VILNIUS - In a bid to increase cash flow and reduce the growing deficit, Lithuania's new government has said it will raise taxes on tobacco, alcohol and fuel, as well as the levies charged on crude and gas resources and gambling in 2009.
The tax hikes are part of the new center-right coalition's plan to save the economy. The plan is expected to yield returns of about 5.3 billion litas (1.5 billion euros).
Tomas Aurejauskas, deputy chairman of Swedbank, told The Baltic Times that the tax changes are a good idea.
"It is a good move. This will help to manage the internal imbalances in the country. Also, the 20-20-20 tax rate will be welcomed by foreign investors because of its simplicity," he said
"This will be good until everything is balanced and then it could be reduced."
Kubilius said the value-added tax would stay at the increased level until there were sufficient resources to balance the budget.
If the plan failed, the authorities would cut the expenditures further, Algirdas Semeta, a candidate for finance minister confirmed.
The excise duty on fuel would be raised to the minimum level required by the European Union, while the liquid gas excise tax would double. The authorities would also raise the excise duties levied on alcohol.
The new excise duty on tobacco will be 57 percent on the most popular cigarettes, but not less than 221 litas (64 euros) per 1,000 cigarettes.
Under the previous program the excise duty on diesel fuel was only to be raised in 2011 and 2013 to reach the minimum level required by the EU.
The excise duty levied on gasoline and diesel fuel was increased by about 12 percent in January.
Aurejauskas said this will hit the pocket of Lithuanians, and the tax hikes may continue in the future for luxury goods.
"The alcohol and tobacco taxes have been raised because we have a commitment to the EU, but we don't have a commitment on other goods. I wouldn't be surprised though if a luxury goods tax on other items would be introduced. It would be good because people are used to spending their money, but this would make them more financially responsible," he said.
Incoming Prime Minister Andrius Kubilius said the new measures were necessary and likened the economy to an action film.
"We just have to imagine that there is a time bomb ticking. Like in a good thriller... with the crisis resolution plan we are trying to find that particular wire, which should be cut to stop the mechanism. It is risky, yet it would be much worse to do nothing," Kubilius said at a news conference.
Aurejauskas said this was a misleading oversimplification of the problem.
"This is not a bomb, our main problem is that our economy was going through a self adjusting downward cycle at the same time when the credit crunch hit. Everything in the country is financed by credit with only 20 percent direct investment," he said.
Kubilius said the crisis resolution plan would enable the country to skirt the crisis to some extent. He urged people to understand that the "race against crisis," involved the whole of Lithuania, not just the authorities.
The crisis plan also suggests cutting the take-home pay of the president, parliamentarians, the prime minister and ministers by an average of 15 percent from mid-2009.
Not only politicians will feel the pinch, however, as various wage increases promised under the Kirkilas government are to be reviewed.
Manager salaries and local governmental spending on salaries should be cut by 12 percent, including social security payments.
The increase in teachers' salaries would be 861 million litas instead of the 1.91 billion litas promised by the Kirkilas government.
Salaries of culture, art and science workers and lecturers will also be raised, however, at a slower pace than that promised earlier.
The scheme also stipulates restructuring systems of salaries and other payments of state and municipal companies in a way that the wages are not higher than the market average.