Economists say that inflation and rising interest rates have impoverished Lithuania’s middle class, even though defining that group is not straightforward. Amid the government’s tax reform plans, both proponents and opponents invoke the welfare of “the middle class” to argue their case. LRT.lt reports on a survey by Swedbank presented in May, which suggests that about 54% of the population self-identify as middle class.
People intervewed at a Vilnius farmers’ market had different ideas about what it means. One person said that being middle class means earning at least 5,000 euros ($7200 CAD) or 3,000 ($4320 CAD) a month. Another set the bar at 2,000 ($2880 CAD) According to the Organization for Economic Co-operation and Development (OECD), middle-class incomes are those that range from 75 to 200% of a country’s average. In Lithuania, that would be between 1,100 ($1584 CAD) and 2,900 a month, before tax. People who fall into that income bracket make up 62% of Lithuania’s population.
Swedbank chief economist Nerijus Mačiulis notes that a record high proportion of the population can be classified as middle class “But if it’s record-high by size, its opportunities have very much been reduced and it cannot be compared with the middle classes of richer countries.” In terms of purchasing power, about half of the middle class can only buy basic goods and services, according to the Swedbank survey.
The middle class has been impoverished by record inflation, which hit 20% last year, and rising mortgage rates. As a result, mortgage holders spend, on average, 3,000 euros more annually than before. In terms of wealth, Lithuania’s purported middle class looks quite poor. While car ownership is growing, a third of cars owned by households are older than 20 years, according to Mačiulis. Nine out of 10 people live in a home they own, but almost a tenth of them have no indoor toilet. A third of the population has at least 2,000 euros in their bank account at all times. The rest have no savings at all and live from salary to salary.
The Lithuanian government has drafted a package of tax reforms which include higher rates for the self-employed and a real estate tax that would apply to half of the country’s properties. Opponents argue it would disadvantage the middle class more than any other group. Finance Minister Gintarė Skaistė disagrees, arguing the reform would have the opposite effect, especially the proposal to raise the tax-exempt income threshold.
Algirdas Bartkus, an associate professor at Vilnius University, also points to high income inequality in Lithuania, meaning that income is not very evenly distributed and that a rather small segment of society takes a large proportion of national income. On the other hand, Bartkus says, when the country is facing a recession, raising taxes is not a good idea, while efforts to boost incomes may fuel inflation.
