Agricultural policy

At the request of the parliamentary Committee on Rural Affairs LFMI made an analysis of a draft law on agricultural and rural development. LFMI commented widely on agricultural policy in the media and public forums, highlighting the shortcomings of the allocation of a fixed portion of the national budget for agriculture as well as for other areas. On April 19 LFMI held a seminar “Will Agriculture Ever Be a Competitive Business?” to discuss whether agriculture should be treated as an exceptional branch of the economy and whether Lithuanian agriculture would become a competitive business domestically and in the European Union. The participants discussed the agricultural policy pursued by the Lithuanian Government, the outcomes of liberalisation of milk prices and other topical issues.

Capital market

LFMI continued discussion on the development of the securities market and the need to privatise the National Stock Exchange of Lithuania. On April 16 LFMI held a round table to discuss barriers to an effective operation of the capital market and policy initiatives to advance its growth. Capital market participants, experts, politicians and representatives of international institutions discussed why corporate governance traditions remain underdeveloped in Lithuania and what measures were needed to stimulate the securities market to better serve its function of facilitating effective capital distribution. The round table also analysed recent trends towards globalisation of securities markets and the prospects of privatising the National Stock Exchange of Lithuania. A resolution featuring the conclusions of the round table was issued to all participants of the event.

Company law LFMI submitted to the Ministry of the Economy comments on and recommendations for a project of amendments to the law on joint stock companies. LFMI proposed abolishing a number of excessive restrictions envisaged in the law, such as a limitation on the number of shareholders in companies of limited liability, on types of creditors, interest rates and the distribution of profits on dividends and bonuses.

Financial Institutions. The parliamentary Committee on Budget and Finance approved a number of LFMI’s proposals for a draft law on financial institutions, including proposals to bring the definition of leasing into line with the definition of financial institutions laid down in the Civil Code; to allow all financial institutions to provide financial services in foreign currency; to allow financial institutions to conduct activities other than financial sector activities provided that income generated from these activities does not exceed 10 percent of a company’s total income; and to allow financial institutions to receive additional income from the management and use of assets in their ownership.

Deregulation

Building and Land Purchase. In April the Government of Lithuania approved a schedule for the revision of building and land purchase regulations and implementation of adopted policy measures under the so-called Sunrise programme. The said agenda incorporated a number of LFMI’s proposals, such as: to define clear criteria that should be used to coordinate legitimate public interests in the process of preparing documents on territory planning; to improve the procedures for co-ordinating documents on territory planning with the public so that citizens could learn about the coordination of territory planning projects from the very beginning; to draft a new bill on territory planning and to clearly define conditions under which municipal authorities have a right to require a builder to expand the municipal infrastructure and to specify the rules of solving ownership problems; to improve the existing method of appraising state-owned land by establishing periodic (e.g., annual) revisions of land valuation ratios and a gradual transition to the application of the law on property and business valuation to state-owned land; and to simplify requirements applicable to the maintenance and utilisation of items of cultural heritage. All of the legislative amendments are scheduled for submission to the Government of Lithuania this year.

Customs. LFMI policy analysts continued to participate in the work of the Council for Customs Issues and the Sunrise task force on customs procedures and transit. In debating ways to simplify customs procedures, the Council adopted some of LFMI’s recommendations. The Sunrise task force included in the policy schedule the following proposals from LFMI: to simplify procedures for bringing sample goods into the Republic of Lithuania, the procedures for granting credibility status for economic entities and regulation of customs warehouse. The schedule is to be shortly debated by the Government of Lithuania.

The Civil Code. As parliament initiated amendments to the Civil Code seeking to revoke the prohibition to make cash settlements, LFMI policy analysts urged policymakers to modify the said proposal and to allow all legal and natural persons to make both cash and non-cash settlements without limitation of the amount of settlements. The parliamentary Committee on Legal Affairs declined the proposal on the ground that “settlement relationships concern not only the parties involved.” The amendment proposal was subsequently revoked.

Tobacco and Alcohol Control. On June 11 the parliament adopted amendments to the law on tobacco control revoking the requirement to renew every year tobacco production, import and wholesale trade licences. LFMI had urged the authorities to abolish the renewal of licences since 1998. In support of the president of Lithuania’s veto of amendments to the law on alcohol control prohibiting outdoor alcohol advertising, LFMI issued an address to members of parliament stating that such prohibition would infringe on the freedom of information and choice and violate the interests of consumers and producers without giving any material results. LFMI called on the lawmakers to revise the proposed amendments and to discard the prohibition of outdoor alcohol advertising as a harmful and futile regulation.

