrated its own attitude to smuggling more than explicitly: if the police may run on confiscated fuels, why mightn’t ordinary people? I am happy to introduce a new member of our team – Junior Policy Analyst Andrius Šimašius who joins our ranks with a series of educational articles on the market and morality. He debuts with an article “Labour, Wage and Solidarity” posted at the popular portal Delfi.lt. All the activities we conducted in June are listed below. I wish you a memorable reading! Yours sincerely,
Rūta Vainienė, LFMI’s president
TAXATION AND BUDGETS
Fighting against smuggling: consumption is increasing, tolerance is growing, measures are ineffective |20-06-2011
Lithuanians’ rooted tolerance to smuggling increased in 2011, and being under pressure of high taxes, people continue to consume illicit goods, shows an LFMI-initiated opinion poll conducted by Spinter Tyrimai in April. The results of the poll were presented at a press conference. According to the survey, as much as 66 percent of respondents justified smuggling and the consumption of illicit goods in 2011, compared to 61 percent last year and only 48 percent in 2004. Evaluating the efficiency of government-proposed measures to fight the shadow economy, people agreed the most with those means that aimed at reducing government regulations and corruption in government institutions. The poll also revealed that people do not search for mandatory labelling attached to excised products. LFMI proposes to cut excise duties where possible, in parallel easing business regulations that hamper legal activity. | LFMI’s Policy Analyst Vytautas Žukauskas participated in a Žinių radio debate “Why do people justify smuggling?”
LFMI warning: be careful with the new tax code |22-06-2011
Starting from June 1, the State Tax Inspectorate shortened the list of tax payment codes, attributing one code to most taxes. We warded companies that new rules for paying taxes took effect in line with “one tax code”: the amounts are recognised as paid based on the date of the earliest tax payment to be conducted. Welcoming this novelty, LFMI thinks, however, that companies should have retained the right to decide which tax to pay first and which one to postpone. | Article by LFMI’s policy analyst Kaetana Leontjeva “Be Careful with the New Tax Code” Verslo žinios, vz.lt 22-06-2011 and “One Code – a Move towards a Smaller Number of Taxes?” Mokesčių žinios, 27-06-2011
LFMI submitted repeatedly its position on progressive taxation | 08-06-2011
We submitted to relevant institutions comments on draft amendments to the Law on Personal Income Tax, envisaging the introduction of progressive taxes – three tax rates – 5, 15 and 25 percent instead of the currently applied 15-percent rate. Interest received would be taxes at 0.5- and 10-percent rates. In addition to other arguments provided in the policy paper, we emphasized that by proposing the lowest 5-percent rate, politicians acknowledge that the tax burden on income from labour is two heavy, therefore we urged authorities to abandon plans to levy progressive taxes, instead lowering the general rate of the personal income tax. The idea of progressive taxation has been temporarily halted.
Lithuania is among ten countries with a heaviest tax burden, shows an EU-27 study | 08-06-2011
LFMI’s colleagues from Belgium (New Direction – The Foundation for European Reform) and France (The Institut économique Molinari) made a study which shows how long Europeans need to work in 2011 before they can keep their earnings and stop paying the state. According to the study, Lithuania falls among ten countries that have the heaviest tax burden: Lithuanians had their Tax Freedom Day on June 19. The study shows that the tax burden in Lithuania is heavier than in “welfare” states – Finland and Denmark as well as in Lithuania’s rivals for foreign investments – Poland, Estonia, the Check Republic and Slovakia. The study also found that 42.8 percent of all payroll taxes collected in the EU – employer contributions to social security paid on top of gross salaries – are largely invisible to employees. The authors of the study expressed concerns that taxes were rising across the EU, but despite this, deficits continued to grow as never before in Europe.
“Fives Rules for Lump-Sum Income Tax”|31-03-1998
The Government has voiced its proposal to eliminate certain business activities that individuals can take up without establishing a firm – after paying a lump-sum income tax (buying a business certificate). Right after that LFMI extracted from its archives an article by Rūta Vainienė published back in 1998. LFMI made an exhaustive analysis of this issue already 13 years ago and proposed five principles that a lump-sum tax must conform to. LFMI believes that the adoption of a single, one-off payment applicable at a uniform rate to all business activities and payable by one individual would be a giant step in furthering business deregulation. Since this issue has returned to the government’s corridors, we will work on it again.
