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Lithuania’s 3 nightmares

By Kestutis Eidukonis, VilNews CEO

At the beginning of this month, I had the great privilege of representing the PLB (World Lithuanian Community) in its bi-annual meeting with members of the Seimas (Parliament). This joint commission meets twice a year and consists of ten members elected by the World Lithuanian Community and ten members of the Seimas, one from each party. The commission has two co-chairs one from the PLB and one from the Seimas. The co-chair from the PLB was Dr. Jonas Prunskis and the co-chair from the Seimas was Ona Valiukevičiūte.

The areas of debate and concern for the commission were:

1. The 2014 Lithuanian Song Festival which will take place July 2-6 in 2014
2. The preservation of the Lithuanian language in Lithuania, as an official EU language and abroad by the Lithuanian diaspora.
3. The ability of Lithuanian Citizens to hold on to their Lithuanian Citizenship in spite of having another citizenship,
4. The improvement of economic conditions in Lithuania so as to improve investment and job creation.
5. The absolute imperative of having energy independence.

Out of all these areas the one that attracted the most debate, was the one concerning citizenship.  In fact all these areas tied together.   All members of the commission agreed that the most important problem facing Lithuania is the massive emigration taking place today.   Preservation of Lithuanian song language and Lithuanian citizenship are all tied to improving the Lithuanian economy and energy sector so that Lithuanian citizens would not only not have a reason to leave, but also that the ones who left, would have a reason to return!  Creating good high paying private sector jobs is the key to stopping the depopulation of Lithuania.

Interestingly enough not all members of the commission agreed as to what needs to be done. 

As an observer of the Lithuanian Economic and Political Renaissance I have been impressed by some of the steps taken by the government to improve the business climate in Lithuania, but there is a total lack of political will by any political fraction to tackle head on the real problems that hold Lithuania back from becoming a true Baltic Tiger.

1.  The government of Lithuania and the social safety net of Lithuania is too large for the population to support.    With an approximate 37.7% of GDP - the size of the Government is a factor that needs to be addressed.  Everyone agrees that there are too many governmental departments, but no one agrees on which one to cut and by how much.  It is true that there are a large number of dedicated civil servants, but it is true that there are quite a few unnecessary, redundant departments staffed with wayward relatives who could not make it in the private sector.  Lithuania is trying to be Norway, but without the North Sea Oil Fields. 

2.  The total tax rate on the Lithuanian people is way too high.   I realize that, when compared to other EU countries Lithuania is not that high - but keep in mind that the best stimulus that can be given to the Lithuanian economy is the ability for companies to invest and for individuals to buy or to save.  As the government continues to grab close to 40 % of the GDP and still find budget short falls the national debt will continue to increase, the cost of servicing the debt will continue to increase.  These percentages do not include the payments all companies have to make to the Social Security System.  If these payments are included the burden on Lithuanians is even greater.  Some people also do not realize that Corporations do not pay taxes they merely collect them for the government.  All taxes including  social security are passed on the average consumer in the price of the item or service being sold.  This tax burden keeps the velocity of money low, and unnecessarily depresses the GDP thus,  slowing economic growth.  It is interesting that a large number of uninformed politicians are calling for even more taxes such as a tax on property, autos, and financial transactions.  This kind of talk has a way of scaring away investors, who need to plan in advance and need economic and political certainty.  This periodic desire of politicians to squeeze the neck of the "Golden Goose" to extract even more eggs almost always backfires - all one has to do is to look at the "shadow economy" which officially stands at 30% - but is estimated by some to be as high as 50%.  It is an interesting paradox that decreasing tax rates increases state revenue dramatically while increasing the tax rate does the opposite.  The high tax rate also has a highly corrosive effect on people's faith in the government.  The people see government officials living "high" while they have to struggle, in their minds this then justifies working the "shadow economy". 

3.  The high cost of energy is another huge drag on the economy.  Every Lithuanian living near the borders who can, gets his fuel outside the country.   The cost of heating, transportation and energy for manufacturing is included in all products and services made in Lithuania.   Without energy independence we will continue to have a huge disadvantage in attracting investment either foreign or domestic.  The government is playing around with the Ignalina project and with other energy providers.    This will result in increasing the costs to the point of the projects becoming uneconomical.   Thankfully the LNG plant is moving ahead and on schedule.  But there is no substitute for having and being able to sell energy. 

In summary if we want to stop the waves of emigration we need to turn the country around.  The question is who has the will and the guts to do it?