Gathering Resources to Promote a Free and Responsible Europe

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Conference registration fee is €75 until September 15th and € 100 after September 15th

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LFMI is inviting European think-tankers to the 2nd ERBM in Vilnius in October

The Lithuanian Free Market Institute (LFMI) is privileged to host the Second European Resource Bank Meeting (ERBM), titled “The European “Third Way”: the Way Forward?,” which will take place in Vilnius, October 14-15th, 2005. On behalf of the organizing committee the Institute invites the European think-tankers to join a gathering of about 200 think-tank executives, policy leaders, and experts who share the same values of freedom, organised in the capital of Lithuania - the bedrock of freedom in the post-Soviet block.

The mission of ERBM is to improve strategies and to enlarge the debate to reach all the people in advancing ideas of freedom in Europe. It is also a forum for organizations, experts, partners and friends to meet, expand their network, develop new ideas and share their experiences. The meeting will be a two-day event: it will be a combination of exchange of ideas and skill building workshops, followed by a joint ATLAS-LFMI two-panel session on economic security and concluded by a gala dinner.

Among the featured guests will be Dr. José Piñera, the architect of public pension reform in Chile and the founder and President of the International Centre for Pension Reform in Santjago; Mr. John Blundell of the Institute of Economic Affairs; Richard Rahn, Dr. James Tooley and many other inspiring contemporary leaders who devote their everyday work to fight for freedom.

The conference will take place in the hotel Reval Hotel Lietuva, the newly refurnished hotel in the centre of Vilnius and one of the main landmarks in the city. Room reservations should be made directly with the hotel. All hotel and event information and registration is available online at www.rbeurope.org. For any additional information, please contact LFMI’s Project Coordinator Simonas Girdzijauskas at simonas@freema.org.

The second European Resource Bank Meeting is organized by the Lithuanian Free Market Institute in cooperation with Institute for Economic Studies Europe, F.A. v. Hayek Institute, Centre for New Europe, International Policy Network, Institute Bruno Leoni and ATLAS.

LFMI analyses potential effects of the euro launch in Lithuania

Seeking to analyse the consequences that the introduction of euro may exert on Lithuania, LFMI has competed a study on the euro impact on the Lithuanian people and companies. The study was presented at a discussion “Major Challenges for Lithuania while Joining the Euro Zone” held on May 27, 2005. Contrary to the ongoing pro-euro campaign, the event was designed to look into, and evaluate, the potential negative effects of the euro introduction. To disseminate the message more widely and to further the debate on this issue, LFMI organised another discussion “The German vs Lithuanian Road towards Euro: Practice and Perspectives” on July 14, 2005.

After weighing the pros and cons of the membership of the euro zone, LFMI concluded that the launch of euro in Lithuania will have a positive impact on Lithuanian households and corporations (the costs incurred in exchanging currencies will decrease). However, it will bring negative results as well because the certainty and the risk regarding the policy pursued by the European Central Bank (ECB) will diminish. Other important risk factors are the social financial obligations of some major EU member states which can undermine the value of euro, and a possible impetus towards the enlargement of the euro zone in the field of new harmonisation projects such as the harmonisation of the corporate profit tax.

In the LFMI’s opinion, Lithuania’s membership of the euro zone will bring benefit to its people only if competition among different currencies remains, if the ECB and European central banks continue a conservative policy and, most importantly, if the older EU countries focus on reforming their current systems failing to correspond to the economic, demographic and social reality.

Four Lithuanian NGOs have formed a Civic Alliance against Corruption

In May 2005 four Lithuanian non-government organisations – the Lithuanian Free Market Institute, Transparency International Lithuania, the Institute of Civic Society and the Human Rights Monitoring Institute – established a Civic Alliance against Corruption. The goal of the Alliance is to take an active part in the anti-corruption activities in Lithuania and to urge the Government of Lithuania to embark in practice on the implementation of the corruption prevention policy. The project is supported by the Embassy of the United Kingdom.

Members of the Alliance will make several studies which will show how to build conditions for the society’s participation in the fight against corruption and how to strengthen the supervision of the ethics of politicians and civil servants. LFMI is conducting a study on e-government in Lithuania as the way of enhancing the accountability of public administration system and improving conditions for citizens’ involvement in the decision making process.

A number of round table discussions and meetings will be held with politicians, representatives from the public sector and relevant anti-corruption services, law makers and members of NGOs seeking to incorporate them into a broad movement against corruption. Also, policy proposals will be formulated encompassing policy measures on how to improve corruption prevention.

The 15th survey shows first signs of pessimism on the market

In May 2005 LFMI released the 15th survey of the Lithuanian economy which is based on market participants’ 2004 estimates and updated forecasts for 2005. The results of the survey are presented in a Lithuanian-English publication. Launched in 1997, the LFMI survey is based on the expert consensus paradigm originating from the theory of rational expectations

According to the survey of market participants conducted by LFMI in January to February 2005, the economic situation in Lithuania in 2004-2005 remained stable. The economy is still growing rather rapidly, but not as fast as in 2003; the financial situation of Lithuanian companies is improving, unemployment rates are declining, and the average salaries, although not growing as fast as expected in 2004, are expected to increase rather considerably in 2005. Economic growth is stimulated by growing consumption, a strong domestic market and export growth, increasing investments, and brighter expectations of both companies and people.

