Lithuanian president sees economic growth, borrowing, taxes as defense funding sources

VILNIUS – Gitanas Nauseda believes that funding for defense in Lithuania should increase from several sources, including overall economic growth, borrowing, and a tax review, Kestutis Budrys, the president's chief national security advisor, said on Tuesday.   

Some taxes may be raised as a result of the review, but the principle of progressivity must be maintained to avoid harming socially vulnerable groups, according to Budrys.

"The president sees a certain set of measures that would allow increasing defense funding and ensuring its sustainability. We are talking about economic growth and stimulating the economy to collect more taxes for the budget," the advisor said after a meeting of the president-chaired State Defense Council. 

"The other part is that we are talking about certain acquisitions and measures that are short-term, and we should consider borrowing," he added. 

According to Budrys, additional tax measures could also be considered in the context of the tax reform, but this is not about a single tax, but "about citizens mobilizing to review taxes (...) and to increase some of them". 

The need for defense funding is growing due to Lithuania's plans to create a light infantry division by 2030 and draft more conscripts. 

When asked about specific taxes that could be raised, Budrys said that Nauseda will comment on specific proposals once they are put forward by the government, but that the president emphasizes the principle that socially vulnerable groups should not be adversely affected.

The government is organizing a meeting on sources of defense funding next week. 

Prime Minister Ingrida Simonyte says that the plans for the expansion of the Armed Forces would require additional funding of around 0.4-0.5 percent of GDP, on top of the 2.52 percent of GDP currently agreed by political parties.

A defense tax is one of the options under consideration. However, some politicians are skeptical about the idea.

The debate on a defense tax has been reignited after the president criticized the 2024 defense budget for not including funds for the division plan earlier approved by the State Defense Council. 

The ruling conservative Homeland Union-Lithuanian Christian Democrats (HL-LCD) have vowed to start pooling cross-party support to agree on such a new tax that could come into force in 2025. Politicians are considering raising VAT or corporate tax rates, for example, to boost funding for national defense.

The HL-LCD presidium is holding a meeting on Tuesday to conclude discussions on these issues and to approve their proposed plan for bolstering national defense.

Next week, Simonyte is organizing a meeting of political parties, businesses and social partners on the issue of additional sources of defense funding.

Lithuania's 2024 budget earmarks 2.75 percent of GDP for national defense, including 2.52 percent in regular budgetary allocations. The remainder will come from the temporary bank windfall profits tax and will be used to finance infrastructure for hosting allied troops.