Lithuania adopted a new tax and pension reform

At the end of June, the Lithuanian Parliament voted and approved a new tax and pension reform package. It is coming into force in 2019. These crucial changes were not fairly explained and discussed with our society and the social partners. Trade Unions in Lithuania were disappointed and raised this issue many times by protesting, engaging with the media, appealing politicians etc. Yet again, a majority of Members of the Lithuanian Parliament showed their irresponsibility and adopted the reform in a hurry.

The Lithuanian Trade Union Confederation does not oppose a need of the tax and pension reform but we oppose a lack of proper analysis and an inadequate social dialogue.

The main aspects of our concern are the following. The tax reform which Lithuania needs should be oriented to reduce a sharp social and economic inequality. That is recommended by many different international organisations and independent experts. Unfortunately, now we see the opposite trends. We argue, that this reform is far more favorable to the rich (for example, a “ceiling” on the State Social Insurance Fund Board’s contributions has been set, tax incentives for those who earn the most have been left). We see that the most negatively affected will be those employees who earn around 2.000 euros per month.

Due to this reform, the Lithuanian state budget will lose income significantly. The compensation procedures are not clear yet. The basic rate of 20 % of the personal income tax was introduced, with a rate of 27 % on revenue in excess of the State Social Insurance Fund Board’s contribution ceiling. That will not be enough and, essentially, Lithuania will be left with regressive taxes. Despite promises, other income (for example, from dividends or individual activities) bigger than 120 average wages are still not taxed at an additional higher rate.

Our arguments due to a fusion of employers and employees contributions to the State Social Insurance Fund Board were not taken into account. The Lithuanian Trade Union Confederation suggested applying an average annual employee salary. Unfortunately, this safeguard against possible manipulations which could diminish workers’ net salaries was ignored by politicians.

Speaking of pensions, we cannot understand the reasons behind the compulsory participation in private pension funds and its caused further shrinking of the State Social Insurance Fund Board’s budget. I. e. public money will be automatically directed to private structures (without an assent of workers). We stress an issue concerning a lack of effective control mechanisms. Also, it is not clear on what basis workers’ contributions will be distributed to these funds and nobody talks about their commitments in regard to future pensions. The Lithuanian Trade Union Confederation requested that employee representatives would be included in solving these issues but our request was ignored.

Lastly, the Lithuanian Trade Union Confederation notes that if the new tax and pension reform foresees an obligatory contribution for workers it would be just to foresee an obligatory contribution for employers too. It would help to reduce social inequality and especially help to those who get low wages and will not accumulate high pensions.

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