Kirkilas calls for passage of fiscal discipline legislation

  • 2007-10-10
  • By TBT staff
VILNIUS - Fearing that inflation in Lithuania will go the way of Estonia and Latvia's and spiral out of control, Prime Minister Gediminas Kirkilas has appealed to lawmakers to pass a law that would instill fiscal discipline. He said the measure is particularly urgent a year before the country goes to the polls to elect a new Parliament.
"The sooner we adopt this legislation, the faster we send a signal to financial markets and our partners that Lithuania is keeping its obligations," Kirkilas told the Ziniu Radijas station on Oct. 4. He explained that Lithuania was part of the global financial market, and therefore was vulnerable to processes that threaten to propel consumer prices even higher.

Annual inflation in Lithuania reached a new high in September and appears poised to creep even higher in upcoming months (see story on Page 5), even though it remains the lowest in the Baltic states. A recent proposal by opposition parties 's the Homeland Union, the Labor Party and the Liberal Democrats 's to disperse some 162 million euros in unpaid pensions would propel inflation even higher and undermine any government efforts to bring it down to the range needed to adopt the euro.
Slamming the measure as "populist," Kirkilas, a Social Democrat, has said he would resign if Parliament passed it.

"It is vital to have the whole view. We can increase payments everywhere, plan a lot of privileges, but if the inflation is high all the money will be eaten twice," said Kirkilas. "That is why we must follow strict financial discipline which is useful for everybody, for all Lithuania," he added in support of the Law of Fiscal Discipline.
Seimas (Lithuania's parliament) has begun debating the law, which in essence will force the government, and lawmakers, to adhere to a set of rules when compiling the national budget 's e.g., in 2008 the deficit should not exceed 0.5 percent of gross domestic product.
For many lawmakers, however, the temptation to spend on the eve of parliamentary elections may be too much to resist.

Meanwhile, the Finance Ministry has proposed raising the fuel excise by approximately 3 percent starting Jan. 1 and the tobacco excise in March. The hikes, which are mandatory as part of Lithuania's obligations to raise excises to the level of EU countries, will exacerbate inflation. But there is no avoiding them.
"Excise duties will be boosted to the minimum rates prescribed in the EU Treaty for 2008. We have decided to follow the set schedule closely," Finance Minister Rimantas Sadzius told the Baltic News Service.
"The next increase in excise duty rates has been projected in 2011. However, this issue might be tackled as early as in 2009 subject to inflation and other factors," he said.

As stipulated in amendments to the Law on Excise Taxes, the minimum excise levied on cigarettes will grow to 50.3 percent, up from 45.7 percent, of the price of the most popular cigarettes.
Lithuania is obliged to raise the cigarette excise tax gradually until the rate reaches the minimum EU level by Dec. 31, 2009. The tax rate will be boosted each year by 2010. In line with a respective EU directive the tobacco excise will comprise 57 percent of package price as of Jan. 1, 2010.