2021-05-28
National Audit Office: In the context of long–term financial liabilities, sustainable sources of income should also be foreseen
The National Audit Office of Lithuania, implementing the functions of the fiscal institution, carried out an evaluation of the Draft Amending Law on the Approval of the Financial Indicators of the State Budget and Municipal Budgets for 2021 submitted to the Seimas by the Government Resolution of 14 May 2021.
The Draft Law amending the budget for 2021 foresees additional expenditure not only for COVID-19 measures, but also for other long–term liabilities, for which there are no long–term sources of revenue foreseen. In the Law adopted in December 2020, expenditures for long-term measures not covered by revenue amounted to 1.6 % GDP (EUR 835.6 million) and the draft Law amending the budget for 2021 further increase these costs by 0.1 % GDP (EUR 30.2 million). This is not in line with the European Commission’s recommendation to ensure adequate funding for long–term measures in order to achieve budgetary neutrality.
In view of the pandemic and exceptional circumstances, the increase in the budget deficit for COVID-19 measures is understandable, but the structural deficit should not be increased by other long–term costs not linked to the containment of the pandemic and investments.
“With the end of exceptional circumstances, in order to reduce the increased structural deficit and avoid further financing of current expenditure with borrowed funds, it is necessary to increase income in a structural way. The situation is made more complicated by the long-term liabilities, such as the pensions indexation, that will inevitably require an increase in expenditure”, says Saulė Skripkauskienė, Senior Advisor to the Budget Policy Monitoring Department.
The National Audit Office notes that over the last five years, the long-term costs not covered by additional sources of income have already generated structural general government deficit of around 5 % GDP. Over the period 2017–2020, these expenditures grew on average by 1 % GDP each year. In 2017–2019, long-term expenditure was covered by additional income from Lithuania’s economy that grew faster than potential GDP. However, without a sustainable source of income for 2020–2021, the government spends 2.9 % GDP on long–term current expenditure.
It should be noted that since 26 March 2020, exceptional circumstances have been initiated in Lithuania that allow the deviation of fiscal indicators to be disregarded (i.e., temporary narrowing of the scope of the rules) as long as this does not endanger fiscal sustainability over the medium term (previous, current and next three years).