ECONOMIC REFORMS
Pension reform
Government strikes at future pensioners again | 29-06-2011
LFMI issued a press release, expressing concern that the Government’s newly proposed scheme – a three-component contribution to pension funds – may completely discredit private pension savings system. This decision – along with a permission to return to the state social security – would undermine the essence of private pension savings, leading people to shift care for their own pensions entirely to social security, meanwhile private pension savings would be strangled before they even started to function properly. LFMI urged decision makers to gradually restore the reduced transfers to pension funds to 5.5 percent and launch a fundamental reform of social security without any further delay. Moreover, LFMI argued, if people are allowed to return to social security, they must be allowed to withdraw from it and save their pensions independently. The Parliament will debate amendments to related laws in the autumn. | K.Leontjeva “Sideways of Pension Reform” Ekonomika.lt 04-07-2011
LFMI: increasing the pension age is tantamount to raising contributions to “Sodra” | 14-06-2011
The Parliament has raised the pension age to 65. Instead of the promised pension, the government has given a new promise, or, to be precise, a new tax. From now on, the employee earning an average salary and the employer will pay extra 40 thousand Litas to the state social insurance funds (“Sodra”) every year. We’ll be paying contributions to “Sodra,” hoping that at the age of 65 we will receive pensions, but who knows if we are not offered new promises instead of our pensions. If the current trends in emigration persist and the economy is shaken by new crises, the parameters of the “Sodra” will need to be revised again. It’s no good to expect that the state social insurance system will be reformed easily because the system’s ineffectiveness and the exit from the system must be funded somehow. Increasing the pension age will not tackle the fundamental problems of the “Sodra” and will only postpone them to later times. By the way, it seems that the authorities do not plan any other changes in the “Sodra” in the near future, except for raising the pension age. | A commentary by LFMI’s President Rūta Vainienė “Sodra”: a Tax instead of the Promised Pension,” Lithuanian Radio and a commentary by K. Leontjeva “The Pension Age mustn’t be Raised,” Internet portal Euroblogas.lt 03-06-2011
The Broken Pension String | 13-06-2011
“There can’t be any talking about pension reform in Lithuania – it is just not being implemented,” – Guoda Azguridienė, LFMI‘s Associated Policy Analyst, summed up the Parliament’s decision to increase the pension age. According to her, politicians do not pay attention to the economists’ constantly repeated argument that parameter reforms will fail seeking to eliminate debts. Only more extensive liberalisation of employment regulations or tax reduction would render the system financially sustainable. | Interview with Guoda Azguridienė, business weekly Ekonomika.lt
Healthcare reform
Lower prices of pharmaceuticals – through reducing regulations | 08-06-2011 “Eliminating superfluous and unjustified regulations would enable reducing the costs sustained by pharmacies and so create more solid, economically grounded preconditions for lowering pharmaceuticals prices,” – LFMI stated in its press release, presenting the findings of the case study conducted in May. Among other recommendations, LFMI proposes to eliminate the prohibition to set up more than one pharmacy in one and the same building, not to restrict the list of pharmaceuticals or to expand the currently valid list of pharmaceuticals and to apply to pharmacists the same requirements for working time as to other employees. Other commentaries on the issue: “A “Sunset” in Pharmacies may Help to Lower Pharmaceuticals Prices,” R.Vainienė, Vz.lt, 08-06-2011 and
interview with R.Vainienė “Removing Constrains would Bring down Pharmaceuticals Prices,” specialised weekly “Lietuvos sveikata” 20-06-2011
LFMI takes part in a parliamentary sitting on healthcare issues | 01-06-2011
LFMI’s President Rūta Vainienė participated in a sitting of the Parliamentary Committee on Healthcare Affairs to debate the draft document of the healthcare system development in 2011-2015, which was later passed. LFMI had submitted its comments and proposals regarding this document in March. The sitting also considered draft amendments on the Law on Pharmacy, envisaging restrictions on pharmacies’ advertising and visits to physicians.
