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Lithuanian capital Vilnius exerts to stave off bankruptcy

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

The worse for Vilnius in the circumstances could be only filing for bankruptcy, but Councilmen at the Vilnius Municipality coupled with the influential parliamentary Budget and Finance Committee’s members are scrambling to do whatever it takes to ward off the demise.

Vilnius cannot hide its vulnerability any longer

An immediate remedy to soothe the capital’s budgetary drought could be a hastened decision to funnel an extra 2% of the city dwellers’ personal income tax (PIT) into the capital’s empty coffers.

It, however, can relieve the thirst in the short-term, but won’t work in the long-term, unless the authorities rescuing Vilnius decide again to up the PIT part in the capital’s budget.

«We are totally bankrupt and it’s no longer possible to hide that,» Romas Adomavičius, vice-mayor of Vilnius, told members of the parliamentary Budget and Finance Committee (BFC) on Wednesday, October 15, pleading for help.

The bribe scandal-haunted vice-mayor insisted that the state should borrow more so as to cover its arrears to Vilnius.

«Maybe the state could increase its own debt a bit in rescuing Vilnius and cover with the money the arrears to the Vilnius municipality,»suggested Adomavičius.

Behind the LTL 1.6 billion (EUR 463 million) city debt looms Vilnius’ inability to live according to the city’s income, says Gintautas Paluckas, an influential Social Democrat and the party’s candidate in the nearing direct mayor election.

The former mayors – and especially Artūras Zuokas, the current mayor of the Lithuanian capital – Paluckas insisted, would go splurging public money and assume too big financial commitments.

«The sums in the most of the contracts Vilnius has signed up are way larger than the city can afford,» Paluckas criticized the current authority of Vilnius. «Plus, the city is eager to sign up for EU-supported projects, though it cannot commit to their co-financing by the volume that types of agreements foresee.»

The municipality EU-project contribution varies from 50 to 85%, depending on the project.

«So at the end of the day we have the exacerbating situation: Vilnius knowingly digs deeper in debt,» concluded the Social Democrats’ mayoral hopeful.

State ought to throw a lifebuoy to Vilnius?

Meanwhile, the Lithuanian Deputy Finance Minister Edmundas Žilevičius hinted at the committee hearing that the authorities might once again need to increase the proportion of revenue from personal income tax earmarked to the Vilnius municipality so as to tackle the debt problems Vilnius deals with.

«It will once again be necessary to discuss a possibility to hike (the proportion of revenue from) personal income tax,» the official said.«A rise of 1 percent equals around LTL 12 million (EUR .47 million)», he added.

According to him, with the PIT rate supplementing Vilnius budget raised by 6% from the year, up to 48%, to be exact, Vilnius will be able to scoop up an additional LTL 145 million (EUR 42 million) for covering the debt in 2015.

«So the total of the two last years will add up to LTL 250 million (EUR 72.4 million) for the purpose. The municipality is set to fulfill the PIT plan, as it has received around LTL 26 million (EUR 7.5 million) extra-revenues over the last three years,» the vice-minister concluded.

Banks to not lend Vilnius anymore

But Valdas Klimantavičius, director of the Vilnius Municipality’s Authority, cautioned the Lithuanian lawmakers that some serious roadblocks may lie ahead despite the alleviation the city will get from the tax. «All banks have refused to give the municipality any new loans…Vilnius is being plagued by the major problems: first, liquidity, which means that Vilnius cannot offset its revenues and expenses and, second, the too little PIT rate that goes to the municipality,» Klimantavičius pointed out.

The capital’s current accounts rose from LTL 327 million (EUR 94.7 million) in 2007 to a whopping LTL 1.6 billion (EUR 463 million) this year.

One of the reasons deeper miring Vilnius in debts, according to him, are the public transportation privileges, which, each year, costs the city roughly LTL 80 million (EUR 23.1 million).

Municipalities should get a bigger piece of the PIT cake

The ensued deliberations showed that most of the hearing participants would opt to make amendments to the Personal Income Tax Law so that a bigger part of the tax would be added to the local municipal coffers.

«Obviously, to Vilnius, the current system seems the most flawed. Just because personal income tax is paid in accordance with the declared location of residency, not the actual workplace. How it works now is in favor of the regions, but not (in favor) of Vilnius. If we amend the law, it should be working for Vilnius, but then the regions might be in a worse situation,» the Deputy Finance Minister reasoned.

Bradauskas, the BFC chairman, has proposed to draw up the PIT law changes, allowing Lithuanian municipalities more benefit from the tax revenue.

«Is it really hard to have the law working so that the tax is paid where the person works? Especially, taking into account that the infrastructure is used. Should the tax be split in half?»the committee chairman reasoned.

PM: Give Vilnius extra 2%

Vilnius had to deposit some LTL 326 million (EUR 94.4 million) of PIT revenues to other municipalities’ accounts last year, whereas the Lithuanian capital got only a mere LTL 26 million (EUR 7.5 million) of the tax revenue from other municipalities.

Statistically, each Vilnius resident, this year, gets as much as LTL 1865 8 (EUR 540) from the city’s revenue, while, in comparison, the amount for the statistical Riga and Tallinn resident added up to LTL 3029 (EUR 877) and LTL 3270 (EUR 947) respectively.

Lithuanian Prime Minister Algirdas Butkevičius also weighed on the issue at the end of Wednesday, October 15, saying that Vilnius‘ PIT part could be raised by no more than 2%.

«I believe that the decision will be passed during the draft state budget bill deliberations,» he said.

But Paluckas, the Social Democrat mayor race nominee, cautions that it can be not enough.

«Expenditure cuts are needed right now. But I reckon the mayor (Zuokas, who hasn’t yet announced on participating in the Vilnius mayor race) is not intending to do that. If I become a new mayor, I’ll overhaul all the current investment programs and will definitely scrap some of them, like the Vilnius Airline thing, Zuokas’ fad, but a boondoggle in fact,» said Paluckas.

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  1. Linda says:

    Obviously, Lithuania needs separation of its financial arrangements. Go to UK to see how they do. Personal taxation is the realm of the State and the city/town/districts function from levying Council taxes which cover domestic refuse collections, street cleaning, street lighting and business council tax, etc. Water fees are with the water companies. Lithuania also needs a watchdog (or several hounds) to check over the financial arrangements of both State and Councils. A further point specifically to the article is that Councilmen should be Councillors as these people can be male or female.

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