"The Free Market", 1998 No. 2

Private Enterprise

The Economic Ministry drafted a legislative proposal on state control of enterprises which proposes repealing licences and registration of enterprises and prohibiting enterprise managers from running businesses for wilful tax evasion, illegal commerce or other violations of law. The LFMI analysed the draft and submitted a policy paper to the government and the Economic Ministry, arguing that the draft imposes unprecedented restraints on human rights and liberties without providing for legal proceedings. The LFMI proposed that the draft be rejected and any violations of laws be resolved through court.

The Economic Ministry supported the LFMI's position and abandoned the idea of the law.

The Economic Ministry drew up a legislative proposal which is to replace the functioning law on foreign capital investment. The biggest defect of the draft was that it provided for state support for individual investors. This would undermine competitiveness and discriminate against those without political connections. Granting of specific favours would depend on arbitrary decision making, thus inviting corruption, disregarding consumer preferences and inhibiting efficient allocation of resources. The assignment of inappropriate business functions to the state contradicted the goals of privatisation. Despite proclamations of equal rights, the draft limited the areas of foreign investment. The LFMI submitted a policy paper to the government and the Ministries of Economy, Finance, European Affairs and Foreign Affairs, urging to reject the draft.

As a result, the Economic Ministry drafted a new proposal which was included in the government's programme.

The Economic Ministry drew up a programme for promoting job creation. The LFMI analysed it, concluding that the proposed measures were not eliminate bureaucratic and regulatory barriers imposed on labour relationships. They would augment bureaucracy, expand governmental authority and increase the tax burden. Rūta Vainienė presented the LFMI's position to the March 16 meeting of the expert commission of the Lithuanian Industrialists Confederation. She urged the confederation to advocate the removal of barriers to hired labour and self-employment rather than the adoption of government aid programmes.

LFMI's Vice President Ugnius Trumpa gave an interview about state regulation for Respublika, March 24. An article based on the interview appeared in Mokesčių Žinios, April 6-12, and Apskaitos Aktualijos, May 5.

The LFMI analysed the Finance Ministry's new regulations of bills of lading, passed in October 1997. The regulations were designed to control the flow of goods within the country for smuggling prevention. LFMI's Vice President Ugnius Trumpa commented extensively in mass media, stressing that the new procedures "threaten to curb the freedom of business undertakings and will fail to fend off the spread of contraband." Ugnius Trumpa appeared in the January 8 Lietuvos Aidas, February 23 Verslo Žinios, February 24 Apskaitos Aktualijos, and Mokesčių Žinios, February 23-March 3.

The Ministry of Administrative Reform and Local Authorities submitted to the government a proposal to set up a working group to revise the rules of issuing permissions to use the word "Lithuania" in the names of companies and trademarks. The LFMI evaluated the government's decree on the aforesaid rules and new criteria proposed by the European Affairs Ministry. In a policy paper, which was submitted to a cabinet meeting, the LFMI criticised the state's monopoly on the word "Lithuania" as a typical bureaucracy. It argued that geographic names are not state property and should not be regulated. The LFMI will continue to call for the removal of the regulations in question.

Remigijus Šimašius spoke about the legalisation of gambling on the Lithuanian radio, March 30 and April 2.

The Achema company invited LFMI's policy analysts to hold a seminar on economic actualities for the company's employees, March 27. Vainienė delivered a paper on the ways of lifting the tax burden. Morkūnienė spoke about the prospects of private pension insurance with pension funds. Šimašius expanded on the barriers to the privatisation process. Ugnius Trumpa focused on the problems confronting private business growth.

Fiscal Policy

In late 1997 the LFMI submitted to the government policy recommendations for the fiscal 1998 budget legislation and a comprehensive budget reform proposal. An extensive media campaign was launched to highlight the need for reform. In response to the LFMI's initiative, the government set up a policy-drafting group under the Finance Ministry to revise the principles of budget formation and the Law on Budget Structure. Remigijus Šimašius was invited to serve as a member of the group.

  • Leontjeva and Šimašius presented the LFMI's recommendations to the February 6 meeting of the group.
  • Rūta Vainienė spoke April 20 before the economic committee of the Industrialists Confederation, which voiced support for the LFMI's proposal.
  • Leontjeva was cited in Mokesčių Žinios. She appeared on Free Europe radio, February 13, and was featured on Vilnius television, January 26.

    • The policy-drafting group formulated a conceptual framework for budget reform which was subsequently approved by the government. The group was instructed to draft a new law on the budget structure based on the developed conception. This initiative is expected to lead to a fundamental revision of the principles of budget formation.

    The Finance Ministry submitted to the government a project of amendments to the law on corporate income tax. The proposed changes are designed to replace the exemption of investments from corporate tax with the application of accelerated depreciation. Investments are exempted from corporate tax as of April 1997. This provision, however, does not extend to corporate income used to repay loans taken for investment purposes. According to the LFMI, the proposed depreciation of fixed assets is not an exemption but merely a way of cost recognition. Its adoption in the place of the exemption of reinvested profits would aggravate the conditions for investment and economic activity. The LFMI submitted to a cabinet meeting a policy paper indicating the defects and pitfalls of the proposed amendments.

