Bank of Estonia chief: Pension reform long-term bad idea

Bank of Estonia governor Madis Müller.
Bank of Estonia governor Madis Müller. Source: ERR

Bank of Estonia chief Madis Müller said Wednesday evening that the pension reform bill which passed the Riigikogu Wednesday was a bad idea for the long-term perspective, adding that the coalition will need to demonstrate strong faith in its reform if it wants to effectively carry it out.

Speaking on ETV politics discussion show "Esimene stuudio" Wednesday night, Müller said that in its analysis of the proposed reforms – the brainchild of the Isamaa party and ending up in the coalition agreement between it, the Center Party and the Conservative People's Party of Estonia (EKRE), the Bank of Estonia had stressed what it saw as the short-term nature of the proposals.

"In the long run, such changes in the pension system are likely to lead to lower pensions, a higher tax burden and, if necessary, more immigration to Estonia. All in all, this is a bad idea," Müller said.

The freedom in withdrawing funds from the second pillar may initially boost the economy and increase government revenue, but only in the short term, Müller said.

"In fact, this means that in the short term, we are giving people the freedom to do something else with the money they have invested in their retirement accounts. The problem is that this freedom comes at the expense of having less freedom in the future. It's really short-sighted," Müller said.

Noting that not only the Bank of Estonia, but many analysts, the OECD and the IMF had all been critical of the reforms, to the extent that the coalition mus have an unwavering faith in itself.

Editor: Andrew Whyte

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