The state plans to end the tax exemption on housing loan interest from 2023, according to the state budget strategy (RES), approved on Thursday.
Lifting of the exemption has been recommended to Estonia by the Organization for Economic Cooperation and Development (OECD) on the grounds that it benefits first and foremost households with higher incomes and thereby increases inequality.
By abolishing the exemption from income tax capped at €300 a year, the state will save an amount equaling 0.02 percent of gross domestic product (GDP) annually.
According to the strategy, the general tax burden in Estonia will decrease to 33.3 percent of GDP in 2022 and reach 32.6 percent by 2025.
It is a goal of the government to keep the tax system stable during its term in office. This means keeping the tax burden close to 33 percent of GDP.
The changes to the second pillar of the pension system will raise that indicator to 37.3 percent in 2021. The impact of the reform will decrease in 2022, however.
Editor: Helen Wright