Flash Coment: Lithuania December 21, 2011: Parliament agreed on 2012 budget

1. Flash comment: Lithuania
Economic commentary by Economic Research Department December 21, 2011
Parliament agreed on 2012 budget
General Government Budget Balance
and Debt, % of GDP Parliament agreed on 2012 budget, which will have deficit of 3% of
GDP, slightly above the 2.8% projected in the Convergence
2% 56%
Programme. This ends three weeks of fierce discussions and hectic
0% 48%
attempts to come up with additional spending cuts and/or revenues
-2% 40%
amounting to ca LTL 1 billion (EUR 290 m), or 0.9% of GDP. The
-4% 32%
shortfall became obvious after Ministry of Finance reduced its
-6% 24% growth forecast for 2012 to 2.5%, down from 4.7%. We consider
-8% 16% this forecast to be rather conservative.
-10% 8%
-12% 0%
The biggest challenge was posed by a plan to restore retirement
2003 2005 2007 2009 2011 2013 pensions to a pre-crisis level. Confirmed budget of social security
Central gov. (ls ) Local gov. (ls ) fund “Sodra” will have a deficit of LTL 2.3 billion or 2.1% of GDP.
Social s ec. funds (ls) Debt (rs)
Source: Lithuanian MoF, Swedbank forecasts Government agreed to cut spending in most areas by ca 4%
compare with budget project proposed in October. Only very few
areas are exempt from spending cuts – contributions to EU budget,
servicing of public debt and spending on public defence.
Appropriation to courts will be cut by 2%, not 4%.
On a revenue side, it was decided to cut contributions to second
pillar pension funds to 1.5%, down from 2%. This is a third cut from
a pre-crisis level of 5.5%.
It was also agreed to introduce real estate taxes on a property
worth more than LTL 1 million (EUR 290,000), but the law is yet to
be passed. This is unlikely to help collect any tangible income, but
it might set a legislative and institutional infrastructure, whereas
non-taxable property threshold may be lowered significantly after
Parliament elections in October 2012.
Nerijus Mačiulis
Chief Economist
+ 370 688 76578
nerijus.maciulis@swedbank.lt
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