Lithuanian economists at odds on defense tax idea - BNS REVIEW

  • 2023-12-27
  • BNS/TBT Staff

VILNIUS – Most economists agree on the need to increase defense funding in Lithuania, but are at odds on the need for a separate tax.

Some experts interviewed by BNS believe that, given the high ambitions to strengthen security, defense and deterrence capabilities, borrowed funds alone cannot be relied on. Others associate the idea of a separate tax with populism and believe that the necessary funds must be raised through a common tax system.

The BNS news agency asked 16 economists and experts to assess the idea of a defense tax, which was put forward earlier this year. Five would be inclined to support it, while eight think that a separate tax is not necessary.

One more expert thinks that the levy may be debatable, while another stresses that it would only make sense if the funds collected were used transparently and for the intended purpose. Yet another expert believes that the priority is not only to have resources, but also to have strong and efficient public authorities.

"The debate on additional funding for national defense continues to show that the fundamental problem of Lithuania's tax system is not being sufficiently addressed. There is no aim to achieve a more significant increase in the ratio of government revenue to GDP," Darius Imbrasas, economist at the central Bank of Lithuania, said.

Experts in favor of introducing a separate defense tax say it would help to better prepare the country to defend itself in case of aggression. Others point out that borrowing alone is not enough, given the growing ambitions for defense funding.

If a decision to introduce such a tax is made, some experts agree that it could be implemented by increasing the rate of value added tax (VAT) and/or broadening the tax base. Others say it could be levied on the turnover of large companies.

Experts who are skeptical about the idea of a new tax say that defense funding must grow, but have doubts about imposing a higher tax burden on businesses and households. Some also call the tax idea populist, saying that politicians should decide on priorities when adopting the national budget.