in 2024 Budget: prepared with a margin, Lithuania is ready to comply with the rules of budgetary discipline of the EU and its country

The Ministry of Finance is responsible for planning public finances for next year – this year it forecasts an increase of 0.4 percent. the contraction of gross domestic product (GDP) – notes that the budget is constituted “with a margin”: according to the instructions of budgetary discipline and taking into account the remaining economic uncertainty.

“It is important to formulate the budget with a reservation, in order to implement a responsible fiscal policy, especially in view of the increasing debt service costs due to the increase in interest rates, while responding to the situation economic, but without further encouraging inflationary processes”, indicates the ministry.

According to the National Audit Office (VK), responsible for budget control, the budgets of previous years were planned with a certain reserve, and when the most pessimistic forecasts did not come true, the saved funds were spent disciplined manner.

According to VK economist Rasa Ibelhauptaitė-Duobienė, in addition to European rules, it is necessary in Lithuania to follow national rules of tax discipline, the essence of which is “to accumulate in good times and spend in bad times” . This principle, as she notes, has been followed in Lithuania over the past few years of challenges.

EU Stability and Growth Pact requirements are back – still being developed

Exceptions to the EU Stability and Growth Pact for member countries – to maintain less than 3 percent. of the gross domestic product (GDP) deficit and must not exceed 60 percent. Debt to GDP – applicable from 2020, introduced in response to pandemic challenges for the bloc’s economies.

That in 2024 these requirements will be applied again, the European Commission (EC) announced last spring. As Eltas was informed by the Ministry of Finance, the EC has proposed corrections to the budgetary discipline rules, but the updates have not yet been approved. Intensive discussions are expected in the fall and a consensus is expected by the end of the year, although public finances for next year are already calculated on this basis.

In addition, budget preparers rely on the EC fiscal policy guidelines and national rules published in March.

“When planning next year’s budget and preparing the draft law on budgetary indicators, the aim is to take into account the budgetary guidelines presented by the Commission, 2023 The direction of the envisaged budgetary policy in the Lithuanian stability program is based on the assumption that EU budgetary discipline rules will be applied”, comments the ministry.

According to R. Ibelhauptaitė-Duobienė, chief economist of the Central Government Budget Monitoring Department, the Community is still discussing the requirements for countries that do not meet the requirements of the Stability and Growth Pact.

However, according to her, Lithuania is classified as a low-risk country and the changes envisaged by the EU are not relevant, since the public sector debt is around 38.4%. GDP.

“Lithuania has a sufficiently low debt level, it is classified as a low debt risk country and the EC would not offer it a fiscal stimulus package. In principle, this means that the rules would be more flexible for us . We simply should not exceed 3 percent deficit and 60 percent debt level,” R. Ibelhaupaitė-Duobienė said in Eltai.

Eurocommissioner Virginijus Sinkevičius also said there was no “big threat” for Lithuania to go beyond EU budgetary discipline requirements. According to him, the current discussions in the Community mainly concern 13 States with more than 60%. for example, to Greece, whose debt to GDP is around 1.5 times higher.

“I do not see any big threats to Lithuania because of this rule. (…) I believe that the new budget is being drawn up and finalized. I think that the Government will accept that it does not exceed 3% (deficit – ELTA) quite easily and there will be no major stress for Lithuania,” V. Sinkevičius told Elta.

Even with a few exceptions, previous budgets have been prepared in a disciplined manner.

In Lithuania, budgetary discipline is regulated by a separate constitutional law on the implementation of the tax treaty. These rules aim to avoid the influence of political cycles on the growth of the deficit or public debt, on the economy and its stability.

According to the public sector surplus rule taught there, every year without exceptional circumstances (for example, the COVID-19 pandemic), the public sector balance must actually be in surplus, and in their presence, the deficit does not cannot be higher than the medium-term objective set by the Seimas. According to the rule of limiting the growth of public sector expenditure, the growth of public expenditure should be limited in the presence of an economic boom.

