K. Leontjeva. What taxes is our government hiding?

As the elections grow near, time and time again we hear that the parties care about “the people”. But what is most important to the people? Economists usually do not meddle in spiritual or abstract issues but when we focus on the material problems, we can see that every person cares firstly that his/her income is bigger and he/she is not overburdened with expenditure. These simple concerns are directly tied with the taxes we pay: if the taxes were lower, we would spend less to satisfy our needs and would enjoy larger paychecks.

The level of taxation in Lithuania is highly inaccessible to most of the citizens – often, we do not know how much we pay to the government. And we pay a lot. A person earning the minimum wage annually pays around 5,600 Litas income tax; those who make earn average wages are forced to pay as much as 15,000 Litas. And the taxpayer does not see this money go away – they never reach her in the first place, it is the employer that pays these taxes. In addition, some of these taxes are called ‘the employer tax’, even though economically, it is the employee that bears their burden.

One does not see how much he/she pays in taxes when spending his/her hard-earned money too. If prices in stores were presented without the value-added tax (VAT), at the counter we would see that we have to pay an additional 21% of the total cost directly to the government. In gas stations, an average consumer would be shocked – half of what she pays for gas is in taxes – excise and VAT. Let us say that one’s car uses 10 liters for 100 kilometers and the driver travels 30,000 km each year – that brings the total sum of one’s taxes on gas to an astonishing 7,000 Lt. What is even more shocking is that the taxes themselves are taxed – VAT is paid on the excise tax!

Despite the fact that people already pay too much in taxes, some of our politicians are eager to raise the taxation levels. Merely a week ago, the idea that we should implement a progressive income tax was offered again; there were also talks about taxing cars and general real estate. The idea to adopt a progressive income tax system is grounded in a false assumption that the high-earners contribute too little to the budget. Facts show that people earning more than 3,000 Litas per month bring 51% of all the income tax revenue, while comprising only one fifth of the labor force.

The promised automobile tax would hurt the taxpayers’ pockets while adding little to the government’s budget. The tax would be but another entry to the list of insignicifant taxes: today, 17 different taxes bring only 9% of all taxation revenue, while the main 5 (VAT, excise, income, “Sodra” and compulsory health insurance) bring in 91% of all revenue.

Instead of talking about new taxes, immediately after the elections we should cut the public sector so that the money brought by current taxation is spent more efficiently. During the last decade, the number of public sector employees for 1000 Lithuanian citizens increased from six to ten. Expenditure on the interest on the government’s debt increased fourfold. This is only a fraction of signs, suggesting that the Lithuanian public sector is using the taxpayers’ money inefficiently and puts the burden of the underperforming state and an increasing debt on the shoulders of the future generations.