The government coalition that took office set a goal that seems unique and revolutionary when looking at the economic policies of the countries of the world – to make society richer by increasing taxes. I don’t think it’s possible.
If the government imposed a temporary or perpetual war tax, I could swallow it much more calmly than a long list of taxes sent to us in slogan form without justification.
In the case of any tax increase, no impact analysis has been presented, and there is often no clarity on the basis of which and with what methodology the tax will be introduced or increased. Since not a word was said about raising taxes in the recently concluded elections, it can be assumed that the Reform Party, the Social Democratic Party and Estonia 200 presented their platform for the Riigikogu elections in 2027. But the government union has added to its intentions, and the deadlines will soon arrive.
Although we do not know the magnitude and consequences of tax increases today, it can be said that both private individuals and businesses will suffer. As the CEO of a company, I can perhaps tolerate a couple of percent increase in VAT and the car tax a little better. However, I am not sure that everyone in our company is doing equally well.
Gets much more expensive
An increase in sales tax by 2% will certainly lead to a much higher price increase than one would expect proportionally. The merchant justifies the increase in VAT by at least a 5% increase in the price of goods. The much-talked about fight against the extremely high inflation that is destroying the competitiveness of the Estonian economy is flying behind the fence. Raising taxes is like putting out a fire with gasoline.
The intention to introduce a car tax is particularly unpleasant. All motor vehicle owners already pay fuel excise duty, which is essentially a car tax. For an unexplained reason, the tax intended for road maintenance and construction was initially disconnected from the address. Now it could be used for its intended purpose.
Although most of the employees of our company in Tallinn could get to work by public transport with some extra effort, the increase in the cost of maintaining a car would also affect them painfully, because the motor vehicle has become an indispensable tool for organizing family life. At the same time, our Saaremaa employees find themselves in a difficult situation, because they cannot get to work without a personal car.
Government politicians have not even explained how any proposed tax increase will increase our competitiveness. The idea that all the money needed to patch the holes in the state budget must be gathered from the internal market is explained by the slogans of efficiency and green turn.
The internal market is not enough
The country and people of Estonia are small, and therefore our economy and internal market are also small. If Poland, with nearly 40 million inhabitants, and Finland, with nearly 6 million inhabitants, could achieve results at the expense of the internal market, it would be too much for Estonia’s 1.3 million inhabitants. Now, however, even the tourism sector is made to depend only on the domestic market, when the VAT on accommodation is increased. Most Estonian companies are small, and only large monopolistic state-owned companies such as Eesti Energia and Elering benefit from tax increases.
Estonia’s economic potential lies in its ability to export, but tax increases harm our competitiveness in foreign markets. We could earn more money for the national treasury only with a policy that gives advantages in the form of tax breaks to successful exporters. But recently, manufacturing companies are viewed rather hostilely and dismissively.
I cannot imagine that in the current climate any foreign company would want to invest in Estonia and create new jobs here.
Our company, which produces both building rubble and interior and exterior finishing material, looks at the development of the construction market with a concerned eye. Developers are working hard to complete the unfinished objects, because unfinished construction will become even more expensive. The construction of new residential buildings is no longer planned.
The price advantage is slipping away
Road construction was completely stopped by the state. Concrete factories that exported to Scandinavia are losing the market, because the previous price advantage of Estonian products is slipping away. Materials made of dolomite and limestone, which belong to the luxury class of finishing materials, can also be used. For example, Swedes can produce products of comparable quality to us, but we have been able to offer a better price so far.
As an entrepreneur, I am looking forward to the parliamentary debate that will hopefully precede the tax increases, because maybe there will be at least some ideas on how to revive the Estonian economy. So far, politicians have closed their ears to the story of entrepreneurs and have spoken self-justifying stories.
