Neivelt: Estonia should be bolder when it comes to maintaining deficit

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Indrek Neivelt. Source: Siim Lõvi /ERR

Because the Maastricht criteria allow for a 3 percent fiscal deficit for EU member states, Estonia should not be afraid of staying a little in red," businessman Indrek Neivelt said on the "Otse uudistemajast" webcast.

The Maastricht criteria allow for a maximum fiscal deficit of 3 percent of GDP and a government sector debt of no more than 60 percent of GDP.

Neivelt said that this is what Estonia should observe and that the indicators dipping below the European average should not be feared.

"I believe we could compromise here. Because the Maastricht criteria include the 3 percent requirement, we could easily allow it [deficit]," he said.

Estonia's fiscal deficit amounted to 4.8 percent last year, which Neivelt believes is by no means excessive in the conditions of a pandemic. He added that Estonia's deficit was one of the smallest in the EU.

The businessman feels that public debt could be maintained at around 40-45 percent of GDP.

"It was funny or rather sad to see the relative importance of education fall and things meant for businesses grow in the state budget strategy (RES)," Neivelt said, describing the approach as peculiar and absurd.

He believes Estonia should allocate more resources for education and hike the salaries of teachers.

"I simply think that no one bothered to look at the big picture in the strategy," he said, adding that it looks as though every ministry fought for itself, while there is no semblance of a common vision.

Tax reform necessary

Estonia should also adopt a fully progressive income tax system instead of the current hybrid solution, Neivelt believes.

"If a flat tax system is so brilliant, why have almost no one else adopted it," the businessman said, adding that there are only about ten countries in the world that do not have progressive income tax.

He explained that people's first reaction is to be against progressive income tax, while some businessmen have given the matter more thought and found that it would not be all that bad.

Neivelt said that reforming the tax system should not stop there and that vehicles should also be taxed, describing as incomprehensible incentives for electric vehicles.

"It is completely absurd for the state to pay people who buy a Tesla. Every normal country would tax buying this kind of expensive car," he added.

Certain things in society will change as a result of the pandemic, while it is difficult to forecast what will happen exactly. He pointed out that the necessity of office space has been called into question, while it has later been reevaluated.

The future of night clubs also remains uncertain, while people are different and their conduct largely depends on their age and nationality.

"The pandemic has shown that the measure of solidarity in societies needs to grow because you will still catch the virus if you go somewhere, irrespective of whether you are a billionaire or not."

Other topics included different aspects of the fiscal strategy, investments, borrowing and pension assets.

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Editor: Marcus Turovski

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