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State Administration and its Success Depend on the Competent Team

Algirdas Butkevičius
Algirdas Butkevičius


Elder of the Social Democratic Faction in the Seimas of the Republic of Lithuania

The two recent years were among the most complicated to Lithuania and its people throughout the entire history of the independent state.  On the one hand, we, just like a number of other European and world countries, were affected by the global crisis caused by a poorly controlled global finance system, lacking social responsibility and grounded on risky business models.

On the other hand, we did not only face the crisis itself in Lithuania but equally severe manifestations of containing it.

Even though the Prime Minister Andrius Kubilius, when presenting the Government’s report, demonstrated the diagrams, mentioned various facts and figures, which should have served as a proof that the crisis in Lithuania had been successfully surmounted, the situation of a larger part of Lithuanian people remained difficult and even catastrophic in the case of certain social groups and even classes.

To tell the truth, the talks of the Conservative prime minister left many with a firm impression that the Conservatives spoke about a totally different country and different people – not the ones that one can meet in Kelmė, Jurbarkas, Akmenė or Ignalina.

What exactly do we face in the real Lithuania– not the one adorned with various manipulations, corrected and exaggerated figures, which are demonstrated by the prime minister on his occasional visits to foreign countries?

First of all – vast unemployment. The official number of the unemployed is still running at approximately 300,000: in two years the number has skyrocketed by more than three times.

Referring to the data of the Statistical Office of the European Communities Eurostat, the employment rate in Lithuania rose from 15.9% in the fourth quarter of 2009 to 17.4% in the same quarter in 2010. It is the third biggest change among the EU members (it follows Greece and Hungary).

Despite the pressure targeted at the territorial labour exchange units on the stricter procedure of registration of the unemployed, thus trying to affect the unfavorable statistics, the unemployment indicators remain strikingly high. At present, around 18% of the residents of working age are unemployed in our country. The unemployment rate of the youth in the country rose by 3.4 times, reached 30% and remains among the highest in the European Union.

There is no doubt that such unemployment in our country is mostly the result of the taxation policy implemented by the Conservative Government. On the other hand, having ignored this problem for a long time, the Government either limits with short-term partial measures or tries to manipulate the figures.

Apart from unemployment, record-breaking emigration remains a burning issue. From January 2010 to the beginning of this year the population inLithuania reduced by more than 84,000. That is also illustrated by the data of the Department of Statistics. Of course, a number of emigrants were forced to legalise themselves by the health insurance tax but it is obvious that the pace of emigration does not appear to be slowing.

According to the British data alone, the number of immigrants from Lithuania to Great Britain rose from 13,000 to 21,000 per year. Public polls show that as many as one fourth of the residents would like to emigrate from Lithuania. It is estimated that as many as 77% of emigrants from Lithuania are the graduates of higher education. When the qualified labor force is lost, the competitive potential of the country reduces as well. We may only imagine what will remain in our homeland after a giant wave of brain drain.

Emigration and related reduction inLithuania’s population is becoming one of the most acute problems of our country, which the Conservative Government continuously fails to handle.

Demography is yet another emigration-related issue. The demographic situation in Lithuania may be described as tragic. Unfortunately, the number of dependants is on the increase and the number of taxpayers is declining. The future seems even gloomier because the death-rate is nearly twice as high as the birth-rate. Even though it is already the issue of survival of the nation and the state, the Government remains blind and deaf to this problem.

The recent years have shown that when the conditions are created for families to raise children, the birth-rate starts growing. Such a policy was implemented by the Social Democratic governments. When the government takes the opposite direction (the exact policy of the two recent years), the birth-rate takes a sudden slump-down. I do not believe that we should be saving at the expense of birth-rate because that is definitely a good investment to our small country.

The situation in Lithuania’s labour market remains very complicated. The employees are not organised, trade-unions are hardly viable; there is no collective bargaining on salaries, which is usual in the West. Therefore, there is no wonder that the employees are paid significantly less than they produce. Whether we calculated in the nominal euro or considered price differences among countries, the average employee inLithuania and, for instance, the average employee inGermany do not differ by their work efficiency to the extent that the salaries paid to them are different.

In two recent years the Government has focused the entire attention and given all the privileges to business as well as reduced corporate income tax and formed the budget by increasing the tax burden and reducing income of the most socially disadvantaged residents; the promotion of employment and the programme of reintegration to the labour market have failed. Hence, the assertions of the ruling majority, according to which they have succeeded in stabilizing the situation in the labour market, are totally groundless.

Social exclusion has also become catastrophic in Lithuania. Data show that one fifth of the Lithuanian residents earn nearly a half of all the annual income of the employed persons in Lithuania and more than LTL 4,000 fall to one resident per month. In the meantime, the remaining one fifth of the residents of Lithuania has to subsist on LTL 650 per month. Such social inequality can only be found in the third world countries.  

While the period of 2004–2008 witnessed the gradual reduction in differentiation between social classes andLithuaniacould be proud of the growth rate reaching more than 60% of GDP per capita compared to the EU average, the two and a half years of the current government brought us back to around 2000 in this respect.