Education

LFMI embarked on a project “Introducing a Voucher Funding System in Higher Education.” The purpose of the project is to promote a financing reform in higher education based on voucher funding, to provide an independent expert input to the policy making process and to increase public understanding about the need for and contents of the proposed reform. LFMI also submitted to parliamentary committees a policy proposal calling for revision of the law on higher education which introduces a national fee for education services in public universities for all students (except the fifty percent, including the socially supported and the best students). Also, according to the law, state establishments of higher education will provide only government-funded educational service, while private establishments will be allowed to provide only educational services that are not financed by the state. This law was adopted in December 2001 and is to be enforced in September 2002. LFMI argued that this law discriminates against private higher schools and that its implementation will provoke sizeable budget expenditures; therefore, the law may be implemented improperly if it falls short of government funding. LFMI proposed establishing a task force to formulate amendments to the law that would create equal and transparent conditions for public and private establishments of higher education. Despite these recommendations, the functioning law will come into effect starting in the autumn of this year.

EU integration

LFMI continued to work on the project „Lithuania‘s Integration into the EU Single Market: Regulatory Impact on Lithuania’s Economy“ and launched a research in the area of building regulations. LFMI will make an analysis of Lithuanian and EU legal acts regulating the activities in the building sector in various areas in order to evaluate changes in the Lithuanian legal environment and its implications for the building industry. LFMI policy analysts commented widely on the implications of EU Integration and the need for impact assessment analysis as well as on the most important policy events in the EU over the past three months and its implications for Lithuania in the national and regional media and during public events.

On June 19 LFMI held a conference “Debate on the Future of Europe: A View from Lithuania,” supported by the PHARE Small Grants Programme of the European Commission Delegation in Lithuania. The aim of the conference was to present to policy makers and the society LFMI’s position on the main issues currently debated in the European Convent and to provide a stimulus to public debates in Lithuania on the EU and Lithuania’s membership in the EU. The conference audience included experts on EU affairs, politicians, representatives of the academia and media. A study prepared by LFMI on the aforesaid issues will be shortly released (in Lithuania and English).

Health care

On April 18 LFMI issued a press release to present its position on recently introduced quotas for compensated medicine. LFMI warned government authorities that the introduction of quotas would harm patients, slow down the restructuring of the healthcare system and aggravate working conditions of doctors, without helping to save health care funds. LFMI policy analysts proposed abolishing a government-approved list of compensated medicines and introducing a scheme under which patients would cover part of medicine prices. LFMI policy analysts also discussed this topic in the media.

Information technologies

LFMI policy analysts participated in the work of a Sunrise task force on informatics and telecommunications, helping to draw a list of barriers to the information technology and telecommunications markets. LFMI provided an input to the development of and debates on a project of amendments to the law on electronic signature. The bill, aimed at expanding the possibilities of using e-signature on the market, was adopted in parliament on June 6. LFMI is also contributing to the preparation of a conceptual framework for e-government. A package of comments and proposals was submitted to a task force working on the framework.

Labour market policy

LFMI policy analysts took an active part in parliamentary debates on a new labour code. In order to express concern about the drawbacks of the new labour code, LFMI together with nine other organisations addressed the president of Lithuania and members of parliament. In a joint letter of notification they emphasised inappropriate provisions of the new labour code and their implications for the country’s economy and society. They called on members of parliament to decline the bill and urged the president to veto it in case it were adopted. On May 21 LFMI held a press conference “The New Labour Code – a Catalyst for Unemployment” to highlight the main flaws of the bill and the likely consequences for the development of the labour market and economic growth. LFMI widely commented on these issues in the press and on radio and television. Despite this intensive policy advocacy campaign many weaknesses remained and the new labour code was adopted.

NGO legislation

LFMI made an analysis of a draft law on public organisations, submitted to the parliament by the Government, and formulated comments and proposals for the legal regulation of the activities of public organisations. The main proposals were to allow public organisations to establish non-collegial governing bodies, to revoke the requirement for public organisations to conclude employment contracts with heads thereof and to abolish the prohibition for public organisations to guarantee the fulfilment of third parties’ liabilities. LFMI presented its conclusions and recommendations to parliamentary committees and took an active part in parliamentary debates. In response to proposals to prohibit public organisations from conducting commercial activities, LFMI presented arguments against them. LFMI noted that a six-year experience of public organisations’ commercial activities did not show any negative consequences.

