LPSK Calls for a Progressive Tax Reform: Taxes for Low and Middle Incomes Should Be Decreased

Several thousand trade unions from public and private sector urge the Seimas (Lithuanian Parliament) to respect the fundamental principles of a welfare state when changing the tax system: to ease the tax burden on average income and increase it for higher income.

Trade unions support the project that proposes the aggregation of all different types of income and additional income tax rates for higher incomes. LPSK suggests applying a 27% income tax rate only to aggregated incomes above 120 average annual wages, which according to the current situation, would be 235 thousand euros (about 20 thousand per month). This threshold was initially agreed upon in the Ministry of Finance’s proposal, but later the threshold was raised to 180 avarage wages (about 353 thousand euros) per year. Meanwhile, individuals earning up to 35 thousand euros per year should pay a lower – 15% income tax rate (currently it is 20%).

“At present, according to economists, in Lithuania we have a post-Soviet system, which is unjust and erodes public trust in the state,” comments Inga Ruginienė, President of the Lithuanian Trade Union Confederation. “The average people carry the tax burden on their shoulders, while the wealthy contribute much less to the overall welfare.”

According to her, essential areas for public welfare, such as healthcare, education, social services, environmental protection, and infrastructure, are being impoverished. “By not investing in these areas, the doors are being opened for private business to gain more power. Then citizens have to pay twice: through taxes and additionally for services (let’s look at how private schools or medical institutions operate). We already have almost completely privatized communal services, partially privatized medicine and education – the question is when private business will creep in the police or firefighting.”

Representatives of big business strongly oppose the aggregation of different types of income (wages from employment contracts, capital, and individual contracts) and the application of an additional rate to them. “Lobbyists call this proposal a distortion of taxes, a return to the past, and even a punishment, but in fact, it is the model of the most advanced and economically capable states. Such countries live by the tried-and-true principle of solidarity, where everyone contributes to the state’s maintenance according to their abilities – those who earn more income contribute more,” says Inga Ruginienė.

Trade unions urge politicians to finally take into account the conclusions and recommendations of international institutions – to increase the progressivity of income tax for citizens. According to a World Bank report, the income tax system for citizens’ wages is not progressive at the top of the income scale, with only two rates being applied, and the income tax rate for low-income taxpayers is quite high.

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