Objective data show that the benefit policy of the Conservative Government did not only fail to reduce poverty, increased social exclusion but also considerably impoverished the average social class and undermined its personal efforts to escape poverty.

One more burning issue is the public debt, which will rest on the shoulders of our children and grandchildren.

Since the end of 2008 the Government has already borrowed more than LTL 20 billion. On 31 March 2011 the debt of the entire public sector exceeded LTL 36 billion. The amount is twice as high as the estimated revenue of this year’s state budget. The foreign debt per one resident of the country rose 45.1% per year and amounted toLTL8,300 per resident and as much as LTL 25,000 per employed person.

The borrowing in foreign markets was contracted at excessively high interest rates (in particular, in 2009), even though several neighboring countries of this region entered into far more favourable loan agreements with the International Monetary Fund in 2008–2009.

Due to expensive borrowing of the Government, the expenditure of the state budget for interests will skyrocket fromLTL800 million in 2008 to LTL 1.9 billion in 2011 – probably that is the item of the state budget expenditure, which have witnessed the most significant growth. It should be noted that Lithuania is to return the portion of debt along with interests amounting to over LTL 5.4 billion in 2012. The worst part is the absence of the Government’s plan on the return of debts.

A heavy dependence on external funding sources is an equally pressing issue. At the moment the economy ofLithuania and public finance are to a larger part dependent on two flows of financial resources – continuous borrowing (aroundLTL 9.5 billion in 2009–2010) and the support from the EU (more thanLTL 5 billion in 2009–2010).

Let’s add LTL 3-4 billion infused by Lithuanian emigrants every year, and we will find that the economy and the budget ofLithuaniaare funded by a giant sum amounting to 15–18% of the annual GDP every year. That is a vast financial and economic dependence on provisional external financial flows.

For now the stated funds maintain the economic and financial functioning of the country; they are used to cover the deficits of the budget and foreign trade, thus extinguishing the fires caused by the crisis. However, as soon as the cash flows reduce or are discontinued, the country will find itself in the economic and financial paralysis. We already have a precedent: let’s recall what happened at the end of 2008, when the banks operating in Lithuania considerably corrected their lending flows. By the way, that to a larger part triggered the crisis inLithuania.

The Government fails to realize that such a financial dependence of the country’s economy and public sector on external funding resources is several times more dangerous than the dependence on energy resources or any other.

The European Union funds and the effectiveness of their absorption is also a matter of serious concern. We are now in a feverish haste to absorb as large funds as possible, irrespective of long-term effects to the state budget and economic processes. It distorts competitive environment, promotes corruption schemes and the psychology of dependants.

The Government sees no need to establish the long-term economic efficiency criteria of the absorption of this support. The EU support funds are often seen as the source of short-term economic incentives without considering the long-term costs of such investments and the burden to taxpayers in the future.

Lithuania has for a number of years had a double deficit – budget and foreign trade. The deficit is compensated from borrowed or granted sources. That means that we continue to live above our means, and it is very likely that we will face new financial problems in the future.

Unfortunately, what Lithuania is lacking is objective speaking and discussions on the true economic and financial problems in the country, an obvious intention of those in power to foster positive expectations is felt, hoping that they will help the country’s economy recover. Such a manner of speaking prevents from objective evaluation of the actual situation and problems and their solving.

When all the countries of the European Union, in the attempt to mitigate the outcomes of the crisis, focused on the preservation of job places, creation of new jobs and promotion of economy, the Government tried solving all the problems by reducing the budget expenditure rather than thinking how to generate more revenues.

When the ruling majority tried to combat the crisis by an “over-night” tax reform, which impoverished the most vulnerable social members, pensioners and children-raising mothers, Finland, which the Conservatives led by the Prime Minister Andrius Kubilius always refer to as the model country, did not take away a single euro from social care.

The Finish Government did neither reduce salaries, pensions, nor social benefits. According to the Government of Finland, “… our ideology is helping the most vulnerable groups. By cutting down the social support, we would destroy our future possibilities. Our goal is the growth of the country, without the sacrifice of our wellbeing”.

Why did the ruling coalition choose the opposite direction than a number of the EU countries? One of the likely answers: experts related to the banks operating inLithuaniaand their interests made a considerable impact on the anti-crisis programme adopted by the ruling majority and the Government.

Therefore, the Government did not only increase the burden of taxes but rushed to borrow in international markets at excessively high interest rates.

Solving the problems of economy and budget, in particular, at the expense of the people with the lowest income, is a typical position of modern liberalism, or, to be more precise, neo-liberalism. This position is not random; it derives from the values and principles of this doctrine.

It is the people that form the very foundations of our country. The wellbeing of the country directly depends on the wellbeing of a single person and household.

The Social Democratic faction of the Seimas submitted the draft Law on Income Tax of Individuals, which would introduce progressive individual income taxes inLithuania. It is a provision of the programme of Social Democrats, the implementation of which would show that we are resolved to change and do that consistently.

