Finance minister Martin Helme (EKRE) has expressed support for Isamaa chair Helir-Valdor Seeder's call to suspend payments to the second pillar of the Estonian pension system as a means to bolster the economy in the wake of the coronavirus pandemic. Helme said this would release €400 million towards stimulating the economy. Other measures he proposed included some tax cuts, particularly on consumption.
The second pillar refers to employee contributions and under recently passed reforms will now be optional, where it had been mandatory for most wage earners since 2010.
"The current situation, where second pillar money has to be invested in distressed funds in so-called 'growing assets', it is rash to continue doing so," Helme noted on his social media account late on Monday.
"Incidentally, watching an economic crisis run for the second time in ten years like a lawnmower over all pillars [of the Estonian pension system] makes a mockery of what was said a few weeks ago about setting aside for the future," Helme added.
Making membership of the second pillar voluntary, a central plank of the Isamaa party's pre-election manifesto and which it managed to get into the coalition deal signed with the Center Party and the Conservative People's Party of Estonia (EKRE) last April, faced criticism from several quarters as effectively raiding the piggy bank rather than keeping things aside for a rainy day. Supporters of the reforms said the existing system, based on a selection of managed funds, was ineffective and performed behind the market as a whole.
Helme added that the suspension of payments to the second pillar, as in the previous crisis [of 2008-2010], would free up about €400 million from the budget and raise the real wages of the entire populace.
Wants to support both employers and employees
Helme also announced, following a meeting with business organizations late Monday night, that the state plans to launch, via the Unemployment Insurance Fund (Töötukassa), a temporary wage subsidy in sectors most affected by the coronaravirus pandemic.
"We want to provide support to both employees and employers through the unemployment fund, to prevent layoffs and the taking of unpaid leave. To that end, we plan to launch temporary support to partially compensate wages in the hardest-hit sectors," Helme added in his social media post.
The hardest-hit sectors include the tourism industry.
The state also plans to start providing extensive state guarantees via credit agency Kredex to companies with loans and other credit, Helme added, adding that Kredex will also increase its own borrowing and lending capacity.
Possible tax cuts
The finance minister also promised a meeting with tax authorities on Tuesday. to discuss deferral of tax arrears and partial removal of interest from these.
"Certainly, a moratorium on labor taxes in some of the most difficult sectors should be considered, just as we could offer slightly longer-term tax breaks for those creating larger jobs in the coming years," Helme wrote.
The Minister of Finance also announced that he has proposed to reduce several consumption taxes in the coming years.
"A reduction in the excise duty on electricity, gas, diesel and gasoline would lead to a significant increase in the purchasing power of the population, boost much needed consumer confidence, and give companies more breathing space regarding significant input costs," he noted.
Helme also pointed out that the current situation permits the government to force fuel sellers to lower the retail price of fuel sold at filling stations.
He also noted the temporary suspension of the renewable energy charge as one of the potential economic recovery measures.
"The key to all of these measures is to channel more money via the state budget into the economy, to survive the crisis as softly and easily as possible."
Austerity not a hill to die on
Helme also compared the propsed measures with the austerity measures imposed by the Estonian government during the last economic crisis.
"Tell me honestly which is more important: Is it to make things smooth as possible for companies and workers to overcome the crisis, or a low public debt? Who came out better for the fact that. during the last crisis, we had no debt except for Greece's liabilities? "
Of the longer-term measures, the state has begun to look for major infrastructure projects which are ready to be launched and have so far been mainly funded, Helme added.
"More generally, I have a clear understanding of stimulating the economy to the effect that unless we use counter-cyclical measures right now, I.e. mobilize reserves for the current crisis and channel more money into the economy via the budget, there is no justification for having reserves in good times. The current government is always thinking together with business how to get the best out of this crisis together with business," Helme ended.
Editor: Andrew Whyte