Lithuania 2016 OECD Economic Assessment more productive and inclusive Vilnius 15 March

1. http://www.oecd.org/eco/surveys/economic-survey-lithuania.htm
OECD
OECD Economics
2016 OECD ECONOMIC
ASSESSMENT OF LITHUANIA
More Productive and Inclusive
Vilnius, 15 March 2016

2. 2
The fiscal position is robust
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
- 12
- 10
- 8
- 6
- 4
- 2
0
2
4
Government deficit, % of GDP
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0
5
10
15
20
25
30
35
40
45
Government debt, % of GDP

3. 3
Tax revenue potential is not fully exploited
Gap between VAT collection and potential VAT revenue,% GDP, 2013
0
5
10
15
20
25
30
35
40
FIN NLD SWE LUX SVN FRA PRT DNK GBR BEL IRL DEU AUT ESP EST CZE HUN POL LVA ITA GRC SVK LTU
0
5
10
15
20
25
30
35
40
 Further improve tax collection and continue fighting tax evasion

4. 4
The workforce is set to fall
- 60
- 40
- 20
0
20
40
60
Projections for population aged 15-64 years, % change, 2014-2050

5. 5
The financial sector is recovering
Q4 08 Q2 09 Q4 09 Q2 10 Q4 10 Q2 11 Q4 11 Q2 12 Q4 12 Q2 13 Q4 13 Q2 14 Q4 14 Q2 15
0
5
10
15
20
25
30
Non-performing loans
% of total gross loans

6. 6
Productivity growth has resumed but has
slowed
-70
-60
-50
-40
-30
-20
-10
0
-70
-60
-50
-40
-30
-20
-10
0
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Russian financial crisis
Global financial crisis
Labour productivity gap (%) to OECD

7. 7
Well-being is low and income inequality is
high
Well being indicators
0
2
4
6
8
10
Income
and wealth
Jobs and
earnings
Housing
Health status
Education
and skills
Social
connections
Environmental
quality
Personal
security
Subjective
well-being
Lithuania OECD
0
10
20
30
40
ISL
NOR
SVN
CZE
SWE
FIN
BEL
SVK
NLD
AUT
DNK
HUN
CHE
LUX
FRA
DEU
IRL
POL
EU28
GBR
ITA
GRC
PRT
ESP
LTU
LVA
EST
Income inequality
Gini coefficient

8. 8
First challenge: boosting
productivity

9. 9
Some regulations need to be more market
friendly
PMR Indicator of public ownership, Scale 0 (least) to 6 (most public ownership), 2013
 Improve the governance of state-owned enterprises
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0

10. 10
Lithuanian skills are inadequate
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
40
EST HUN SVN POL SVK CZE LVA LTU
% of firms citing an inadequately educated workforce as a major or very severe obstacle to operations, 2013
 Further increase the role of workplace training and cooperation
with employers in the education system
 Further reduce regulatory barriers to the employment of non-EU
workers

11. 11
Participation in lifelong learning is
insufficient
 Increase access to lifelong learning, especially for low-skilled
0
5
10
15
20
25
30
35
0
5
10
15
20
25
30
35
GRC SVK HUN POL LTU TUR LVA IRL BEL DEU ITA CZE PRT ESP EST SVN LUX AUT GBR NLD FRA NOR FIN ISL SWE DNK CHE
Participation rate in education and training, (last 4 weeks), 25-64 years old, %, 2014

12. 12
Participation in early childhood education is
low
0
10
20
30
40
50
60
70
80
90
100
0
10
20
30
40
50
60
70
80
90
100
Participation rate of 4-years old in education, %, 2013
 Attract strong talent to the teaching profession by raising pay and
investing in teacher development

13. 13
Business sector innovation is low
EU Summary Innovation Index
30
40
50
60
70
80
90
100
30
40
50
60
70
80
90
100
2007 2008 2009 2010 2011 2012 2013 2014
Lithuania Czech Republic Estonia Latvia Slovak Republic
 Improve firm’s awareness of the existence of R&D tax incentives

14. 14
Second challenge: making
growth more inclusive

15. 15
Unemployment is still high, especially for
low skilled

16. 16
Labour taxes are high
 Reduce employer social security contribution on low-skilled
workers
0
5
10
15
20
25
30
35
40
45
50
55
0
5
10
15
20
25
30
35
40
45
50
55
Taxes as % of labour cost, 2014
single person at 67% of average earnings, no child