SURVEYS AND EVALUATIONS
“Commodities are Getting Costlier? No, Money is Cheapening!“ | 27-06-2011
The money we hold in our hands is constantly depreciating, and the main cause is that central banks keep on multiplying paper money. They argue that this is the way to stimulate economic growth and stability. But a 97-percent weakening in the currency during a man’s life span can hardly resemble stability. A giant gap between calculating prices of raw materials in paper money and gold demonstrates that the system of paper, easily multiplied money where the money supply is being continually increased is to be blamed for the decreasing value of money. Nearly all politicians and economists seem to forget this particular core reason why prices grow. They fear to acknowledge that a system of stable, non-inflating money supply would ensure lower prices, which would be beneficial to everyone – people, businesses and the economy as a whole. | Article by LFMI’s Policy Analyst Vytautas Žukauskas, political weekly “Veidas“
“Our Country would be Poor without Foreign Trade” | 02-06-2011
“Business has deserved understanding as the least: the welfare and the dreamed-of GDP growth is created in the cabinets of companies, not government. Business creates jobs, provides the country with goods or income from abroad, maintains the government in a broad sense, engages in support and charity activities jointly with the public sector, but, sadly, instead it receives unjustified accusations of being greedy and selfish and other stories. Small wonder that when such anti-business rhetoric prevails, young people are willing to work in the public sector or as hired employees, but not to take up business activity, “– LFMI’s President R. Vainienė answered the question whether the state hadn’t deserved at least small reverence regarding Lithuania’s recovering exports. | Interview with R.Vainienė, regional daily “Gimtasis Rokiškis”
BUSINESS DEREGULATION
Regulatory burden
“How Government Hinders us From Working” | 28-06-2011
One company’s employees submitted a written request to its manager, asking to allow them to work overtime and on holidays, but the manager couldn’t help. The real addressee – the Parliament – is blind and deaf to people’s problems, although very talkative. There, as if descended from another planet, legislators produce and preserve laws that inhibit people’s work. Work is not a wolf and won’t escape to the woods – the Parliament might well write these words in its Statute. We would be able to grasp than what values they recognise and how they view other people through a small hole in the Parliaments’ door. | R.Vainienė, commentary on the Lithuanian Radio
“Foisted-on Bureaucracy is Disastrous to Business” | 20-06-2011
Over years, private activity in Lithuania has been webbed in so many bureaucracies that companies are forced to create special “jobs” for implementing various formalities and filling documents that are needful only to the government itself. “Income” jobs that create goods and services are replaced with “cost” jobs that are tailored for tackling the government-imposed administrative burden which only increases companies’ costs. Unlike government, businesses can’t ask anyone to establish news vacancies for the implementation of such newly imposed obligations. They have to think hard by themselves where to find resources to maintain such “cost” jobs. The unseen side of business “over-bureaucratisation” is slumping labour productivity, jobs and services not created. Even in the public sector bureaucracy has two ends – it is a way of control, but at the same time – a drag on progress. In the private sector, bureaucracy is a disaster. | Commentary by V. Žukauskas, business daily “Verslo žinios”
LFMI proposes not to restrict mark-ups and eliminate the Law on Prices | 06-06-2011
LFMI analysed amendments to the Law on Prices and recommends not accepting a proposal to restrict mark-up prices and initiating the elimination of the Law on Prices in the near future. LFMI argued that the authors of the draft law saw mark-ups as an essential cause of price growth, ignoring the fact that prices climb as a result of other reasons, for example, rising prices of raw materials. The amendment does not take into account that as producer prices grow, the regulation of mark-up prices would be completely ineffective in curbing price growth. LFMI warned that mark-up regulation might have negative repercussions for competition in the retail trade sector and build preconditions for additional price growth in the future, meanwhile the cap set on mark-ups might oust certain commodities from the market. In addition, regulation of food prices is a disproportionate measure and does not conform to the terms established both in the Lithuanian Constitution and the Law on Prices, specifying when such type of regulation may be applied. LFMI is of the opinion that further revision of the Law on Prices would be inexpedient since the Lithuanian Government has planned to eliminate this law altogether.
Transport policy
LFMI submits comments and proposals for Lithuania’s position on EU’s transport policy | 10-06-2011
After analysing legal documents related with Lithuania’s position of EU future transport policy, we pointed out that high requirements for reducing carbon emissions, unilaterally assumed by the EU, may fail to exert essential influence on natural processes, instead causing significant harm to consumers and the EU’s competitiveness. Therefore we proposed the Lithuanian authorities to remind the EU policy makers that it would be too irrational to sacrifice the wellbeing of the current generation for the sake of highly uncertain processes that may or may not occur after 100 years. We believe that it is crucial to emphasize the deleterious effects that the EU-imposed excise duties have on fuels. In its position, Lithuania should remind the EU legislators that the EU-set minimal requirements for excise duties on fuel are too heavy for poorer EU member states, exerting a strongly negative impact on those countries that border the non-EU countries. We also proposed our policy makers to actively seek full privatisation of the transport carriage market for all types of vehicles.
