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Lietuvos rytas TV interviewed Andrius Kubilius, Lithuania’s Prime Minster on 2011 budget.  The interview was broadcasted on 12 of October.  Read fragments of the interview.

In 2011 you are planning to receive 2.5 b Litas (LTL) (some USD 1.02 b) more budget revenue than in 2010. Where will it come from?

First, the economy is growing. We hope that next year it will grow even faster.

The export recovers first. Just as everywhere else, domestic consumption recovers a little later.

Thus, if there are no new cataclysms in America, in Southern Europe or somewhere else, we can expect that next year we will receive more revenue than this year.

On the other hand, we think it is possible and necessary to look for additional revenues in contraband and the shadow economy – jungles that have not been tamed yet. We expect to receive a billion Litas from there.

I believe that after making the necessary decisions we will be able to receive even more revenue from state-owned companies as well.

Do you expect to receive significantly larger revenue from the excise tax, too?

We hope to receive it from legal sales. The Finance Ministry calculates that such income is actually not obtained from those shadows.

The issue is how to find ways to obtain that money.

We are not talking about some cruel actions, but about normal tools, which were recommended by the experts of the IMF.

Are those realistic tools really realistic? For example, during the first quarter of 2010, the revenue from the excise tax was bellow the projected amount by 130 million LTL. The latest data for eight months says the amount is negative 200 million LTL. What does that reveal? Bad planning or growing contraband?

We receive from some areas more than from others. We analysed the legal sales of cigarettes in Lithuania.

There are definitely occurrences that demand the most radical action.

The percentage of illegal sales of cigarettes is counted in dozens!

We must do more than just fortify the border. Law enforcement institutions should be more effective in fighting against the main contraband players.

Looking at report of the implementation of this year’s budget, one gets the impression that the government is successful only in those areas where it does not have to apply any efforts.

For example, the VAT is collected very well – the revenues exceed the plan by a billion. However, in the areas where effort is required – the excise tax, the fight against contraband, the use of EU funds – the lag is enormous. During eight months, a mere 43 per cent of the plan has been achieved. One gets the impression that for now you are succeeding only in raising of taxes.

We are not planning to increase taxes. Moreover, greater VAT revenue is not collected automatically.

An analysis of the economies of Central Europe shows that the Lithuanian economy started to contract later than in Estonia, and it is recovering earlier as well.

This shows that the tools that we applied are producing fruit.

If the excise tax is not collected and the EU funds are not used this year, what needs to happen in order to change all of this?

But you have just said that the VAT is collected. We collect more. Why are you asking only about this? We clearly said that we know what we need to do. It is more important how we spend that money.

We have to foresee that half of all the money is spent on social care. After that there is the area of education.

The deficit, however, will remain 2011 as well – 6 b LTL.

What does it mean when expenditures exceed the income by such an amount? The answer is clear – we have to borrow in international markets.

So, it looks like you are predicting that the government debt next year will increase by 2.5 b LTL.

It will increase in accordance with the deficit.

It is like in a family – if you want to buy a car, but you do not have money, you borrow.

There is nothing strange here, but the talk about “Lithuania that is up to its ears in debt” is liked by the opposition.

This, however, is said not only by the opposition, but also by many respectable experts, economists.

Everything is fine; this is how things should be. However, we should understand that the debt stems from the deficit.

Thus, there are only two choices – we either painfully reduce expenditures, or we increase revenues through increased taxes. There is no other alternative.

Or we can effectively fight against contraband and use state property wisely.

This is what I said. We will look for additional revenue from the shadow economy and state companies.

Therefore, we will not raise taxes next year, but will look for additional revenue from those sources that until now were not used properly.

Yet, how do you intend to receive that additional billion LTL from the shadow economy? What is your plan? Do you even have a plan?

All critics, including you, always criticize us for not taking that money from the shadow economy. Now, we will do it.

But how will you do it?

We definitely see all possibilities to do it. We have spoken about this with law enforcement officials more than once, too.

I do not intend to list the means that we will use to achieve this right now.

If we do not achieve this, we also have other commitments.

Listening to you, people may get the impression that you do not have a plan on reducing the shadow economy, and in the spring you will simply start to cut expenditures.

We have all the plans. In addition, we clearly see all the additional income sources that all ministers can utilize as well, if they work responsibly.

The Seimas Economics Committee proposes to fight against contraband by reducing the excise tax on alcohol. What is your opinion about this?

I view this equivocally. These proposals come from MPs, not from us.

Some think that this can reduce smuggling; others think this may increase alcohol consumption.

Until now we have seen that thanks to decreasing alcohol consumption the expenditures needed to fix the consequences related to alcohol consumption have been decreasing, too.

Yet, in reality it is unlikely that alcohol consumption has been decreasing. Perhaps only the number of alcohol induced psychoses has been decreasing. This shows that people are not drinking some moonshine, but are consuming good quality contraband vodka.

I cannot determine this. I am only saying that we need to see both sides of the medal – the things related to contraband and the things related to public health.

In the Seimas, other proposals have been registered as well – for example, proposals on reducing the VAT on agricultural products produced in Lithuania and reinstating VAT breaks on printed materials. Are you willing to negotiate over this?

We clearly said that we would extend the VAT breaks for those goods for which those breaks exist today.

The breaks for heating have already been extended. Thus, medicines and books still remain.

In my opinion, other breaks would return us to the situation that existed in 2008.

We should not relax. After all, 6b LTL difference between the revenues and expenditures is not something that can guarantee us long-term success