17. 17
 Strengthen active labour market policies, in particular training,
and the capacities of public employment services to get people back
to work
Labour market programmes are small
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
40
GBR SVK EST LTU LVA GRC ESP CZE PRT SVN ITA POL IRL DEU BEL NLD FRA HUN LUX NOR AUT FIN SWE DNK
Public expenditure on active labour market policy measures per unemployed
Percentage of GDP per capita, 2013 or last available year

18. 18
Temporary income support to the
unemployed is too low
 Increase the coverage and generosity of the unemployment
insurance benefit system
Net income replacement rate for unemployment insurance,
(first year of unemployment), 2013, % of previous income
0
20
40
60
80
100
0
20
40
60
80
100

19. 19
Minimum income benefits are low
 Increase the level of minimum income for social assistance
recipients
Net minimum income value in % of median household income, 2013
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80

20. 20
Financial incentives to take a job fall the
larger the family
 Strengthen the in-work benefits scheme to make work pay, in
particular for second earners of families
GRC
TUR
USA
HUN
CHL
SVK
ISR
ESP
PRT
FRA
CAN
AUS
OECD
GBR
NZL
DEU
EST
BEL
SVN
LUX
LTU
JPN
KOR
NLD
FIN
IRL
ISL
DNK
CZE
POL
SWE
AUT
NOR
LVA
CHE
0
10
20
30
40
50
60
70
80
90
100
110
120
Effective tax rate on additional earnings when taking a job for social assistance recipients
Two children, one-earner at 50% of average earnings

21. 21
Life expectancy is low for men
 Further promote healthy lifestyles and primary care services,
especially in rural areas
40
45
50
55
60
65
70
75
80
85
Life expectancy at birth for males

22. 22
Summary

23. 23
Main messages
• Lithuania has made remarkable progress in the last decades:
o Fostering productivity convergence
o Weathering the Great Recession
• Current challenges:
o Further boosting productivity
o Making growth more inclusive

24. Main Findings
o Fiscal policy needs to be adjusted to meet medium to long term fiscal challenges
related to population ageing and future potential macroeconomic shocks.
o The tax mix does not facilitate enough inclusive growth.
o Low energy efficiency increases vulnerability to world energy price shocks and
jeopardises climate change objectives.
o Businesses have difficulty finding suitably skilled labour.
o Test scores for secondary school students are low.
o Regulations are generally business friendly, but innovation intensity of Lithuanian
firms is low and access to finance is a constraint for some high productivity firms.
o High wage inequality, low employability for the low skilled and low job satisfaction
reduces the well-being of workers and contributes to high emigration.
o Weak support to the unemployed increases vulnerability to poverty and contributes
to skill mismatch.
o The social assistance benefits programme is not effective enough at reducing
poverty.
o Life expectancy is relatively low and the health care system could make a better
contribution to health status.
24
ProductivityInclusionMacro

25. Recommendations for fiscal and financial
policies to support the economy
 Continue fighting tax evasion also beyond the VAT gap and improve spending
efficiencies (especially in education and health care areas), to allow medium
term fiscal consolidation and finance public spending needs.
 Further shift the tax burden away from labour, especially from employer
social security contributions, and raise recurrent taxes on personal
immovable property.
 Increase taxes on activities that damage the environment.
25

26. Recommendations to boost productivity
26
 Further increase the role of workplace training and cooperation with
employers in the education system, especially in the context of vocational
education and training programmes.
 Attract higher performing graduates to the teaching profession by paying
higher wages and investing in teacher development.
 Promote participation in pre-primary education.
 Promote new forms of business financing and ensure that innovation
policies support young innovative firms. Reform bankruptcy procedures.
More in Chapter 1 of the Economic Assessment

27. Recommendations to make growth more
inclusive
 Improve labour market inclusiveness by lowering employer social
security contributions on low-skilled workers, providing them in-work
benefits while maintaining their entitlements and increasing access to
lifelong learning.
 Implement the plans in the “New Social Model” to reform labour
regulations and temporary income support for the unemployed.
 Strengthen active labour market programmes and the capacities of
public employment services to implement programmes to get people
back to work.
 Increase the income support to social assistance recipients while
strengthening work incentives.
 Further promote healthy lifestyles and primary care services especially
in rural areas
More in Chapter 2 of the Economic Assessment 27

28. More Information…
www.oecd.org/eco/surveys/economic-survey-lithuania.htm
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