Centre Party has not abandoned introducing progressive income tax system

Kersti Sarapuu.
Kersti Sarapuu. Source: (Siim Lõvi/ERR)

The idea to introduce a progressive income tax system has not been abandoned, but there is no desire to see taxes increased under reforms, said Centre Party parliamentary group chairwoman Kersti Sarapuu on Tuesday.

Speaking during a discussion about future tax systems in Estonia in the Riigikogu, Sarapuu said, "Of course, we still have the mindset to change to a progressive income tax, today we already have two levels, we have a zero tax rate and have a 20 percent tax rate."

She said consideration could also be given to setting a ceiling for social tax, as well as differentiating tax rates by region.

Sarapuu stressed that the Centre Party is not aiming to raise taxes.

"Today's issue is not about raising taxes; today is about how we can organize the tax system so that we have sustainable economies in the coming years and that if we really lose our European subsidies, we could support, develop, and stand up for the well-being of all those people. So there was really no tax increase."

In her presentation, Sarapuu gave a longer overview of the tax systems and tax rates of Estonia and other countries. She also mentioned property taxes, which she said were virtually non-existent in comparison to the European Union average and also referred to the introduction of possible new taxes to achieve the goal of climate neutrality. 

She promised that the party would develop its tax package by next spring.

Ministry of Finance Undersecretary for Tax and Customs Policy Dimitri Jegorov, who gave an overview of the topic of digital taxation, and entrepreneur Indrek Neivelt, who personally proposed several changes to the Estonian tax system, also participated in the discussion.

Neivelt: Situation is different today

Neivelt also supported the Centre Party's wish to change the tax system in its report to the Riigikogu.

Speaking during the debate, he said the Estonian tax system is stuck in the 1990s, when tax discipline and tax collection capacity were lower and there was no wealth to tax. 

"Today's situation is quite different — we have a very well-functioning tax administration, we have very good tax discipline, and we have a capital surplus for some time," he said. "At the same time, wealth concentration is one of the biggest problems in the world. Not to mention, we all know about changing and changing employment."

Neivelt said that life in Estonia has changed, because living in a house in the suburbs, owning a car and high consumption was the ideal life a couple of decades ago, but has since changed because people value other things.

"That's why we also need to talk freely and without dogma about our tax system, because our tax system plays a huge role in consumption taxes," he said. When people no longer consume so much, no longer buy fuel or alcohol that is subject to excise duty, however, it no longer works well and public revenue will fall sharply, he added.

He strongly supported property taxation because he felt it would be important to reduce wage taxes for middle and low income people by increasing taxes on assets and taxing higher incomes.

Neivelt also agreed that Estonia needs a progressive income tax.

"A progressive income tax has a much deeper philosophy than it seems at first. It helps, firstly, many overtime workers to achieve a more important life balance, and secondly, if we look to the future, it would be good if work continued for everyone," he explained. "70-80 hours a week and no other job at all. It clearly directs people's behavior. And the top tax rate does not have to be 50 percent, but 25-30 percent, for example."

He also expressed his support for a change in the corporate tax system.


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Editor: Helen Wright

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