“Uncertainty persisting this year in both geopolitics and international economy created a negative context, therefore, solutions were needed not only to cushion the situation in the short term, but also to create the necessary conditions for the achievement of long-term strategic goals. I am delighted that these works reaps benefits “, stressed Minister of Finance G. Skaistė.

A budget that responds to emerging challenges

After honest assessment of the possibilities available and our strong commitments – to grow and strengthen Lithuania – the 2024 budgetary plan responds to the key priorities – education, increase of personal income, enhancement of security and investment creating high added value. After several shocks in recent years, the 2024 State budget will allow the population to really feel the country’s economic growth.

In the coming years, more than EUR 1.7 billion will be allocated to a significant increase in personal income. Over EUR 1 billion of this amount will be spent on increasing the workers’ income. By increasing the minimum monthly wage (MMW) by 10 % and raising the non-taxable amount (NTA) by 20 %, these decisions will result in an additional income increase of EUR 75.22 for the MMW earners. The increase of the NTA will affect those earning up to one average wage (AW). According to SODRA data, 811 thousand people earn up to one AW in Lithuania. From the beginning of the term in 2020, due to the growth of the minimum monthly wage and NTA, the income after taxes for those who earn the lowest-income earners will increase by EUR 261.

At the same time, more than EUR 688 millionhave been earmarked for increasingwages of teachers, trainers, cultural and artistic staff, municipal firefighters, medical staff, prosecutors, statutory officials, social security and labour, judges and other officials.

Next year, old-age pensions will increase slightly by more than 12 %, with an estimated EUR 519 million, which will mean an average increase of EUR 70 per month for senior citizens with the required seniority (pension will increase from EUR 575 to EUR 644), while as compared to 2020, pensions will increase by 61 % or EUR 244 after taxes. This decision will affect more than 623 thousand people.

Also, in view of the economic slowdown this year, economic stimulus is foreseen for next year, with over EUR 3 billion are allocated to investment, of which the largest share – over EUR 1 billion – will be earmarked for green transformation: to ensure, through energy communities, low-cost and zero-emission energy for people and the public sector, as well as through loans to businesses promoting the development of high value-added and green technologies, the production and renovation of electricity from renewable energy sources.

We also did not distract in financing national security – in consistent implementation of the agreement between parliamentary parties and Lithuania’s commitments related to NATO membership, in the draft State budgetary plan prepared by the Ministry of Finance we committed to ensure equal funding by further strengthening national defence capabilities and military mobility. Targeted increase in funding for the Ministry of National Defence from the beginning of the term – next year it will be twice as high as at the beginning of the term exceeding EUR 2 billion and accounting for 2.75 % of Lithuania’s gross domestic product (GDP).

For additional funding of national security – temporary solidarity contribution

The Ministry of Finance has proposed and implemented the Law on Temporary Solidarity Contribution which, in exceptional circumstances, applies a contribution only to banks with unplanned incomein 2023 and 2024. The solidarity contribution only affects the unexpected part of credit institutions’ interest income, which is not related to business decisions.

It is projected that approximately EUR 400 million will be collected during the period of validity of the Law on Temporary Solidarity Contribution to meet the military mobility needs, ensuring Lithuania’s capacity to host allies, to reconstruct roads necessary for military transport, to build military infrastructure.

The plan “Next Generation Lithuania” is the foundation for the future of Lithuania

The plan “Next Generation Lithuania”, which was evaluated as excellent by President of the European Commission Ursula von der Leyen, received a supplement this year – the agreement with the European Commission for EUR 1.7 billion of new investment, including measures for business, green, innovative, digital technologies, the production and export of high value-added products, cybersecurity, renovation of multi-apartment buildings, development of zero-emission transport and renewable energy production was officially signed on 1 December.

Additional investment is planned to take into account geopolitical fluctuations and developments in the region as well as the need to strengthen resilience in the energy sector. Therefore, the total volume of the plan is not only almost doubled from EUR 2.2 billion to EUR 3.8 billion, but also our ambition is doubled to produce all the electricity needed by the State from renewable energy sources by 2030. New measures will not only strengthen our energy independence, but will also contribute to the competitiveness of Lithuanian business.

The most significant new investment is planned to focus on two areas: EUR 1 billion is allocated to loans and other financial instruments for business and additional more than EUR 550 million to the production of electricity from renewable energy sources.

At the same time, Lithuania has already received EUR 542 million for the first request for payment of the subsidy tranche, as it has implemented the planned indicators. Lithuania also submitted a payment request to the EC on 18 December for the additional part of the plan for almost EUR 400 million.

Confidently moving forward, Lithuania is implementing the necessary steps, this time in the fields of social security, health system, national defence and green finance. Due to reforms in these fields, Lithuania will receive funds for further investment in these fields at the beginning of next year for both business and people, which will increase Lithuania’s growth potential, resilience to future shocks, expand the use of renewable energy sources, increase energy efficiency and cybersecurity.

