Lithuania is characterized by frugal public consumption, like other Baltic countries, reaching 33% of GDP in 2017. Public debt is moderate, standing at 36.5% of GDP, and slowly falling. Deficits have been put under control in the last couple of years, and now Lithuania even shows a small surplus. Economic growth accelerated to 3.8% in 2017, supported by rising exports and domestic consumption but is expected to slow down. Unemployment is now below 7%. EU cohesion funds are not fully utilized, which lowers the total investments and growth. The moderate level of government spending is a result of low government involvement in the economy and relatively low social transfers that are almost one half of the EU average. Lithuanian tax system is flat, with some minor progressive characteristics
– personal and corporate income tax is set at 15% (or 5% for micro companies). VAT has a standard rate of 21%, as well as the reduced rate of 9% or 5% for certain products, while the excise duties on tobacco, alcohol and energy are among the lowest in the EU. However, overall social contributions are high, leading to a considerable tax wedge on labour above 40%. The Lithuanian state has largely left the market to private companies, and most of the state-owned enterprises were privatized. However, SOEs remain present in the economy in certain strategic industries, such as the energy (electricity and gas) and transportation (railways, airports, the post office). Their number stood at 130 in 2017, but was scaled down through the bureaucratic consolidation so as to meet OECD recommendations. Private companies, as a rule, do not face restrictions in their competition and dealings with the SOEs; however, SOEs management is often not up to the high professional standards, with cases of misconduct. Lithuania completed the accession process for the Organization of the Economic Cooperation and Development (OECD) in 2018, whereby this is expected to improve the SOE management practices – several new laws in this regard have been recently introduced, but their full implementation is yet to be discerned.