Speaking of the difficult tax hikes the government has had to implement over time — how unavoidable were they in the context of the summer economic forecast published yesterday by the Ministry of Finance, and how reliable can that forecast be considered?

When Eesti 200 entered government in 2023, the numbers we were shown were very bleak. And that was even without the dramatic increase in defense spending that we're dealing with today. So let me remind you that we immediately began making cuts. At the same time, we started looking at where the state could increase revenue. A year later, it's the same story. This government — like the ones before it — has been under constant pressure, carrying a massive deficit. At the same time, we've had urgent needs, primarily due to national defense, but let's be honest, also because of wage pressures in the public sector — teachers, rescue workers, cultural employees. And now a whole range of new taxes have been introduced.

When we formed the most recent government, we reassessed some of the ideological disagreements with the Social Democrats and proactively made decisions, such as regarding corporate income tax. At the same time, people will see more money in their pockets next year because the income tax curve will be eliminated and everyone will receive €700 in tax-free income.

But yesterday we saw the new forecast, including this year's projections. And there's now about €800 million in the black. So it's a fair question — both from the public and from businesses — whether those tax hikes were truly necessary. On the one hand, it's great that we now have the resources to carry out pay raises for teachers, to cancel the planned income tax increase and potentially to drop the car tax as well, which has become something of a symbol — much like the alcohol excise tax under the Social Democrats, which ultimately didn't generate any real revenue. The car tax is starting to head in the same direction.

Speaking as a member of government, as a politician, it's very difficult to explain to people today whether all of those taxes are actually needed.

Could they have been avoided?

Based on the knowledge and data we had at the time, no, they couldn't have been avoided — because we did what was necessary for the Estonian state, and we've dramatically increased investment in national defense. I only became aware of this new forecast yesterday during the government's cabinet meeting.

Now we've reached the point where our main goal is to ensure people can get by. The second is to keep the burden on Estonia's economy as low as possible. The government now has to decide — over the coming weeks during budget discussions — what burdens we can ease. What foolish things we can put an end to. The Social Democrats, for whom the car tax was a major priority, are no longer in government. If it's possible to reverse that...

And of course, the issue of teachers' and rescue workers' salaries — that's already been essentially agreed upon within the coalition during the previous coalition talks. The question now is the exact amount.

Meanwhile, the Social Democrats are now calling for responsible fiscal policy.

During the time the Social Democrats were in government, it was very difficult to pursue responsible fiscal policy. They were largely behind the tax hikes, and let's be honest — they've been eyeing the car tax for years. In that sense, it's now easier in this government, where two right-leaning parties with similar worldviews (Reform and Eesti 200 – ed.) are working together. We can fix the tax system, eliminate these so-called socialist taxes that were being pushed and actually focus on economic growth and look at the situation honestly.

But there's one more thing I want to highlight — something opposition politicians don't seem to understand. And maybe many people don't either. Everyone seems to think the decision to raise defense spending to 5.4 percent has already been made and paid for. That's not true. It kicks in next year and we'll still need to find the money for it.

On the one hand, it's great that we've managed to get the state budget into a place where we have more flexibility. But on the other hand, maybe it also gives us the opportunity to reduce some of the tax burden that has been placed on individuals and businesses. And that's where the ideological difference lies. We believe people should have more money in their hands — that drives the economy. The Social Democrats, on the other hand, think more money should be taken from people and then redistributed by the state.

Was the income tax increase that the government now wants to cancel also something the Social Democrats had pushed for at the time?

All of those different measures were taken together in the previous government, but the Social Democrats' message has consistently been that the tax burden needs to increase. That's been an ongoing debate between us. But there's no point in throwing punches in hindsight. What matters now is what we can do in light of the new forecast. This kind of sniping isn't productive.

Today, Eesti 200 is part of the government and we bear that responsibility. We are a right-leaning party. In the upcoming negotiations, what matters to us are the reforms we want to implement — national defense, of course, but also things like pay raises for teachers, rescue workers and police officers. What's most important is that we don't impose taxes on society that aren't necessary. Canceling the income tax hike means canceling a structural tax increase.

And the car tax — let's be honest — it has already become symbolic, with all its exceptions and adjustments. It's no longer a structural tax that changes behavior; now it's a societal question of whether it's needed at all. Even the prime minister has said that the car tax, in its current form, is not a success.

I can't help but draw a parallel with the Social Democrats and Jevgeni Ossinovski — I'm sure you remember how the whole of society pushed back when the alcohol excise tax was ramped up too far. The same pattern is repeating here.

After yesterday's presentation of the forecast — and the comments made on the "Stuudios on peaminister" radio show — would it be fair to say that a full-blown election race is now underway? The prime minister, who also heads the Reform Party, spoke about canceling taxes, and now, on Wednesday morning, Eesti 200 has announced that it proposed scrapping the car tax to the prime minister. Were you trying to pull ahead of the Reform Party in this race?

There's no race going on. We received the Ministry of Finance's forecast figures just yesterday. This morning, we had an internal discussion and we're approaching this with common sense — looking at how people and businesses can best cope in this difficult situation, taking into account rising costs. We simply didn't have this information earlier when it comes to the forecast. Now that the proposals have been made, it's the coalition's job to sit down, do the math and figure out what is and isn't possible.

Can you explain or have understood how exactly that €800 million surplus came about?

That's really a question for those who made the forecast and are doing the analysis — there aren't other experts to turn to in Estonia. But there are several factors at play. First of all, tax revenues have come in better than projected. But there's almost certainly some forecasting error involved as well, and we're living through turbulent times. Still, you could say it would have been far worse if we had discovered the forecast was €800 million in the red. That would've been truly shocking.

Now, this situation has actually opened up some opportunities. Of course, we must not forget that the state's finances still need to remain under control. But if we look at defense spending, even the European Commission has allowed member states an extra 1.5 percent leeway for defense investments.

So, when we take all of this into account, look at the macroeconomic indicators, the situation isn't as hopeless as it might seem. The economy is starting to lift its head. And I believe that putting more money into people's hands will, in many cases, cycle right back into the economy. That's why we need to consider the new forecast carefully and base our decisions on it.

Can it really all be that rosy — these kinds of financial opportunities appearing right before the elections?

I haven't been thinking about the elections, nor am I the one making the forecasts. Estonia's budget forecasters are completely apolitical, so you should ask them. The news is good, but let's not pretend that life suddenly becomes dramatically better overnight.

The truth is, next year this government will be able to significantly increase people's incomes — through pay raises for teachers and police officers and by stimulating the economy. It's also thanks to the decisions we've already made to cancel certain taxes.

I hope this will now include the cancellation of the income tax hike and, for example, the vehicle tax as well. Additionally, we're restoring the tax system that once made Estonia successful by raising the tax-free income threshold to €700. That will meaningfully increase the incomes of Estonian people across the board and help them cope with rising prices and inflation.

Finally, will Eesti 200, as a political party, fall apart after the local elections, as some are saying?

That's what the Social Democrats are saying. They've been trying to lure our people over to their side for two years now — not a single one has gone. Except for one person, whom we expelled from the party. Eesti 200 isn't going anywhere. Right now, we're showing what kind of policies we stand for and hope to be judged positively for it.

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