Continued support for Ukraine

Lithuania has allocated over EUR 1 billion, or more than 1.8 % of gross domestic product (GDP), on humanitarian, military and financial support to Ukraine since the beginning of the war erupted by russia and is considered to be one of the leaders in the international support delivery.

This year, the Ministry of Finance continued to actively support Ukraine through the instruments of such international financial institutions as the World Bank, the European Investment Bank, the European Bank for Reconstruction and Development, the Council of Europe Development Bank, and the European Union (EU) and bilaterally allocated in total EUR 36.1 million. In our contribution to the support initiatives for Ukraine, we focused on their efficiency and leverage effect, i.e. that our contribution would bring the highest added value to Ukraine and that one euro contributed would generate as much additional support as possible for Ukraine.

Crucial decisions were taken on the capital increases of the Council of Europe Development Bank (CEB) and the European Bank for Reconstruction and Development (EBRD), which will enable a more significant contribution to Ukraine’s minimum financing needs in the short and medium term. The Ministry of Finance will pay the share of Lithuania’s capital increase of the aforementioned banks (i.e. CEB – EUR 2,759 million; EBRD – EUR 4.03 million) in several coming years.

In addition, in order to meet the prerequisites for the implementation of the International Monetary Fund (IMF) programme in March 202 when approving a broad-ranging IMF programme of USD 15.6 billion for Ukraine, Lithuania, together with its international partners, submitted a political-level statement in which provided for the IMF financial security confirming the countries’ readiness to continue supporting Ukraine and ensuring Ukraine’s capacities to meet its future commitments to the IMF. The programme is of particular importance both in covering Ukraine’s financing needs and in strengthening the country’s macroeconomic and financial stability and in carrying out the necessary reforms towards the country’s accession to the EU. Since the beginning of the Programme, USD 4.5 billion has been disbursed to Ukraine.

Focus was also on the implementation of bilateral reconstruction projects through the Development Cooperation and Humanitarian Aid Fund. In 2023, the Ministry of Finance from borrowed funds channelled EUR 11 million to this purpose, a major part of which is expected to be used in 2024.

Fulfilling the ambition to attract AMLA to Vilnius

Lithuania has set itself an ambitious goal and submitted the country’s official application to participate in the competition for the establishment of the Anti-Money Laundering Agency (AMLA), offering Vilnius as a strategically best option to set up the agency.

Lithuania is considered to be one of the countries best managing money laundering and terrorist financing risks, and according to the Basel AML index, Lithuania was ranked among top 10 countries with the lowest risk in the world in 2023. At the same time, among the countries that have expressed their willingness to participate in the competition for AMLA headquarters, Lithuania is in the first place according to the Basel index.

The establishment of AMLA in Vilnius would be a strong sign of quality confirming Lithuania’s achievements in this field and evaluating the long-term achievements of the public sector and market participants. The arrival of AMLA in Lithuania would complement the ecosystem of the Lithuanian financial sector – AMLA would be of utmost importance for both the public and private sectors. AMLA would also bring economic benefits in Vilnius, as the agency could eventually employ about 400 well-paid specialists. The fact that some of the professionals would move from Europe, come with families means that the establishment of the institution in the capital would provide additional impetus to the city’s and country’s economy and to individual sectors.

Lithuania narrowing the shadow economy and VAT gap

The value added tax (VAT) gap in Lithuania continues to narrow steadily, as the European Commission stated. According to a study published in October by the EC Centre for Socio-Economic Research (CASE) on the VAT gap in EU countries, Lithuania has seen a downward trend in the VAT gap over the last decade. In 2021, the VAT gap was 14.5 % and decreased by 4.2 percentage points as compared to 2020. According to the CASE assessment, this is the largest decrease over the entire calculation period. According to preliminary CASE estimates, the VAT gap narrowed even more significantly in 2022 to 13.5 %, or decreased by 5.2 percentage points as compared to 2020.

According to preliminary data prepared by the State Tax Inspectorate (STI), the downward trend of the VAT gap in Lithuania will continue. The trends presented by the STI coincide with the CASE calculations.

Both increasing trust in the State and increasing taxpayers’ awareness, and consistent administration’s work in preventing tax infringements in real time, as well as possibly changing consumer habits, e.g. intensified online trade, increased settlement in non-cash, contributed to the steady narrowing of the VAT gap.

At the same time, narrowing of the shadow economy and VAT gap remains a key objective for the Government. Therefore, the Action Plan on Narrowing of the Shadow Economy and Value Added Tax Gap was approved by Order of the Minister of Finance, which aims to consistently reduce the VAT gap in Lithuania to 10 % by 2030, i.e. to the success rate set in the Eighteenth Government Programme for 2030.