On the other hand, the survey also shows that the size of rather large shadow economy has not been decreasing for several years, and instead appear to be growing: market participants believe that currently the level of the shadow economy is rising. Moreover, as many as four in ten people that officially earn the minimum wage additionally receive payments “in hand.”

The general trend of this survey is that market participants’ estimates are much more moderate than a year ago. At the beginning of 2004, inspired by high expectations of the upcoming European Union (EU) accession, market participants voiced very optimistic forecasts in almost all sectors. In this survey, however, while they still expect to see a constant growth in employment, average salaries, investments and foreign trade, market participants do not project any rapid changes brought about by any external factors.

Tax Freedom Day in Lithuania Fell on May 5 in 2005

According to the Lithuanian Free Market Institute’s (LFMI) annual calculations, Tax Freedom Day in Lithuania moved slightly earlier in the calendar and fell on May 5 this year. In 2005 the average Lithuanian taxpayer had to work 125 days to pay the total tax bill imposed by all levels of government.

The Tax Freedom Day is a symbolic day in the year when the average income earner stops handing over all his income to the government and begins to make money for his own and his family’s welfare. It is an indicator of the tax burden in relative terms which shows what portion of the value created by the people is taken by the government to be distributed through the national budget and non-budget funds.

LFMI calculates the tax burden as the ratio of projected total tax revenues to net national product (NNP), based on the methodology used in other countries as well (USA, Canada, UK, etc.). The tax burden, calculated according to this methodology, does not encompass money expenditures and time costs incurred related to tax administration. Government borrowing is not included either, while in Lithuania it is constantly growing and may become a tax burden in the future.

This year Tax Freedom Day in Lithuania arrived three days earlier than in 2004 but it doesn’t mean that Lithuanians started to pay less in taxes. The total amount of taxes collected to finance the state function will be more significant this year as compared to 2004. The tax burden in relative terms (!), due to bigger NNP generated, will decrease from 35.1 percent in 2004 to 34.1 percent this year, whereas the tax burden in absolute terms will go up, amounting to 19,4 billion litas in 2005 as compared with 17,7 billion litas in 2004.

LFMI started the tradition of commemorating Tax Freedom Day in Lithuania in 1993. Since 1993, when the Lithuanian taxpayers turned to the government everything they earned until April 13, Tax Freedom Day has moved later in the calendar. Starting from 2001, Tax Freedom Day came earlier every year: on May 15 in 2001, on May 4 in 2002 and on May 3 in 2003.

The reform of state registries - among LFMI’s targets

Seeking to steer the reform of the state registries to market relations, on June 9, 2005 LFMI staged a discussion and a press conference “Competition in the market of the registry services” to present a study on possibilities to reform the state registries. In this study LFMI’s policy analysts formulated a proposal for the reform in the system of state registries to make their services more efficient, accessible and transparent.

LFMI thinks that it is indispensable to overhaul the system of state registries as this would promote the knowledge economy, companies’ competitiveness and economic benefit to residents, while access to the information accumulated in registries would become quicker and simpler.

The objects of the study are the registries having the biggest commercial value: the registry of real estate, the registry of mortgages, the registry of legal persons and the registry of residents. It is likely that their reform would bring the most considerable potential effect, and there are the biggest preconditions that competing service providers would emerge in this market.

The principles of the proposed reform are the following: to separate structurally monopoly functions from non-monopoly ones; to ensure transparent pricing in the registry sector; to treat all consumers of registry services equally; and to shift the performance of functions in the electronic medium.

LFMI states that the drafted reform would unburden the system from unnecessary procedures and visiting various institutions, increasing alongside the security of the registries and the service providers’ responsibility. In addition to that, the reform would promote the business of information dissemination and competition thereof, drive down the costs and the price of services and diminish incentives to steel information.

LFMI actively supported the idea of more sizeable tax reduction

As the Lithuanian Parliament contemplated the widely discussed tax changes, LFMI repeatedly voiced its position and recommendations urging the authorities to refrain from imposing new taxes and to cut the personal income tax more radically.

As one the final attempts to debate the tax reform, on May 11, 2005 the Chairman of the Parliament Arturas Paulauskas organized a two-hour meeting with Lithuania’s most reputed economic and financial experts, LFMI’s President Ugnius Trumpa being among them.

LFMI’s President also took part in a meeting held by the President of Lithuania Valdas Adamkus the next day after which the country’s prominent economists unanimously asserted that there were other alternatives to compensate for budget losses rather than introducing a new tax on business. However, the Parliament adopted the fiercely opposed new tax as a source of budget revenues to offset the ensuing losses after the enacted personal income tax cuts.