OVERVIEW OF FISCAL DECENTRALISATION 

The Lithuanian constitution established a government structure based on two layers: the central government and 60 municipalities. Lithuania has ten regions, which are not self-governing authorities.  

Legal acts governing fiscal decentralisation

The major legal acts ruling the budgetary autonomy of local governments are the Law on Methodology for the Establishment of Local Government Budgetary Revenues, the Law on Budget Structure and on Local Government, the Law on the Methodology of Municipal Budget Income Estimation, and the Law on State and Local Government Budget. 

Qualifying fiscal decentralisation:

In 2018, only about a quarter of total government expenditures were at the sub-national level (see the pie chart below).  Nevertheless, local authorities (municipalities) have the right to draft and approve their own budgets, to impose local duties, and to levy taxes and duties. Within the limits set by the law (i.e. a balanced budget and the performance of a set of defined tasks), local authorities are granted autonomy in drafting their budgets. Every year, specific financial indices are approved by the national parliament setting the budgetary limits for local bodies. Local bodies' revenues consist of: shared taxes (personal income tax) and local taxes (land tax, real estate tax, stamp duties), with local governments granted partial autonomy with regard to the tax base and rates of the latter; non-tax revenues, such as municipal charges (up to 11 types), local fees, local duties, revenue from the disposal of municipal properties and partial privatisation of municipal utilities (up to 30%); and transfers from the state budget, which can be either general or earmarked for the provision of state services assigned to municipalities. 

Fiscal equalisation mechanisms

The central government manages a mechanism of fiscal equalisation across local governments by transferring resources, based on natural persons’ income taxes, to less wealthy municipalities. Structural and tax-base-related inequalities which do not depend on local government activities are balanced through general grants from the state budget to local budgets. 

LEVEL OF FISCAL DECENTRALISATION 

Revenue autonomy (own revenues relative to total resources available) at the local level (municipalities) was below the EU average (12% versus 53% in 2017), this entails a rate of dependency on central government transfers that is higher than the EU average (91% versus 48%). Local own revenues represent 3% of total government revenues, lower than the EU average of 13%. 

Source: authors’ elaboration on EUROSTAT data. For further details, see methodology. 

The composite ratio (4% in 2017), capturing aspects of fiscal decentralisation of both revenue and expenditure, suggests that sub-national governments in Lithuania have a degree of fiscal decentralisation that is much lower than the EU average (17% in 2017). 

Fiscal rules and borrowing capacity

Lithuanian law sets limits and procedures for local government borrowing: short/long-term domestic/foreign loans are allowed to finance investment projects, to cover debts, to cover temporary income shortfalls, or to provide guarantees for loans to companies controlled by the municipalities. Borrowing limits are set each year by the national parliament in the Law on State and Local Government Budget. In 2012, a municipality's annual net borrowing could not exceed 20% of the approved 2012 municipal budget revenues (excluding state-specific grants), while municipal guarantees could not exceed 10% of the approved municipal budget revenues (excluding state-specific grants). The borrowing limit varies year to year, but is usually 20%. If the borrowing is for EU-financed projects, the limit can be increased by five percentage points. The Ministry of Finance must be informed when local governments undertake loans or guarantee operations. 

Deficit and debt at sub-national levels

EXPENDITURE BY GOVERNMENT LEVEL AND BY POLICY AREA 

Local expenditures represent a significant part of total general government expenditures in the fields of housing and community amenities (91% of total expenditures in 2017), education (60%), environmental protection (59%), and recreation, culture and religion (46%).

Source: authors’ elaboration on EUROSTAT data. For further details, see methodology. 

Sub-national expenditures are particularly high, and above than the EU average, in the fields of education (38% of total local spending), and health (19%). In all other areas of spending, expenditures are rather limited and below the EU averages.

Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.