Gitanas Nausėda is Lithuania‘s president-elect – Free economic zones remain attractive

published on May 28, 2019 | reading time approx. 3 minutes

 

It can certainly be described as the end of an era: President Dalia Grybauskaitė has been in office for ten years – last Sunday Lithuania elected a new head of state at the end of her two possible terms in office. 

 

   

Both in Lithuania and in the rest of Europe the result was highly anticipated. Under Grybauskaitė's aegis the small country developed to a reliable and internationally highly regarded partner in many areas. Quite in contrast to some of its neighbours, Lithuania pushed ahead with further integration into EU and NATO. Grybauskaite repeatedly took the opportunity to emphasise the country's importance in both alliances – partly due to a more strained relationship with Russia following the outbreak of the conflict in Eastern Ukraine in 2014.

 

In economic terms, this strategy paid off. The financial crisis in 2009 hit Lithuania harder than almost any other European country. However, the drastic measures taken (including wage cuts of 25 per cent) were fruitful. Economic performance today is more than twice as high as before EU accession in 2004. Unemployment has been falling for many years and currently stands at approx. 6 per cent.

 

The power of the Lithuanian President

In addition to representative functions, the Lithuanian president has far-reaching domestic and foreign political power. In certain cases he may refuse to sign laws passed by the Lithuanian parliament (Seimas) and refer them back to the Seimas. In the past, this right has been exercised several times, including in 2016, when a new version of the Lithuanian labour code had to be revised by the Seimas. However, the importance of the Lithuanian president is most evident in foreign politics: in accordance with the constitution, he decides on fundamental foreign policy issues and implements them together with the government.

 

The new one

Last Sunday, 55-year-old Gitanas Nausėda won the second round of the presidential elections with almost two-thirds of the votes. Until recently, Nausėda was chief economist at Lithuania's largest private bank (a subsidiary of the Swedish bank SEB). He previously held a senior position at the Lithuanian Central Bank.

 

Somewhat surprisingly, the former banker Nausėda campaigned for a stronger welfare state and for a higher state use of the constantly rising gross domestic product. At present, the GDP public spending in Lithuania is below 35 per cent – only Ireland has an even lower ratio in the EU. Nausėda's plans are based on a widening gap between the rich and the poor. In the region of the capital Vilnius incomes are already above the EU average, in many other regions far below.

 

This could change for companies

Companies in Lithuania have so far benefited from extremely low taxes. Even if the president has no domestic political authority in this area, his word still carries weight. This low-tax policy could be gradually softened in order to finance Nausėda's plans. Foreign investors planning to move to Lithuania should keep an eye on this situation. If an abandonment of the Lithuanian “flat tax” system were to become apparent in the medium or long term, companies should react quickly. One way to continue to benefit from low taxes when investing in Lithuania in the future would be to invest in one of Lithuania's six Free Economic Zones – offering foreign investors, among other things, a ten-year guaranteed exemption from corporate income tax (followed by half the corporate income tax rate over the following six years). Even if tax increases were to occur, the investor would secure low corporate income tax rates in the long term through this model.

 

Besides further adaptation to Western standards, Nausėda plans under certain conditions a rapprochement with Russia. Lithuania could thus regain its former link function between East and West.

 

And something else could make the change of president particularly interesting for German companies: In the 1990s, Nausėda spent several years researching in Mannheim for his Ph.D. He speaks German – his relationship with Germany is regarded as excellent and he enthused about the Federal Republic in several interviews. Whereas in recent years the Nordic countries in particular have been declared role models for Lithuania, an even closer relationship with Germany could now be initiated.

  

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