“In good times, just accumulate and in bad times, just spend.” These rules (…) indicate in principle whether we saved when we should have saved and whether we spent when we should have spent,” commented R. Ibelhauptaitė-Duobienė.

The law also allows exceptions to these two rules in exceptional circumstances.

“Now that these exceptional circumstances were in force, these rules were not applied so that we could have larger deficits or not generate a surplus,” said the VK economist.

This year’s budget was also drawn up with a larger deficit – 4.9 percent. of GDP (and 43 percent of the debt). However, as the worst forecasts regarding the prices of energy resources did not come true, at the end of the cold season the negative balance of public finances was reduced to 2.2 percent.

Meanwhile, in 2022, according to R. Ibelhauptaitė-Duobienė, due to high inflation, the state received additional budget revenues from value added tax.

However, she emphasizes, these revenues should not be spent immediately simply because they were not planned.

“At least the research shows that due to inflation, income reacts immediately and brings that extra share to the budget, while spending tends to react later. When developing the budget, we also need to keep keep in mind that we will probably feel the consequences of this inflation for a long time,” stressed R. Ibelhauptaitė-Duobienė.

Yet, she says, budgets in recent years have been prepared in a “fiscally disciplined” manner, even if some budget restrictions were not valid.

“We can rejoice that the 2021, 2022 budgets were planned with a really larger deficit, while the reality was much better. We can be happy with the fact that, despite the fact that we received more income, it did not There was no sudden reaction that would have required spending them.

This was done in a “fiscally disciplined” manner, said R. Ibelhauptaitė-Duobienė.

Proposals from members of the Seimas have considerable influence

As the community’s fiscal rules tighten, budget preparers and parliament face a difficult challenge: balancing the state’s financial capabilities with politicians’ ambitions to please voters ahead of elections to the Seimas, the presidential election and in the European Parliament next year.

Prime Minister Ingrida Šimonytė reminded parliamentarians of this last Sunday during the first session of the autumn session of the Seimas, emphasizing that the budget will not be the purse of the parliamentary parties or the “electoral campaign”, and that adding to the growing debt would be a burden. for future generations.

The Presidency has already submitted proposals aimed, for example, at granting additional tax-free income to families raising children. The Gitana Nausėda team has also repeatedly called for considering value-added tax exemptions for the most essential food products.

The representative of the country’s main control institution notes that studies conducted in other countries show the positive influence of tax restrictions on politicians’ attempts to please voters, which are often not based on the source of income.

“This did not exist in Lithuania, but political and budgetary cycles are a recognized and studied phenomenon around the world. And these studies show that the rules of budgetary discipline help to mitigate such political cycles,” said R. Ibelhauptaitė -Duobienė.

“It is therefore obvious that the proposals of the members of the Seimas have a very important influence, because the preparation of the budget is after all the result of an agreement between politicians,” she stressed.

According to the economist, additional spending proposed by parliamentarians “determines the size of the budget”, and the VC sees an increasing number of proposals every year.

“We have calculated and continue to calculate that every year the numerical expression of these discretionary decisions increases. More and more money comes from the decisions of politicians in the proposals,” said R. Ibelhauptaitė-Duobienė.

The Seimas, she said, must responsibly plan state finances, seek a balance between its own interests and the country’s financial capabilities.

“Of course, they pursue objectives that are useful to certain groups, these are not empty things. But a balance must be found between budgetary discipline and the satisfaction of interests. We constantly say that we must not only plan and propose measures aimed at increasing the deficit, but at the same time find sustainable sources of income and really try to implement them,” emphasized the representative of the auditors.

in 2024 the draft state budget, as the Prime Minister hinted, should be submitted before October 17 of this year. – what the Statute of the Seimas provides. The first version of the budget was already submitted to Parliament last year.

The budget is prepared according to the country’s economic development scenario updated by the Ministry of Finance in September. According to the forecast presented this week by budget writers, Lithuania’s GDP in 2023 will decrease by 0.4 percent, next year – it will increase by 1.7 percent.

Source: The Delfi





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