"I would personally be bold enough to advise the government to take a look — 100,000 people have signed a petition calling for lower VAT on food," said Toomas Luman. "Personally, I'm not sure that a VAT cut would actually be reflected in end prices for consumers, but there's no other way to find out. In my view, the government could decide to lower the VAT on food from the nominal rate by, say, 5 percentage points for a year or two."

"Then we'd get a statistical picture. We'd see how retailers, producers and consumers behave under the new rate — whether food prices drop roughly in line with the tax cut or not," he added.

Luman noted that because Estonians save very little, any money left in people's pockets by scrapping the planned income tax hike would flow straight back into domestic consumption. "Theoretically, the state budget would collect less revenue at the lower rate, but this would be at least partially offset by higher VAT receipts," he said.

He welcomed the idea of dropping the planned income tax increase, saying Estonia has, figuratively speaking, taxed itself into poverty. "De facto, yes — that's exactly what's happened. And I wouldn't just say it's a good decision; in my opinion, it would be a wise one," Luman said.

At the same time, he pointed out that the government has shown little effort in restructuring or reining in spending. "There's a huge potential for reorganization here," he said.

According to Luman, wage growth is meaningless if prices rise even faster. "At the end of the day, businesses have to pass price increases on to end consumers. But whether consumers can absorb those price hikes is another question," he said.

"If they can't, then businesses can't raise prices. That leads to falling profitability — and at some point, those same businesses will have to start laying people off," he added.

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