Energy policy
LFMI comments on the amendments to the Law on Heat Sector | 07-06-2011
We analysed draft amendment to the Law on Heat Sector, according to which maintenance of hot water and heat supply system in the building will be prohibited for those heat suppliers or entities that are connected with the entity supplying heat. The implementation of this provision may diminish rather than increase competition in the maintenance activity and raise its price for consumers. The proposed regulation is disproportionate, discriminating central heat supply (CHS) and maintenance companies. Besides, it is more rigid than the provisions of the EU’s Third Energy Package. The amendments also propose restricting the transfer of the ownership right to heating units and prohibiting shifting the way of management in municipal heat supply companies to concession. LFMI proposes not to approve the amendments, arguing that a suitable way to eliminate or limit monopoly relations in the CHS sector would be a consistent change of the legal basis so that homes can choose and apply different methods of heat supply, rather than the introduction of restrictions on investors or owners. The only appropriate alternative to concessions in the CHS sector is privatisation of CHS enterprises, preceded by certain modifications of the legal basis without creating conditions similar to monopoly.
New Nuclear Power Plant, the Same Dilemmas | 06-06-2011
It is important weather a new nuclear power plant will be built. But it’s even more important under what conditions it will be built. If implemented irresponsibly, this project will engender long-term consequences and financial obligations. Sticking to a position that a new plant is needed at any cost would be irresponsible just like blind opposition to this project. | Commentary by LFMI Senior Policy Analyst Ž. Šilėnas, “Ekonomika.lt”
LFMI took part in a parliamentary sitting on energy taxation | 15-06-2011
LFMI’s Senior Policy Analyst Žilvinas Šilėnas participated in a sitting of the Parliamentary Committee on Budget and Fiscal Affairs regarding changes in the EU directive on the structure of taxation of energy products. The essence of the European Council’s proposal is to tax energy rather than fuels and so make the taxation of different types of fuel uniform. In our response to the European Commission proposal to overhaul energy taxation rules submitted in May, we stated that EU’s proper move to help both consumers and the industry would be to reduce, not increase taxes on energy. The Parliamentary sitting adopted a decision not to approve the EC’s proposals on energy taxation.
ECONOMIC EDUCATIONS
Labour, Wage and Solidarity | 27-06-2011
Some people think that wages are “received,” not earned. Others resent that traders allegedly give no use – only charge gigantic mark-ups. One more group of society will add that investors calculate whopping profits and do nothing at all. And some demand that the rich should contribute more to creating the welfare for all. Such thinking provokes dissatisfaction and polarisation of society, meanwhile populists rush to take advantage of such moods. That’s why it really is important to explain the essence of such misconceptions. | A debut article by LFMI’s Junior Policy Analyst Andrius Šimašius, Internet portal “Delfi.lt”
LFMI reminds that essays on the topic “Market and Morality” written within the framework of LFMI‘s writing contest ‘Liberty Studies’ must be submitted until September 1, 2011. The contest is designed for university students and self-studying people who are above 17 years of age and do not hold a PhD. The works must not be longer than 10 pages. The winners will be awarded solid cash and other prizes in September to October of this year.
On June 30, LFMI’s team members met with George’s former minister of economic reforms and businessman Kacha Bendukidze. The topics of the meeting revolved around the continuity of economic reforms conducted in George, the on-going processes of the global economy and the future of the euro. Mr. Bendukidze was interested in economic reforms pursued in Lithuania, especially in our education system.
LFMI‘S ACTIVITY IN THE SUNSET COMMISSION
LFMI‘s President Rūta Vainienė continued her active participation in Sunset Commission to reduce bureaucracy.
FROM LFMI‘S BLOG
Welfare before the Welfare State | 23-06-2011
Kaetana Leontjeva. Video on legal plunder | 16-06-2011
Žilvinas Šilėnas: Fuel is too Expensive for the Police. What about us? | 15-06-2011
Kaetana Leontjeva. Progressive Steps towards Heaven – or Hell? |07-06-2011
Kaetana Leontjeva. A funny video on how taxes work | 06-06-2011
Opinion. I support proposals to differentiate the minimal wage! | 03-06-2011