Privatisation and competition

LFMI continued to promote privatisation of the National Stock Exchange of Lithuania. LFMI made an analysis of a draft law on enterprises and plants of strategic significance for national security and called on parliamentary committees to decline it. LFMI argued that the draft law envisaged inappropriate measures to ensure security and a proper functioning of items having strategic importance for national security and failed to specify criteria by which such items were selected. LFMI analysed a draft law on heating and submitted comments and conclusions to the parliament. According to LFMI, the law would restrict the heating production and supply market. It would preserve the current uncompetitive and ineffective system, depriving consumers of the possibility to receive services that would meet their needs and financial capacities. LFMI called on decision makers to abolish heating price regulation and to abandon plans to divide municipal territory by means of heating. It was concluded that legal conditions had to be created for residents to choose and change means of heating at their own discretion, provided they complied with established environment protection and other requirements. The draft law submitted to the parliament restricted such possibilities. LFMI policy analysts presented the institute’s position on the draft law and likely pitfalls of the proposed regulations in a series of radio appearances.

Public administration

Public procurement. The parliamentary Economic Committee adopted the following LFMI recommendations for a project of amendments to the law on public procurement: (i) the purchasing organisation may require from the supplier only information that is necessary to determine whether the supplier meets the financial, economic and technical requirements posed by the purchasing organisation; (ii) purchases that are related to secret information of the state as established by law are not subject to the provisions of the law the application of which would not guarantee the safekeeping of the secret information.

Legislature. LFMI policy analysts continue to participate in the Legislative Commission under the Ministry of Justice. They are heading a task force developing a model of the legislative process and proposals for the evaluation of the existing legislative process.

Social policy

On May 30 LFMI in co-operation with the United Nations Development Program in Lithuania held a conference „Explaining and Reducing Poverty in Lithuania: Prospects and Reality.” The purpose of the conference was to bring together social policy experts, politicians, municipal officials and business people to discuss the causes of poverty in Lithuania and ways to reduce it. The audience of the conference comprised 80 participants representing the President’s Office, the Ministry of Social Welfare and Labour, the Lithuanian Labour Exchange, the United Nations Development Program, various non-governmental organisations and mass media.

Housing. On June 4 LFMI President Ugnius Trumpa attended a regional symposium „The Economic Impact of Registered Pledge Systems in Five Transition Economies“ in Gdansk, Poland, organised by the East-West Management Institute, in co-operation with the Gdansk Institute for Market Economics. Representatives from Poland, Lithuania, Bulgaria, Albania, and Hungary spoke about their countries’ experience in developing registered pledge systems and drew lessons for the future. Ugnius Trumpa delivered a presentation about the property pledge reform in Lithuania and its effects for enterprise development and economic growth. This presentation was based on a study developed as a result of a project “Evaluating Economic Implications of Property Pledge Reform in Lithuania,” carried out by LFMI in co-operation with the East-West Management Institute.

The housing problem is an important issue for many people in Lithuania. In order to improve the housing environment and facilitate the acquisition of dwelling facilities, government authorities are drafting new legal acts on housing policy. One of them is a draft law on housing savings and crediting. This document is “to create a legal basis for a government-supported system of housing saving and crediting.” The draft law was prepared in accordance with the principles of Bausparkassen systems, as established in some foreign countries. LFMI analysed the draft law and developed an analytical study describing the principles of the Bausparkassen model proposed in Lithuania and giving an overview of overseas experience. The analysis of the draft law and the study were disseminated among government authorities, financial institutions, other business organisations and specialists. The study also presented a cost analysis of introducing a Bausparkassen system for society, likely benefits for individual interest groups, possible pitfalls and implications for the country’s financial sector and the housing market. The analysis of the principles of Bausparkassen systems and the practical application thereof in Central and Eastern Europe showed that the systems failed to achieve the goals they were designed to serve. It entailed excessive costs for society and produced a negative impact on market processes.

Pension Reform. In response to the position of the parliamentary Committee on Social Affairs and Labour regarding pension reform, on April 25 LFMI issued a press release urging the policy makers not to postpone the reform of the pension system. LFMI noted that a lack of political will and further delays would discredit social security reform and threaten to undermine the stability of state finances. LFMI policy analysts commented widely in the press and on radio and television on this issue. Despite a great deal of criticism the draft law on pension reform was not approved.

Tax policy

LFMI policy analysts continued to analyse tax legislation and participate in the Sunrise task force on taxation. The work focused on the corporate and personal income taxes, value added tax and excise duties. The Ministry of Finance adopted a number of proposals submitted by the task force for new drafts and secondary legislation. In a press conference on April 30 LFMI announced May 4 the Tax Freedom Day. In 2002 an average Lithuanian tax payer had to work 123 days to pay the total bill imposed by all levels of government to pay salaries to public officials and to maintain such public sectors as national defence and the public healthcare, social security and educational systems.