In 2021 the VAT gap was 14.5 %, and in 2022 it is projected to be 13.5 %

According to preliminary estimates, gradual reduction of the VAT gap (to 10 % by 2030) could increase tax revenue by 0.1 % of GDP on average per year, which would amount in millions from EUR 63 to 90 million per year.

As a result, at the end of the period (in 2030) the redistribution through the budget could be higher by about EUR 760 million or 1 pp of GDP.

Government savings notes – a safe investment for people

In August, the Ministry of Finance resumed the distribution of the Government savings notes (GSNs). It is a safe and return-generating investment similar to time deposits in a bank, only in this case the residents would entrust their savings to the Government. The distribution of the GSNs was restored by broadening the possibilities for residents to choose where to invest the accumulated funds, at the same time – it is an opportunity for the Government to form another borrowing instrument – to borrow from the residents directly and thus to attract savings not invested elsewhere.

Buying savings notes is not only useful enough, but at the same time people lend to the State, which uses their money to fund public services. Over five placement issues of the savings notes, the residents purchased GSNs for EUR 176.3 million.

The established National Development Fund – the first of its kind in the country

This year, the Ministry of Finance is also successfully continuing to merge of 4 existing to date and duplicated national development institutions – INVEGA, VIVA, VIPA, ACGF– by pooling all their financial and human resources in one place.

Institutions that were so far scattered and operated with duplicated functions had not provided sufficient funding to cover the market gap, had not provided the necessary support to business, and the split of functions between different institutions caused confusion.

The consolidated Fund will ensure a unified investment strategy, synergies between instruments, effective re-use of the EU assistance, attraction of institutional and private investors, increased investment in strategic activity areas – from the development of high value-added sectors to green and digital transformation and a one-stop shop for business and private investors.

Decisions needed for strategic policies

The Ministry of Finance has developed a series of solutions that will help strategic areas to grow and operate even more efficiently.

One example is the Guidelines for the Development of the Fintech Sector in Lithuania for 2023-2028 created together with market participants, with a view to the development of the sector over the next five years and achieving the ultimate goal of becoming an internationally recognised European Fintech hub of high added value.

As the FinTech sector successfully grows and expands, it is important to ensure the qualitative development of the sector, the development of competences and talents, risk management and the growing maturity of companies, therefore, the established long-term development Guidelines will ensure that companies offering innovative solutions are attracted to Lithuania, a wider range of financial services and a more competitive price and greater visibility of Lithuania as a jurisdiction. In addition, a mature sector will also be able to guarantee high-quality and well-paid jobs for the people of Lithuania.

At the same time, in order to attract private funds for greening the economy, the Ministry of Finance, together with market participants, developed the Green Action Plan for Lithuania for 2023-2026 and established the Green Finance Institute.

The plan aims to bring together both public and private investors’ funds and channel them towards green, environmentally neutral projects.

The European Union has set itself the ambitious goal of becoming the world’s first climate-neutral economy by 2050. Lithuania is mobilising the necessary investment to implement strategic climate-impact reducing projects and a smooth transition to renewable energy sources. By 2030, the green transition will require at least EUR 14 billion, of which almost EUR 10 billion are expected to be covered by public finances. The plan will help to efficiently mobilise both public and private resources to achieve climate change mitigation and energy goals and to increase Lithuania’s attractiveness for those who choose to invest in green financial products and to become the leader in Baltic green finance.

The new Green Finance Institute is responsible for building an ecosystem to mobilise funds in one place, as well as coordinating cross-sectoral cooperation, market advice, organising research studies and education, promoting Lithuania as a sustainable finance jurisdiction.

This year, the Ministry of Finance has also prepared draft laws and proposes to implementthe European regulations on crypto-asset markets and transfers of funds even earlier than they are planned in Europe. With the rapid growth of the number of crypto-asset companies in Lithuania, it is necessary to strengthen the maturity of the sector, therefore, the prepared projects set new requirements for crypto asset service providers and consolidate the licensing process. These developments will ensure a high level of protection for retail investors and better manage the risks of money laundering and terrorist financing and evasion of sanctions by crypto-asset service providers.

In addition to the initiatives already mentioned, the Ministry of Finance initiated the amendments to the structure of the budget this year, which entered into force with the approval of the Seimas, and for the first time in history, they embedded the establishment of a medium-term budget of three years. In other words, from the next year, the Government will prepare not only a standard annual draft budgetary plan, but also a three-year draft budgetary plan. The amendments will ensure more efficient budgetary planning, clearer fiscal policy, more consistent assessment and decision-making, their impact on financial indicators in subsequent years, and medium-term certainty of financing.

The Ministry also implemented the State Treasury’s Consolidated Accounts Management System (VIKSVA). This allowed the introduction of advanced banking solutions in the State treasury system, which opens up opportunities for efficient and rational management of the public monetary resources. 229 public users have already joined the newly installed system, and a total of 470 public sector users are expected to be attracted by 2028.

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