The greatest problem of our country is the gap between the society and the government. Unfortunately, we sometimes get the impression that the government and the people, who actually elect it, reside in different countries. It should not be that way.

I understand that the people in Lithuania are tired of uncertainty and are lacking hope that something will eventually change and that the government will finally get closer to people and listen to their problems. Even though we are not yet capable of changing the ruling policy today, we are ready to show that we are a strong and responsible opposition concerned about the future of the country.

Our key objective is to restore respect towards an ordinary person. A person, who works and creates, a person who leads and who follows. A civil servant, a farmer, a teacher, a scientist, a doctor, a politician… The respect towards one’s country starts with the respect towards man, his work and creative energy.

We invite not to destroy but to build. Not to weaken but to strengthen. Not to tear apart but to sustain. The maximum employment, access to healthcare and education by everyone, guarantee of social insurance in the cases of unemployment, illness, disability and old-age, assurance of minimal standard of living to avoid poverty and social exclusion – these are the principles grounding the programme of the Social Democratic Party of Lithuania.

And we are ready to put that programme to life. How do we propose to do that?

What are the immediate actions? First of all, we need to curb unemployment – by actual creation of jobs rather than manipulation of procedures and figures. The restructuring and actual revival of housing renovation programme, which would help to promote economy and reduce unemployment rate, is an urgent issue.  

Second, regulation of minimum monthly wage (MMW) and the prospective introduction of progressive taxes would serve as a sufficiently effective measure reducing the poverty of the employed and combating social exclusion. We will be working hand in hand to ensure that the ratio between the MMW and the average monthly wage would reach the European ratios. We will try to bring back the indexation of the MMW and social benefits.

Third, the principle of the fight against shadow economy needs a radical transformation – we need to shift from “harsh campaigns” to the conditions of economic development, which would make the activities in shadow economy less favourable. The shadow market is inherently linked with unemployment and poverty, and the impact of the size of taxes on shadow economy is most significant. A well-balanced and economically grounded reduction of taxes and regulations is a far more efficient means, compared to any punitive measures.

Fourth, we will seek a more balanced and weighted taxation policy, which would not only increase employment but reduce social differences and would not ruin businesses. We need to change the government-business relationship by restoring confidence between the government and small and medium-sized business, which to a large part determines all the prospects of our economy.

Fifth, we will focus on internal consumption and, most importantly, incentives for internal production. Export is an important condition of the country’s economic recovery but no stable and sustainable economic growth is possible without the promotion of domestic production capacities.

Six, we will make essential revision of excise policy. All measures have to be targeted at the reduction of budget deficit and effective administration of the state.

Seventh, we will implement the strategy of more efficient absorption of the EU support. The EU funds must not be used for consumption, but for actual economic development.

Eighth, we will carry out a true rather than declarative reform of the public sector, which is now used as a cover of the ruling majority in their active party “recruitment policy”. Competence and knowledge rather than loyalty to the party should be among the principal criteria when hiring to the public service. We will introduce the principle of differentiation of political decision-making and implementation in the sector of public administration.   

Ninth, we will prevent the policy of privatization of public services from establishing its firm positions. We must not allow the introduction of private business methods to public administration to destroy the public sector in pursuit of imaginary economic benefit.

Tenth, we will reform the system of supervisory framework of finance system and taxation, we will promote the accumulation of long-term financial resources in the country and establish the long-term economic efficiency criteria for the use of funds from the EU support. All that will ensure a more sustainable and balanced economic development of the country and will reduce the country’s financial dependence  

Eleventh, we will implement a cautious and balanced borrowing policy at the lowest possible interest rates.

Twelfth, we will develop a fiscal stimulus measure package. The resources must be targeted at those sectors, which stimulate internal consumption and increase employment (for instance, service sector, infrastructure).

Thirteenth, assisted by scientists and experts, we will draw up the Green Paper on Taxation – a critical evaluation of our taxation system, the conditions of its harmonization and prospects.

Fourteenth, we will bring the people from cultural, arts, science and creative elite into discussion on the key strategic decisions of the state to the maximum possible extent, whose opinion and evaluations are not sufficiently heard in contemporary Lithuania. Politics may not be separated from the wide public and the most prominent intellectuals of the country. It is only such a balanced and integral position that may ensure the public support to our policy and its creative character.   

If the stated and other urgent jobs are not promptly initiated and effectively implemented,Lithuaniawill face the risk of entering the stage of irreversible economic, financial, demographic and social processes. The crisis accelerated the movement of the state in this destructive direction, but the process can still be stopped.

The time has come for us to change, the time has come to look back at the person. That is our starting point. We need to realise how the people inLithuania live, how households function, what knowledge is rendered by education and what services are provided by healthcare. It is important to hear and to comprehend, to take decisions and to act. There is too much talking about market and economy in our politics and too little about the actual situation of an ordinary person and his family.

I believe that Lithuania will witness the inevitable changes. The state administration and its success depend on the competent team, the long-term and short-term vision of that team and collective effort in its realization.

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