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Lithuania’s middle class: if you make 1,000 euros, then you are in it

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RULinas Jegelevičius for BNN

According to a new poll, every third Lithuanian resident views himself or herself as part of the country‘s budding middle class, but, well, who can claim the coveted spot?

According to three Lithuanian economists, all who makes at least a thousand euro per month, can see himself of herself as a member of middle class. Yet note, if there is a family of four, with both children unemployed, the parents have to bring home 2,000 euro each, which is a very hard task for most of the Lithuanian families.

«A numerous middle class reflects a country’s economic capacities – developed Western countries have middle classes comprising 50-60 per cent of their population. The representatives of the middle class can, without great struggles, satisfy their basic needs and set aside for savings or investment every month, or dedicate more to consumption. Even if the middle class is not as large in Lithuania, as it is in developed countries, it has growth potential because a young and educated generation is entering the job market, investment flows are on the rise and the number of middle class jobs is on the rise,» Swedbank finance institute head Jūratė Cvilikienė said, commenting the poll results.

«The middle class is often defined in terms of income…Unfortunately, Lithuanian middle class by the standards of the Western world is considered as poor. If our politicians describe people who earn about 1000 euros as rich, then people in countries to which we are trying to align are striking against such salaries,» Žilvinas  Šilėnas, president of Lithuania‘s Free Market Institute, pointed out recently.

«Middle class is shaping up slowly in Lithuania. Besides, it is bumping into a slew of hurdles along the way. For example, one of the government’s latest decisions to allot the so called child support money for all families regardless of their actual income is a blow to our middle class. And there can be found a lot more decisions of the kind,» Sigitas Besagirskas, a Lithuanian economist told BNN. «In Lithuania, middle class is definitely significantly smaller than in the West.»

According to the latest poll by Spinter tyrimai, some 42 per cent of Lithuanians currently see themselves as lower middle class, 15 per cent – as being poor and 8 per cent – as being in the higher middle class.

According to Cvilikienė, in Lithuania it is educated, young (18-25 years old) residents, who identify as middle class. More frequently men (37 per cent) than women (34 per cent). The group to least self-identify as middle class is typically those aged 56 years old or above (28 per cent). Lithuanian residents view those earning more than 1069 euro per month after tax as being middle class. Meanwhile the highest extent of middle class earnings is seen as 1980 euro per month after tax.

According to Civilkienė, representatives of the middle class are characterised not just by their incomes. Most (75%) respondents believe that the representatives of this class should own their own home and 45 per cent believe that the representatives of this class should be able to set aside for savings.

Around a third of respondents believed that middle class representatives should have savings equivalent to 3-6 months’ worth of wages and do not have debt, bar long term commitments. Both the results of Swedbank research and the typical definitions of the middle class show that it is defined not just by income, but also lifestyle and property.

According to Swedbank Lithuania chief economist Nerijus Mačiulis, based on the criterion of property ownership, roughly a third of Lithuanians can confidently view themselves as middle class.

«Yet based on solely the income criterion, the Lithuanian middle class is somewhat smaller. Only 14 per cent of those in employment earn more than 1.3 thousand euro per month before tax. That said, we can be happy that the number of individuals in this income bracket has almost tripled since 2010. Considering all income, this portion would be even smaller because the incomes of those receiving pensions and other benefits do not reach the middle class margin,» the banker commented.

According to him, to make the middle class more numerous in Lithuania, it would be necessary to reduce labour taxation, attract more investment, particularly in the regions and improve education and requalification programmes, according to him. He says that upcoming reforms are not for the middle class.

«One of the main changes is likely the merger of income tax and social security payments. This would mean that the untaxed income size takes on more weight – it will be applied to a larger portion of paid taxes and social security payments. As such, incomes will rise for those earning less than average. Yes, a part of them will perhaps transition from the poverty line to middle class incomes. However, the reform is nonetheless directed not at strengthening the middle class, but reducing poverty. That is to say, the interval of people, who could be viewed as middle class is expanded, but based on income, they remain discontented, which is what the research shows. Here we would perhaps need a very low Sodra ceiling, which would increase incomes for most earning a larger amount, not just earning the least,» Mačiulis emphasised.

For Šilėnas, of the Free Market Institute, it is wiser to define the middle class not by terms of income, but by attitude towards life.

«If a person works, strives and believes in being primarily responsible for his/her own destiny and not someone else, if that individual plans own finances, saves up and at least tries to escape from the «from pay to pay» circle – such a person is considered as the middle class or has all the potential to become it. If an individual wants to be a master of own fate, instead of depending on a good will of the government – he/she has traits of the middle class, even without having earned money,» he accentuated.

Meanwhile, Besagirskas underscores that Western European nations give many comfortable bonuses to their middle class.

«The people receive certain tax advantages, for example, which cannot be said of Lithuania. The middle- class Westerners get better education and health care than our middle class. In Scandinavia, for example, the state pays for many services, in Lithuania we have as a rule to pay for everything out of our own pocket. And even doing so, we cannot often expect high quality services, especially in health care and education,» he pointed out.

What the government should do so that the middle class grows in Lithuania?

«Firstly, no new taxes shall be imposed and a reduction of the tax burden for those who pay for their own and others’ public services should be enforced. Secondly, there shall be no taxation of savings and investment from which a person will pay for services – including education, healthcare and retirement, and thus such individuals will not need others to cover their expenditures. Thirdly, people should be allowed to plan their finances. A flexible tax schedule is needed; the tax system should be convenient for those who pay taxes rather than those who collect them. Fourthly, in terms of using public services, those who have greatly contributed should be treated differently from those who have never paid for anything. Paid high contributions to your public pension scheme? Your pension is most likely to be big. Paid a lot for public health insurance? You should at least get a wider choice than a person who did not pay anything. This would be both fair and effective,»  Free Market Institute head Šilėnas pointed out.


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