The government's demagoguery over high food prices is enough to make your blood boil — it is impossible to remain a passive onlooker. So let's talk once again about VAT on food.

Most European countries apply a significantly lower VAT rate on food than Estonia. It's not plausible that they are all wrong. Prime Minister Kristen Michal (Reform) has raised the VAT on food to an exceptionally high level by global standards, and now, with the help of PR professionals, he claims that the problem lies in Estonia supposedly having too much retail space, which determines prices, and that retailers are greedy and raking in profits.

Retail has historically been one of the least profitable sectors in Estonia, earning around just 2 percent profit depending on the year. Retail profits have been declining in recent years, just as Estonians' purchasing power has been trending downward.

This is blatant government demagoguery. Not to mention that the petition calling for a reduction in food VAT is on track to gather 100,000 signatures. This issue is too important for any kind of dishonesty — especially before an election.

The Coop retail chain saw its profit drop by more than 40 percent in 2024 compared to the previous year, because we absorbed a large share of price increases from producers, knowing that people in Estonia are struggling and that customers are price-sensitive. Profitability stood at 1.6 percent, while the VAT hike was 2 percent! And yet, we did our best this year to pass on as little of the July VAT increase to consumers as possible. Media analyses support this, again confirming that Coop, as the only cooperative retail chain in Estonia, truly acts with social responsibility.

The most painful part of the government's message is the claim that a lower VAT on food would not benefit consumers, because there are supposedly studies that clearly show this. Finance Minister Jürgen Ligi (Reform) and other members of the government have cited research supposedly proving that cutting VAT won't affect prices and that retailers will simply pocket the savings.

But a specific inquiry to the Ministry of Finance revealed that not a single study has been conducted in Estonia that analyzes food VAT and market conditions. The narrative being pushed is deeply cynical and dishonest.

What exactly are government officials claiming when they insist that cutting VAT won't lower consumer prices? Where is the actual debate or solid argumentation? These statements are empty, and instead of engaging with businesses, they are slinging mud at them without consultation or input.

Most representatives of Estonia's major retail chains have publicly affirmed that they would pass on the full amount of any VAT cut to consumers through lower prices. So how do we get to a point where the finance minister, instead of blaming businesses and the public, starts speaking a common language with them? Together, we can achieve much more.

In June, retail sales in food stores fell by another 4 percent. When projected across the year, that's about €160 million. The projected revenue from the VAT increase on food was about €80 million for the state budget, but since consumption has dropped, the state is already losing close to €40 million of that expected sum. This shows that tax increases are not filling the state's coffers as anticipated — in fact, the effect is the opposite.

Estonia has a wealth of large grocery chains, along with many smaller players. The free market and competition are fully functioning in Estonia's retail sector, on which even the most pessimistic analysts agree.

The prime minister says our food is too expensive because there has been too much investment in retail space. When it comes to food sellers, I dare say the chains scrutinize every expense under a magnifying glass. Prices are still ultimately determined by the free market — by supply, demand and competition. Any tax change has an immediate impact.

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