Politicians weigh in on tax reform

Photo: Courtesy of Parliament
11/13/2014 9:31 AM
Category: Politics

Politicians from the four parties in parliament added their voices to the debate on tax reform, saying they are open to changes, including some of the ideas proposed by banker Indrek Neivelt earlier in the week.

Former Finance Minister Aivar Sõerd (Reform Party) said calculations are needed before any decision is made, but debate on the philosophy of the tax system is the right place to begin.

He said the social tax is too high in Estonia, but it can not be cut by 7 percent. “We will increase excise duties in any case, but a hurried increase would be a strong boost for the bootleg market. The hoped 50 million euros from a sugar tax is completely unrealistic.”

Social Democratic MP Rannar Vassiljev also said tax on labor is too high, adding that two-thirds of Estonians pay a higher rate of tax than the EU average.

IRL is for decreasing the tax burden of those who earn less, said IRL MP Sven Sester, saying it is unethical to ask for income tax from those who earn less than the minimum means of subsistence. IRL is proposing a 500-euro income tax fee minimum.

Kadri Simson (Center Party) said the tax system needs to be taken apart and reconstructed bit by bit, adding that there are three problems in the current setup, including the high tax burden on those who earn less, high social tax keeping companies from hiring and the low tax yield, which is not enough to offer people quality services.

A 7-point cut in social tax would mean the doubling of alcohol and tobacco excise duty, Vassiljev said, and the sugar tax would be hard to implement as a wide range, even the majority, of food products contain sugar. He said those products crossing a certain sugar limit, should be taxed instead.

The cost of a 400-euro tax-free minimum would be a 25-percent income tax rate (which is currently 21 percent, dropping to 20 percent on January 1), Vassiljev said.

The Reform Party said on Wednesday that one election promise is to gradually increase the tax free minimum to 300 euros per month by 2019, decreasing social tax by two points to 31 percent.

Vassiljev said a property tax could be one way to go.

Speaking about the idea to increase income tax to 24 percent, Sõerd said tax on investments and smart jobs will not help develop the economy.

Sõerd said an oil shale rock mining tax pegged to the world price of petrol would boost tax revenues when they are already high, but would also lead to revenues plummeting when they are already low, adding instability to the budget.

“Taxing oil shale rock mining in accordance with world market petroleum prices is a step in the right direction,” Sester said, adding that the measure has also been written into IRL's election program.

Sester said IRL would focus more on taxing consumption than income.

Simson said the state and the private sector should come together and work out how to increase tax revenues or the government will hastily push through unexpected tax changes each fall to cover holes in the budget. She said the Center Party stands for a progressive tax system and restoring a classical tax on business profits.

Neivelt proposed five ideas for tax form this week. They include:

1. Cut health insurance tax from 13 to 6 percent. Increase excise duty and implement a sugar tax.
2. Institute a tax on business profits (maximum rate of 15 percent) after lowering labor costs.
3. Increase the tax free minimum from 144 to 400 euros, also increase the income tax rate to 24 percent.
4. Restore land tax for homes.
5. Peg oil shale rock mining taxes to the world market petroleum price.

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