Lithuanian govt okays updated RRF plan agreed with Brussels

VILNIUS – The government on Monday approved an updated economic recovery plan, New Generation Lithuania, which was finalized with the European Commission (EC) last week, despite differences of opinion with Brussels over the postponement of deadlines for a tax reform.

The new plan is complemented by new investments and will consist of 2.3 billion euros in European grants and 1.55 billion euros in loans.

The Cabinet adopted the decision even though Ausrine Armonaite, Minister of Economy and Innovation and leader of the Freedom Party, and Marius Skuodis, Transport Minister nominated by that party, voted against the updated roadmap as Armonaite proposed to continue negotiations with the Commission on the revision of tax-related indicators.

The disbursement of funds from the EU's Recovery and Resilience Facility (RRF) is linked to the implementation of the commitments outlined in the Next Generation Lithuania plan.

“THE ISSUE IS CLOSED”

The European Commission said last week that it had approved Lithuania's updated economic recovery plan, New Generation Lithuania, but rejected a request by Vilnius to postpone until 2025 its RRF plan deadlines related to the tax reform.

With the tax reform stalled, the government argued to the Commission that the objectives related to the reform had to be delayed due to economic uncertainty, the need to refocus resources on helping business, the lengthy consultation process and the timing of the entry into force of tax-related laws.

After the Commission rejected these arguments, Lithuania had one month to present its position before the Commission could take a final decision.

However, the government has decided not to do so, arguing that the updated plan needs to be finally approved by the EU Economic and Finance Ministers’ Council this year, otherwise Lithuania would not be able to use the EU support in the form of loans.

"We have put forward four objective circumstances which, in my view, imply that the discussion has taken too long. In the Commission’s view, these circumstances are not sufficient and I would not be able to name additional objective circumstances today", Finance Minister Gintare Skaiste told the government meeting.

"Today, it seems to me that the issue is closed because the circumstances have not changed," she added.

DISPUTES IN THE CABINET

Economy Minister Armonaite and Prime Minister Ingrida Simonyte got into a spat during the discussion of the updated plan.

Armonaite proposed to continue negotiations with the Commission not only on the postponement of deadlines for the implementation of certain indicators, but also on the content of the plan itself.

"We see the sense in continuing the negotiations and I invite you to support this position because, as I understand it, if we agree to this extent today, we say that's it, we are no longer negotiating either on the indicators or on the content, and there is no political consensus in the Seimas on the specific changes to the tax laws," the minister said at the meeting.

Meanwhile, Simonyte stressed the need to adopt the New Generation Lithuania plan by the end of this year.

"We can continue to negotiate long and tediously, but in that case the ECOFIN Council will not be able to take decisions on the updated plan before the end of this year. This means that we will not be able to use part of the loans either," the prime minister said.

At the same time, Skaiste asked Armonaite what exactly she proposed to negotiate with the European Commission.

Both Simonyte and Skaiste stressed that Lithuania's commitments on tax reform were abstract – the indicators provided for the fact of adoption of laws and the area of taxes, but did not name specific rates or tax models.

"Neither the specific rates nor the solutions to be adopted are written down, but we have to meet the objectives that are programmed in the government program and we can do that," Skaiste said.