„The range of decisions offered by the Defence Fund is wide. We propose decisions that directly respond to the needs of defence and civil protection, ensuring the necessary level of defence funding and preparedness against threats. Given the geopolitical situation and the fact that Lithuania is located on the border of the European Union, we must do everything we can to ensure security. It is these proposed decisions that have received the broadest support from political parties, businesses, trade unions, NGOs and can be adopted in the Seimas,“ Minister Skaistė said.
Tax decisions of the Defence Fund
The first component of the Defence Fund is the Solidarity Contribution. It is proposed to extend it by one year until 2026, thus maintaining the logic of the contribution as a temporary decision in the context of a significant increase in the profits of financial institutions, mainly driven by economic and geopolitical factors over the past two years and not by business decisions. Extending the solidarity contribution for one year will generate EUR 60 million for the Defence Fund.
The central part of the Defence Fund, which makes up the lion’s share in the package, is the corporate income tax decisions. They include raising the corporate income tax rate for business by 1 percentage point from the current 15% to 16% and increasing the reduced corporate income tax rate for small companies by 1 percentage point to 6%. This part also proposes a decision to abolish special corporate income tax regimes for the insurance and health sectors and the abolition of the limitation of car deductions linked to greenery. Finally, changes in the regulation of business licenses are proposed, which were foreseen in the package of tax proposals submitted by the Government. These decisions will provide an additional EUR 46 million for the Defence Fund in 2025, and more than EUR 163 million in 2026-2027.
A quarter of the Defence Fund package consists of the decisions related to excise duties: additional excise duties on alcohol and tobacco, which will contribute to the three-year plan of excise duties and a 6-cent (part of excise duty + VAT) defence component per litre of fuel for excise duty on petrol, diesel, green farmer diesel and transport oil gas respectively. These decisions will allow the Defence Fund to secure an additional almost EUR 142 million in 2025, more than EUR 157 million in 2026, and almost EUR 173 million in 2027.
The package of decisions of the Defence Fund is also complemented by the new proposed concept of the Security Contribution – a 10% contribution on insurance contracts without applying it to life insurance and civil liability insurance of natural persons. As the regulation is completely new, the concept, unlike other proposed decisions, is first presented to the public and then a draft law will be developed. This decision will generate an additional EUR 50 million in 2025, and EUR 100 million each year in 2026-2027.
In total, the decisions of the Defence Fund will provide additional funding of almost EUR 298 million in 2025, more than EUR 421 million in 2026, and almost EUR 437 million in 2027.
Defence and civil protection needs and additional decisions
According to the data of the Ministry of National Defence, defence funding needs for the next five-year period are composed of fixed and variable components. A steady and continuous need to reach 3% in 2025 and to maintain this level of financing by 2030 will require an additional 0.5% of GDP per year. This will be EUR 400 million in 2025, EUR 440 million in 2027. These needs will be addressed by the proposed Defence Fund decisions. The additional variable component needed until 2030 amounts to up to EUR 50 million per year. These needs are to be met by borrowing through defence bonds and notes, with a possibility to be acquired not only by natural persons but also by legal entities and by offering that the cost of borrowing does not exceed the average cost of Government borrowing of a relevant duration and may not exceed 2%.
According to the Ministry of the Interior, the need for funding for the civil protection strengthening and development programme is EUR 150 million. The programme aims to implement 7 priorities: the development of shelter infrastructure; improving the alert system and strengthening people’s awareness; enhancing preparedness and resilience of crisis management and civil protection system entities; increasing the resilience of the health system; the formation of civil protection assistance teams; strengthening preparedness for chemical, biological, radiological and nuclear threats; strengthening the capacity of civil protection training.
For the implementation of these needs, it is proposed to channel EUR 25 million of personal income tax (PIT) revenue per year from economic growth received by municipalities to the implementation of the civil protection strengthening and development programme: the development of shelter infrastructure; prevention and preparedness initiatives; provision of supplies for uninterrupted activities and for ensuring people’s needs.
On the initiative of Prime Minister Ingrida Šimonytė, three meetings with representatives of parliamentary parties, trade unions and employers’ associations and three consultations with social partners (business, trade unions and NGOs representatives) were held in search of a broad consensus on possible decisions to increase defence funding. Based on consultations-discussions, „traffic lights“ for possible decisions were formed, and the format of proposals was agreed – additional revenue decisions would be provided in the form of a separate law on the national defence fund.
The Defence Fund proposals approved by the Government on 3 June will be submitted to the Seimas.
