The current plan in Estonia calls for the income tax rate to rise from 22 to 24 percent starting January of next year. Michal said on Thursday that if tax revenues exceed expectations, the government might consider canceling the increase.

However, junior coalition partner Eesti 200 disagrees. Minister of Education and Research and Eesti 200 chair Kristina Kallas said she would support Michal's idea only if the budget deficit starts to shrink.

She emphasized the need to boost Estonia's economic competitiveness through stimulating measures like raising teacher and rescuer wages, and investing in research, road construction and digital infrastructure.

"It's way too soon to talk about tax cuts when defense costs are rising, the Estonian Health Insurance Fund (EHIF) is in deficit, people's purchasing power has been in decline for years, and we've failed to ensure fair wages for public sector employees, including teachers, rescuers and police officers," Kallas said.

Meanwhile, opposition parties view Michal's proposal as more political maneuvering on Reform's part ahead of this fall's local elections. Social Democratic Party (SDE) chair Lauri Läänemets warned Friday that scrapping the income tax hike would worsen the budget and shift the burden of defense costs onto the country's poor.

Isamaa chair Urmas Reinsalu called for not only reconsidering the income tax, but also reversing the VAT hike that went into effect last month. He criticized the government's tax policies, recalling that last fall, they talked about the implementation of a temporary security tax.

"This spring, a few months ago, they made [this temporary tax] permanent, and now they talk about canceling it," he pointed out. "Of course these planned tax hikes should be scrapped, and a comprehensive approach to the country's fiscal policy must be developed."

Reinsalu further stressed the importance of a government plan to cut administrative costs alongside any possible cancellations of planned tax hikes.

Center Party chair Mihhail Kõlvart said the prime minister's suggestion seems ill-timed amid the Reform Party's political crisis ahead of the elections. "But the real decision, as we know, won't be until after the elections," he added.

According to figures from the Ministry of Finance, scrapping next year's planned income tax hike would cost anywhere from €250 million to €290 million over the next four years, and increase the state budget deficit by the same amount.

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