Seimas of the Republic of Lithuania has approved the adjusted State and municipal budgets for 2009. Having regard to macroeconomic projections, where a greater economic recession than expected is envisaged, total reduction in expenditure on all the budgets (State, municipal, Sodra and CHIF budgets) is over LTL 3 billion. The State budget expenditure is reduced by LTL 2,067.3 million – mainly through the reduction in investment projects, institution maintenance expenses and wages. By a more economic use of taxpayer money it is aimed at overcoming economic challenges of the upcoming period, maintaining financial stability of the state and fulfilling the commitments to most socially vulnerable part of the society.

The adjusted draft budget for 2009 envisages that this year the national budget, which covers the State and municipal budgets, EU assistance excluded, will receive LTL 20,316.5 million of revenue, i. e. by LTL 3,922.7 million or 16.2% less than it was approved in the plan for 2009 (on 22 December 2008). It is envisaged that municipal budgets will receive LTL 3,639.5 million, i. e. by LTL 405.5 million or 10.0% less than it was approved in the plan for 2009.

State Budget

The improved draft budget for 2009 projects that the State budget, EU assistance included, will receive LTL 22,879.8 million of revenue or by LTL 2,567.8 million less as compared to the approved plan for 2009. The projected State budget revenue will include LTL 16,462.4 million of EU assistance. The envisaged appropriations from the State budget for 2009 alongside with EU grants will make up LTL 25,822.2 million and they will be by LTL 1,118.0 million less than planned (on 15 December 2008). The State budget deficit will equal LTL 2,942.4 million or represent 2.9% of GDP.

It is projected that revenue from value added tax will decrease by LTL 1,920 million, and it will amount to about LTL 7,417.4 million. While making projections it was estimated that in 2009 final consumption expenditure would nominally decrease by 8.7%, losses due temporarily valid VAT reliefs (for heating, medicine, books and non-periodicals) would make up about LTL 213 million.

Having regard to the envisaged decrease of 11.2% in the fund of wages, it is projected that in 2009 the national budget will receive LTL 4,437.9 million of revenue from personal income tax, i. e. by LTL 468.8 million less than approved in the plan for 2009.

The adjusted draft budget for 2009 envisages that the projected revenue from excise duties amounts to LTL 3,619.5 million, i. e. by LTL 372.4 million less than planned. This projection was adjusted based on the changes in sales of goods subject to taxation by excise duties (alcoholic beverages, tobacco and energy products).

Having estimated general projections of advance and annual profit tax payments (in the last quarter of the previous year the losses incurred by enterprises were over LTL 1 billion), in 2009 the projected revenue from corporate tax is reduced by LTL 760.6 million, i. e. to LTL 2,135 million.

Appropriations for wages (contributions to Sodra included), except for the wages of teachers, cultural, social, healthcare specialists, statutory officers and soldiers, were reduced by LTL 162.4 million. Appropriations to public institutions and establishments as well as municipalities were reduced by LTL 782 million.

In 2009 the planned contributions to the State budget, which are designated for financing the Special Road Maintenance and Development Programme, are reduced by LTL 564.9 million and are allocated for the general needs of the budget. A real reduction in the funds of the aforementioned programme equals LTL 153.9 million, as LTL 411 million will be financed by envisaging additional EU funds.

In order to mitigate financial losses by farmers, which are related to decrease in milk prices, reduce social tension in villages and fulfil farmers’ expectations, it is envisaged to increase expenditure on direct payments by LTL 106 million and allocate them to the payments for milk in 2009. The expenditure on the Special Rural Support Programme, support to bio-fuel production development and the Rural Development Programme by the European Agricultural Fund was reduced, accordingly.

The improved draft Public Investment Programme for 2009–2011 envisages that in 2009 LTL 3,911.2 million from the State budget will be allocated to investment, out of which LTL 2,606.3 million will be EU assistance. The State budget funds envisaged to be allocated in 2009 as compared to the ones approved for 2009 were reduced by LTL 961.3 million.

In the budget for 2009 it is envisaged to allocate LTL 3,056.1 million for social security, i.e. by LTL 76.7 million less than approved in the plan for 2009.

In the State budget it is proposed to allocate LTL 2,685.4 million for education, including higher schools, i.e. by LTL 168.6 million less than approved in the plan for 2009.

LTL 2,100.1 million for health security is planned in the budget for 2009, i.e. by LTL 74.4 million less than approved in the plan for 2009.

LTL 591.3 million is planned to be allocated for recreation, culture and religion, i.e. by LTL 116.2 million less than in the plan approved for 2009.

In the draft budget it is planned to allocate LTL 1,185.8 million for defence, or as compared to the plan for 2009 it is less by LTL 172.6 million.

LTL 2,008.1 million for public order and public protection is envisaged in the budget for 2009, i.e. by LTL 187.7 million less than approved in the plan for 2009.

In the draft budget for 2009 the allocation of LTL 6,368.3 million is envisaged for economy, i.e. by LTL 189.0 million more than approved in the plan for 2009.

Municipal budget revenue from all revenue sources and excluding the general grant compensation to the State budget would amount to LTL 6,917.3 million. For performing independent functions municipal budgets will be allocated 72.29% of inflows from personal income tax. It is envisaged that municipal budgets will receive LTL 3,208 million of inflows from personal income tax, i. e. LTL 338.9 million or by 9.5% less than projected. Total reduction in municipal budget revenue for performing independent functions and the grants makes up LTL 572.9 million.

The scope of these adjustments to the budget is not yet sufficient for ensuring that the general government deficit did not exceed the Maastricht criterion establishing the limit of 3% of GDP, which should be met for the euro adoption. Therefore, this year the Government plans to present additional adjustments to the budget, which would reduce the general government deficit yet by about 2% of GDP.

The necessity to reduce budget expenditure is based on worsening economic indicators. The loan market and the housing market are shrinking more than expected, export, domestic trade and production are decreasing, and in parallel unemployment is increasing. Economic deceleration forms high tensions for the public finance system. It is envisaged that due to the decreased internal and external demand economic recession will further continue, economic recovery is expected to take place only in 2011.