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04/05/2018   Fiscal Institution Submits Insights on Stability Programme of Lithuania for 2018

For the first time, the National Audit Office, implementing the functions of the independent fiscal institution, has conducted an assessment of the Stability Programme of Lithuania for 2018, which had the following goals: to provide an independent opinion on the general government balance and debt for 2017, to assess both the soundness of the general government surplus and the fiscal policy stance in 2018.

Last year, the general government surplus reached 221.2 million EUR or 0.5 percent of the GDP. The fiscal institution notes that the general government surplus in 2017 was determined by one-off factors and accounting principles (i. e., on the accrual basis, the spending on weapons systems was 110 million Eur lower).

“The actual stance of the public finances can be shown more accurately on the accrual basis since events are recognised in financial indicators when they occur regardless of when cash transactions happen. We currently record surpluses, but this spending on weapons systems will have the opposite effect in the future – compared with the cash accounting, expenditure on the accrual basis will be higher, that is why this uncertainty has to be considered when planning the expenditure ceilings in the medium-term,” said Senior Advisor of the fiscal institution Saulė Skripkauskienė. 

Rapid economic growth in 2017 had a positive impact on the general government debt dynamics: at the end of 2017 it was 16.6 billion Eur or 39.7 percent of the GDP and decreased by 0.4 percent of the GDP since 2016. In October 2017, when assessing the draft budgets of the general government for 2018, the fiscal institution forecast the general government surplus at 0.5 percent of the GDP. Having assessed the failure to execute the major taxes and social insurance contribution plans for 2017 as well as the performance trends for the first quarter of 2018, the fiscal institution reduced the projections of the budgetary revenue attributed to the general government sector, took into account the municipal budgets approved in 2018, and assessed decisions which would likely result in higher expenditures. Considering the abovementioned factors, the estimate of the general government surplus for 2018 was revised downwards to 0.2 percent of the GDP.

Pursuant to the assessment conducted by the fiscal institution, given the reduction of the general government primary structural balance in 2018, the fiscal policy of Lithuania will maintain its pro-cyclical stance. This means that no development of the fiscal space took and has been taking place during good times to ensure the possibility of counter-cyclical expansion, rather than pro-cyclical consolidation, during a downturn.

Together with the assessment of the Stability Programme of Lithuania for 2018, the fiscal institution also submitted the assessment of the forecasting errors associated with the major tax — personal income tax, corporate tax, value-added tax, and excise duties — plans approved by the corresponding Laws on the Approval of Financial Indicators of the State Budget and Municipal Budgets for 2012–2017. Its goal was to decompose to what extent the error of the tax plan was determined by unexpected economic developments. During the analysed period, on average, half of the absolute size of the personal income tax errors was determined by the projection errors of labour market indicators; 12.9 percent of the absolute size of the corporate tax errors was determined by faster or slower economic growth; and 20.8 percent of the absolute size of the value-added tax errors followed from the final consumption expenditure forecasting errors.

 

Responsible for the information Communication Division
Last updated on 13 July 2018

National Audit Office of Lithuania

Pamėnkalnio St 27, LT-01113 Vilnius, Phone: + 370 5 266 6793, + 370 5 266 6752, Email: nao@vkontrole.lt.