On 3 July 2026, the Council of the EU adopted a set of country-specific recommendations for Lithuania, urging the country to pursue fiscal consolidation, tax reform, increased social and health spending, and measures to boost innovation and pension savings. The recommendations, part of the 2026 European Semester cycle, target key structural weaknesses in Lithuania's economy.
The Council recommends that Lithuania ensure net expenditure growth respects the recommended maximum rates of 6.1% in 2025, 5.2% in 2026, 4.8% in 2027, 4.5% in 2028, and 4.3% in 2029, while using the national escape clause activated for 2025-2028 to accommodate higher defence spending. On tax reform, the Council calls for broadening the recurrent immovable property tax base by lowering the exemption threshold and increasing rate progressivity, eliminating tax arbitrage between employment, self-employment, and incorporated business forms, and phasing out non-targeted fossil fuel subsidies.
In social and health policy, the Council recommends increasing public spending on health, long-term care, and social protection to improve access and quality, and addressing the National Health Insurance Fund deficit and high out-of-pocket payments. To improve access to finance, Lithuania is urged to reverse the decline in second-pillar pension participation, which fell 38% in Q1 2026, and deepen capital markets to improve SME financing. On innovation, the Council calls for boosting business R&D investment, currently one third of the EU average, by simplifying tax incentive application processes. Finally, the Council recommends accelerating Just Transition Fund implementation, with funds due by end-2026, and rapidly deploying mid-term review investments.
The recommendations carry significant implications for Lithuanian stakeholders. The government faces pressure to balance fiscal discipline with increased spending on defence, health, and social protection, potentially requiring difficult trade-offs. Businesses, particularly SMEs, could benefit from deeper capital markets and simplified R&D tax incentives, but may face higher property taxes and the elimination of tax arbitrage opportunities. Households may see improved access to healthcare and social services, but could experience higher property taxes and reduced fossil fuel subsidies. Pension savers are directly affected by the call to reverse the decline in second-pillar participation, which could enhance long-term retirement savings. The recommendations are non-binding but form part of the EU's economic governance framework, with the Commission expected to monitor progress in the coming year.