Personal Income Tax. On April 3 LFMI policy analysts held a discussion “Progressive and Proportional Income Taxes: Social and Fiscal Functions” at the parliament of Lithuania. The aim was to bring home to law makers the shortcomings of progressive income taxation and the advantages of a proportional system before a decision was made to replace the existing tax code.

LFMI analysed a draft law on the personal income tax and submitted a package of comprehensive comments and proposals to parliamentary committees and fractions. LFMI stated that the proposed draft law was extremely complicated and so it would be hardly possible to properly implement the provisions of the law. The law would not only impose a heavy tax burden on the people of Lithuania. It entails a heavy indirect burden of administering the tax. LFMI urged the policy makers to improve the draft law by simplifying as much as possible the envisaged tax rules. Another proposal was to cut down the upper personal tax rate from 33 to 29 percent and to charge a 15-percent tax rate on as many as possible types of income. As debates on the draft law continued, LFMI carried out an extensive public dissemination campaign. The parliament adopted and incorporated in the draft law the following proposals from LFMI: to spell out the definition of the property of sole proprietors, to allow the inclusion of property reconstruction expenses of all family members in sole proprietors’ expenses on the acquisition of property, to simplify the rules of classifying income by categories, to replace monthly A-class income tax declarations with quarterly declarations, to revoke the requirement that residents submit a written request to issue notifications about their received income.

Tax Administration. LFMI criticised the initiative of the Ministry of Finance to expand the powers of tax officers and to allow them to judge at their own discretion the substance of tax transactions and to conclude whether they entailed any abuse of tax rules. LFMI submitted a policy paper on the proposed amendments to the law on tax administration to the Government of Lithuania and the parliament. As a result, the provisions of the law were softened but the amendments were adopted. The business community expressed serious concern about the likely consequences of the law. In the media and in a series of radio and television appearances, LFMI policy analysts commented on the new provisions of the law on tax administration and explained their implications. LFMI called on the law makers to delegate the right to explain tax legislation to the Ministry of Finance instead of the State Tax Inspectorate.

After eight years of debates legislative amendments were adopted in order to provide for the merger of the tax collection and information systems of the State Tax Inspectorate and the State Social Insurance Fund. LFMI had submitted this proposal to all preceding administrations.

Turnover Tax. The Ministry of Finance submitted to the Government of Lithuania a draft law on turnover tax, providing for the introduction of a turnover tax instead of excise duties on certain groups of commodities (as of July 1, 2002 excise duties are charged only on tobacco, alcohol and fuel. Other types of commodities, previously subject to excise duties, were exempted in accordance with the EU law). LFMI called on the Government and the parliament to decline the bill. Despite that, the law was adopted. A new - turnover – tax was imposed on passenger cars worth more than 100,000 litas, publications of erotic or violent nature and perfume, cosmetic and other articles containing ethyl alcohol as listed by the Government of Lithuania. LFMI’s criticism spurred debates on the appropriateness of taxing passenger cars but this provision remained in the law.

State Dues and Levies. At the request of the Constitutional Court LFMI submitted its opinion on the compatibility of certain provisions of the law on state dues and levies with the Constitution of the Republic of Lithuania. LFMI concluded that the law on state dues and levies, which came into force in 2001 and lowered state dues for licenses, provided that licenses that had been obtained and paid for in accordance with the preceding law would remain in effect after the coming into force of the new law. The new law failed to provide for the repayment of the difference in state dues and so created unequal competition conditions for economic entities who paid the dues for the same calendar period according to different laws and at different rates.

Telecommunications LFMI analysed a project of amendments to the law on telecommunications and formulated recommendations for improving the draft. In a policy paper LFMI noted that the draft envisaged excessive regulatory instruments and threatened to undermine the legal basis governing the telecommunications market. As the analysis showed, an outdated sector regulation approach was applied to the telecommunication market instead of the principles of competition law. This would allow the regulatory institution to protect state service providers. LFMI called on the Government to decline the draft and to work out a telecommunications law aimed at creating conditions for free competition in the telecommunications market. According to LFMI, the law should be based to the new package of EU directives on telecommunications and reflect the principle of minimum government interference in the market. When the draft was submitted to the parliament, LFMI policy analysts provided a series of testimonies before parliamentary committees and presented LFMI proposals designed to reduce the regulatory burden imposed on market participants and to establish clear and limited powers of the regulatory institutions. A number of LFMI’s recommendations found expression in the bill.