The government coalition presented the agreement on the state budget for 2024 as a great labor victory, but in reality it is a failure: a cluster bomb for the Estonian economy and people. It seems to me that the coalition lacks the will, courage and ability to improve Estonia’s situation.
Estonia’s economy has declined for six quarters in a row, but instead of boosting business, the government, led by the reform party, deals with cuts and tax increases. Taking a look at the latest available data, we see that in the second quarter of this year, the export of goods of Estonian origin decreased by as much as 29 percent year-on-year, and investments decreased by seven percent year-on-year, or almost a fifth, and reached the figures of about five years ago.
Moreover, private consumption has so far declined for four consecutive quarters. In other words, we consume one day’s worth less every month than at the same time last year.
Christmas came early for Estonian commercial banks this year: profits that quickly doubled due to interest rate increases can now be taken out of Estonia with a lower income tax rate! And the current coalition presents this multi-million dollar gift to the banks as its big labor victory – absurd! Estonian society does not need such solidarity in a crooked mirror! Banks will earn a net profit of around one billion euros this year alone. That’s why the expression of a former banker “banks laugh at the hand” is quite appropriate here.
The icing on the cake is, of course, the 400 million tax hole in the 2025 state budget, which the Prime Minister and the Minister of Finance have called for to be filled jointly. Where was the Reform Party with its proposals for inclusion when VAT and income tax were raised using a road roller?
Such action shows the inability to make a budget, and the proposal to involve residents in the tax debate is not credible. 400 million euros will not be collected with the lemonade tax alone, which means that additional money will probably be pinched from health care and various subsidies: the Ministry of Social Affairs is responsible for about half of the state budget.
Families with children have already been dealt with, and now the elderly will be dealt with 1:0. The indexation of the old-age pension will continue, but the income tax exemption will be frozen in the place where the average old-age pension rises next year. This government will not make an extraordinary pension increase, so the election promise to increase the average old-age pension to at least one thousand euros can be withdrawn.
The Center Party has repeatedly come up with proposals, starting with canceling the tax reform favoring the wealthy and ending with an aid measure supporting entrepreneurship. The feedback has been zero and the reform party stubbornly pushes its line forward, with valves on its head.
I will repeat here the main proposals of the central party. Instead of talking about cutbacks and salary freezes, there will be:
1) give up the obsession of the reform party and cancel the tax reform favoring only the wealthy – a victory for the budget of nearly 500 million euros per year;
2) tax the huge profits of banks;
3) impose a luxury tax on vehicles upon initial registration if their price is over 100,000 euros;
4) implement a graduated income tax for the sake of stronger social cohesion.
With energy and food prices set to rise sharply in 2022, most other countries moved quickly to support households and businesses by providing temporary fiscal support, including VAT and excise duty cuts, rebates and credits, and personal income tax adjustments, the OECD report shows.
Several countries introduced temporary taxes on unexpectedly rapid increases in profits, solidarity taxes or other measures on extraordinary corporate profits, especially in the energy sector, to help finance additional fiscal costs and mitigate the impact of price increases, especially on particularly vulnerable groups.
The same goals were highlighted when many countries lowered the tax burden on low-income households and raised income and wealth taxes on higher earners. Investments were promoted, “green” tax incentives and credits were applied. Every day brings us news of redundancies, unfortunately not a single county has been spared. I’m afraid the worst is yet to come.
In connection with all this, the question arises why the ears of the Estonian government remain deaf to these recommendations of economic experts. And if the coalition still believes it’s doing the right thing, why isn’t anyone clapping? The silence is somehow deafening!
