Bloomberg News

Lithuanian Parliament Backs 2012 Budget to Meet EU Deficit Goal

December 20, 2011

Dec. 20 (Bloomberg) -- Lithuania’s Parliament gave its final approval to the 2012 state budget, trimming the deficit to within the European Union’s limit.

Lawmakers voted 72 to 45, with 3 abstentions, in Vilnius today to pass the budget, a key fiscal measure for assessing a country’s readiness to adopt the euro, which Lithuania intends to join in 2014. The budget foresees a deficit of 3 percent of gross domestic product, the EU’s limit, after an estimated 5.3 percent shortfall this year.

The Baltic nation, which pushed through one of the European Union’s toughest austerity measures in 2009 and 2010, must cut the deficit to the within EU ceiling next year. Economic growth will probably slow to 2.5 percent in 2012 from 5.8 percent this year as demand for Lithuania’s exports, which account for about two-thirds of output, wanes in the European markets.

“It’s a difficult but a responsible budget,” Prime Minister Andrius Kubilius said after the vote. “The deficit is within 3 percent, which is a big achievement in this environment.”

Lithuania will implement measures including cuts for ministries and investment projects and will demand state-owned companies to divert a portion of their profits to the budget to plug the shortfall. Parliament also approved new taxes for luxury real estate.

Lithuania will also reduce the portion of social-security tax diverted to privately run retirement funds to 1.5 percent from the current rate of 2 percent. The government had gradually reduced the transfers to private pensions funds from 5.5 percent in 2008 to grapple with a ballooning deficit as the economy contracted 14.8 percent in 2009.

The government must cut the deficit to meet a 2012 deadline set by the European Commission as the shortfall has breached the 3 percent limit since 2008. Failure to do so may prompt the EU’s executive arm to impose penalties. The deficit was 7 percent of GDP in 2010.

The Kubilius-led government implemented austerity measures equal to 12 percent of GDP through 2009 and 2010 to plug the widening budget gap.

--Editor: Jeffrey Donovan

To contact the reporter on this story: Milda Seputyte in Vilnius at mseputyte@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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