Opposition promises to slash taxes despite Estonia's growing fiscal deficit
Opposition parties are heading into the elections promising to cut taxes if they come to power. At the same time, Estonia's state budget faces a steadily widening deficit and economic analysts say closing the gap will instead require tax increases.
Most opposition parties plan to abolish the motor vehicle tax and are also promising several other tax cuts. The Center Party, for example, has pledged to significantly reduce the value-added tax on food products. At the same time, it is also proposing measures to increase state revenues.
According to Center Party Deputy Chairman Andrei Korobeinik, Estonia should introduce a progressive income tax system similar to those in other European Union countries.
"It would leave more money in the hands of lower-income people and bring around €350 million in additional revenue to the budget each year. We will introduce a windfall tax on banks' excess profits, which would generate an extra €200 million to €500 million annually depending on economic conditions and we will certainly reduce the number of civil servants," Korobeinik said.
The Social Democrats also support a progressive income tax and a reduction in the VAT rate on food products, but they are not calling for the abolition of the motor vehicle tax, party chairman Lauri Läänemets said.
"In our view, the state's budget problems can be solved with a progressive income tax. It would have the least impact on the economy and people's ability to make ends meet and the VAT rate on food products should be lowered to 9 percent."
Parempoolsed want to lower the overall VAT rate to 20 percent and the income tax rate to 18 percent, while also advocating spending cuts.
"The first step is broad spending cuts and the second is better targeting of benefits and all other expenditures. Right now, the state spreads subsidies far too widely whereas support should go to those who genuinely need help," said Indrek Luberg, a member of the party's board.
At the same time, Estonia's budget deficit stands at around 4.5 percent of GDP, while the country's debt burden continues to grow. According to LHV macroeconomic analyst Triinu Tapver, this points to a need for higher taxes rather than lower ones.
"Before elections, politicians do not want to talk about raising taxes or introducing new ones; they prefer to talk about cutting taxes. But if we look at the trajectory of the state budget, it is inevitable that some taxes will have to be increased or new ones introduced," the analyst said.
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Editor: Marcus Turovski, Märten Hallismaa