    As a result, the cabinet instructed the Finance Ministry to revise the proposed amendments in co-operation with the LFMI and the Industrialists Confederation.

  • Leontjeva and Vainienė testified April 4 before a sitting of the Finance Ministry.
  • Vainienė spoke April 16 before the economic committee of the Lithuanian Industrialists Confederation. The committee upheld the LFMI's position.
  • Vainienė was quoted in the Lietuvos Rytas and Respublika dailies, March 24.

    • After debates, the Finance Ministry resolved to propose two alternative provisions, a zero-tax rate for reinvested profits and accelerated depreciation. Yet, the problem of non-exemption of profits used for repaying loans taken for investment purposes remains unaddressed.

    Each year the LFMI calculates Tax Freedom Day, that day in the year when people stop handing over their earnings in taxes to pay off the demand of the state and begin to enjoy the full benefits of their labour. Leontjeva contributed an article on Tax Freedom Day to the Respublika daily, May 12. The LFMI's initiative was highlighted by the ELTA news agency, May 12, and the May 13 Verslo Žinios. The LFMI participated in the celebrations of Tax Freedom Day organized by the Liberal Union, May 23.

    In late 1997, the LFMI presented at a major conference a conceptual framework for tax and budget reform. The reform proposal continues to attract public attention and provoke official debates. In addition to the media exposures which followed the event, the proposal was presented in:

  • The January 3 Echo Litvy, the January 5 Respublika, and the January issue of the Sąskaityba journal.
  • The Free Market newsletter presenting the principles of the LFMI's tax reform conception was mentioned in Highlights/Spring 1998, published by the Atlas Economic Research Foundation.
  • An article on Lithuanian opinion leaders' views on tax reform was reprinted from The Free Market in the January 15 Lietuvos Aidas.

    • Financial Infrastructure

    In late April the government debated a draft law on pension funds. The LFMI had provided a significant input to the policy-drafting process by submitting a series of comments and proposals, part of which were incorporated in the draft. Yet, the policy-drafting group was divided over the status, supervision and other aspects of pension funds. At the cabinet meeting a proposal was voiced to strengthen employer-sponsored pension funds.

  • Leontjeva appeared before the cabinet meeting to debate major provisions of the draft. She expanded on the principles of fully-funded pension insurance and argued against non-profit, employer-sponsored pension funds.
  • An interview with Audronė Morkūnienė was published in the April 21 Respublika.
  • Morkūnienė and Šimašius were cited against employer-sponsored pension funds in the May 5 Respublika.

    • As a result of the policy debates, the administration rejected the pension fund bill and resolved to set up a new task force to draft a final version of the law. Morkūnienė was invited to be a member of the group.

    Elena Leontjeva delivered a paper on building a friendly environment and risk management for private pension funds at a conference "Asset Management in Central and Eastern Europe," staged by Latvian Business School in co-operation with the Latvian Securities Market Commission and Riga Stock Exchange, May 27-28.

    Other areas

    Elena Leontjeva was requested by President Adamkus to evaluate a draft law on land lease. Leontjeva submitted to the president a policy paper indicating the defects of the draft and proposals for its improvement, March 10. President Adamkus suspended the signing of the law and returned it to parliament for revision.

    After debates, the parliament adopted all recommendations proposed by the president. The parliament extended the term of land lease to 99 years instead of 25 years proposed by the authors of the draft on the point that such a short term would discourage private initiative and impede the development of economic activity.

    The LFMI has completed the first stage of a survey of macroeconomic variables, covering the estimates for 1997 and forecasts for 1998 as produced by 48 entrepreneurs from Lithuania's leading companies. The results of the survey were outlined in a publication "A Survey of Macroeconomic Variables in Lithuania 1997/1998" which was presented at a press conference May 14. The event received a broad coverage in mass media, including the Lietuvos Rytas, Respublika and Lietuvos Aidas dailies, Atgimimas, the Veidas magazine, TV-3, Vilnius television, M1 Plius radio, Free Europe radio, and the BNS and Elta news agencies.

    The LFMI received the IMF mission May 4 to discuss macroeconomic developments in Lithuania.

    The LFMI was called a "sophisticated" and "high-profile" NGO in the Winter 1998 issue of NGO News of Freedom House. The same issue outlined the results of the LFMI's survey "Philanthropy in the Eyes of Business Leaders."

    Elena Leontjeva delivered a paper to the First British-Baltic Round Table on the integration into the European Union, March 18-20.

    Remigijus Šimašius attended a multilateral meeting of the European Council in Strasbourg and spoke about legal issues regulating non-profit organisations and their role in democratic society, March 22 - 25.

    LFMI's policy analyst Guoda Steponavičienė was quoted on discount fares for public transport extended to socially supported individuals in the February 26 Lietuvos Rytas. She commented on the state railway company in Lietuvos rytas, March 19 and April 16.

    The UNDP-published Human Development Report 1997 presented the results of the LFMI's survey of Lithuanian opinion leaders concerning the shadow economy.

    The editorial from The Free Market No 1, 1998 was reprinted by the Lietuvos rinka magazine No 4, 1998.