VILNIUS - On Sept. 23, during a joint press conference, Lithuanian Prime Minister Andrius Kubilius and Donatas Jankauskas, minister of social security and labor, announced that Lithuania should step into the land of pain. They presented plans for severe cuts in social spending, which would be launched this coming December and January. The result of these draconian measures should be budget savings worth some 2.4 billion litas (700 million euros).
Kubilius said that social security taxes would be raised by two percentage points, while pensions would be lowered on average by five percent.
Until the crisis, Lithuania enjoyed the most generous maternal and fraternal leave in the European Union. Mothers or fathers, taking a leave to take care of their child, received 100 percent of their wage during the first year of leave, and 85 percent during the second year. However, starting from 2010, mothers or fathers taking such a leave will get only 90 percent of their previous wage during the first year of the leave, and 70 percent during the second year. Staring from 2011, these percents will be 85 and 60. The allowance will be not higher than 5,952 litas per month.
However, much more socially explosive will be decisions on retirement pensions. Still working pensioners' pensions will be cut by 50 percent, if their wage is 2,100 litas. The cuts in pensions will depend on the amount of wage for the still working pension-age people.
"There are three options to solving the current situation: at the expense of pensioners by cutting pensions, at the expense of pensioners' children by raising taxes, and at the expense of pensioners' grandchildren by taking loans," Kubilius said adding that he prefers a mixture of those mentioned options.
"The main principle of our proposal is solidarity and social justice," Jankauskas said emphasizing that pensions, which are lower than 650 litas per month, will not be touched.
Kubilius said that cuts in the social sphere are needed to keep the budget deficit from widening to 14 percent of GDP in 2010. The budget deficit was five percent in the first half of this year. Kubilius expects some eight or nine percent budget deficit in 2010. Under the Maastricht Treaty on economic and monetary union, the 27 EU member states are meant to keep their public or budget deficits below three percent of GDP in any one year. If they fail, they risk disciplinary action from the European Commission, the EU's executive body, although since the beginning of the global crisis, they are given some leeway because state revenues have slumped.
On Sept. 24, Russia announced a ban on Lithuanian milk product imports from half of the Lithuanian dairy companies exporting to Russia because of alleged tetracycline traces in these products. On Dec. 31, 2009, Lithuania will close its nuclear plant which would raise the price of electricity. This can lead to a further slump in Lithuanian state revenues.
However, Kubilius is not pessimistic. He said that the bottom of the Lithuanian economic fall has already been reached. Kubilius said that social consequences of the crises have their own development, which would follow the economic recovery at a slower pace.
Arvydas Dambrauskas, chairman of the United Trade Unions, predicts that the peak of social tension among the poorest will be felt in early spring next year. He talked about the possibility of a general strike at the magazine Veidas. However, at the moment, the idea of a general strike is rejected by larger trade unions. Regardless, last week Erikas Tamasauskas, Liberal Movement MP, registered a not extremely liberal draft allowing Lithuanian police to use water-cannons. Lithuanian police have no such equipment - it means that in case of emergency water-cannons will be borrowed from Poland or Latvia.
According to the survey conducted by the Prime Consulting company for the magazine Veidas, 32.4 percent of Lithuanians are nervous because of their uncertain future. Jonas Ohman, documentary film producer and translator who divides his time between Sweden and Lithuania, says that the impact of the crisis looks rather different in these two countries.
"The main differences between a society such as Sweden and Lithuania are two: a stable political system and access to financial reserves versus a society with neither. And it can be felt in many ways. One of the most obvious everyday differences is probably the mortgage rates. While you can get a loan in Sweden for, say, real estate purchase, for about a three percent mortgage, this rate is three times higher or more in Lithuania. And this from the very same bank! In terms of psychology, you can feel that a segment of the people in Lithuania is, literally, running out of reserves and, accordingly, options. While people in Sweden are slightly worried, some people here are getting desperate. Still, an interesting feature, after all, is of a Lithuanian domestic Swedish-style middle class that has started to emerge. So far, this middle class seems to manage quite well, notwithstanding everything," Ohman told The Baltic Times.
According to the survey by the Unilever corporation, which owns many of the world's biggest consumer product brands in foods and home care, now, in the time of crisis, some 56 percent of Lithuanians pay attention to price when they are shopping at the supermarkets, while in Latvia this percentage is 63 percent and in Estonia, 81 percent.
On Sept. 28, the Lithuanian Free Market Institute presented its survey of the Lithuanian economy. The survey gives some hope of the beginning of some recovery in 2010. Next year exports are projected to grow by 4.5 percent, though net earnings of Lithuanians will go backwards, to the level of 2006-2007, amounting to 1,544 litas per month in 2010. Ruta Vainiene, president of the institute, criticized the tax increase by the government saying that it forces business to move to the shadow economy. According to the survey, the share of the shadow economy jumped from 18 percent of GDP in 2008, to 24.3 percent in 2009, while in 2010, it is expected to account for 27.1 percent of GDP.
"Talks about the social security tax increase of two percentage points means less money for the social security budget," Vainiene said. She described the government's decision to raise the VAT tariff from 19 percent to 21 percent starting from Sept. 1 as "dark humor."