Lithuania is entering 2026 with a tax shift that brings its system closer to countries like Ireland and the UK. From January 1, the long-standing flat 15% personal income-tax rate for self-employed people is being abolished for higher earners. These workers will now be integrated into the same new progressive bands that apply to employment income.

On the surface, it’s a technical adjustment. But politically, economically and symbolically it captures a moment in Europe’s history. That is to say, higher defence spending, shrinking fiscal space, EU rules that tie funding to progress on reforms and a public mood swinging towards the idea of “fairness”.

That’s why this small Baltic reform is being watched far beyond Lithuania’s capital Vilnius.

Security is now a direct fiscal driver. Lithuania, positioned on Nato’s eastern frontier, has tied parts of its tax package to defence funding. A new 10% security contribution on insurance premiums (excluding life insurance) makes that link explicit.

As budgets tighten, ageing populations, higher borrowing costs and the legacy of COVID spending leave governments with far less room to maintain tax preferences, especially those that create visible distributional gaps.

This is not only an EU dynamic. The UK’s recent budget, which pushes the overall tax burden to its highest........

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