Municipalities to Receive Larger Share of Income Tax, Along with a Lecture
Prime Minister Andrus Ansip has reaffirmed that the central government will increase the share of income tax revenue received by local governments, but says the issue is overdramatized.
The revenue that local governments will forgo when homeowners no longer pay land tax from 2013 will be compensated.
"It is the fairest distribution I can come up with," said Ansip after the Cabinet sitting on October 6. "There is a strong correlation between land tax and income tax revenue."
When the recession started, the government cut the share of income tax from 11.93 to 11.4 percent.
The draft legislation on the abolition of land tax for homeowners did not spell out how the difference would be compensated. Now there is support for the move proposed by Ansip. Finance Minister Jürgen Ligi, known to be fiscally conservative, also voiced support on October 6.
But Ansip had some words of criticism for local governments, saying the 27 million euros that they did not receive when the share of the income tax was lower was a "drop in the bucket" compared to other receipts and expenditures, such as the state's proceeds from sale of emissions allowances - 123 million euros alone.
Municipalities will miss out on about 17 million euros when the land tax is abolished for homeowners on the land under their primary home in 2013.
Kristopher Rikken