Ratas: With today's tax base, Estonia cannot continue as a welfare state

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Center Party Council meeting on June 19, 2021.
Center Party Council meeting on June 19, 2021. Source: Siim Lõvi/ERR

Estonia cannot continue with its current tax base and new taxes are needed, speaker of the Riigikogu and chairman of the Center Party Jüri Ratas said on Friday. He reemphasized the point on Saturday at a party council meeting.

On Friday, Ratas was asked by presenters Timo Tarve and Ainar Ruuhar on Kuku raadio's "Kahe vahel" show if the Estonian tax system should be reviewed.

"I think it needs to be reviewed. But the question is not about the tax system, the question is what kind of Estonia we want," Ratas said.

He said Estonia has become a welfare state and the question is now if this can continue.

"I argue that this tax base does not work. Or we need to change some services in health care, pensions, education. I don't think services should be reviewed. It is necessary to look at taxes," Ratas said, adding no party - including his own - took the tax debate seriously before 2019.

Ratas said new taxes could come from a social care insurance tax or the taxation of corporate profits. He did not think VAT should be increased but that a graduated income tax, or so-called progressive tax, should be discussed again.

The subject of a debate over Estonia's tax system has been discussed in recent weeks after the government said it needed to cut €60 million to balance the budget and the recent G7 agreement to create a minimum level of corporation tax.

Both Prime Minister Kaja Kallas (Reform) and Ratas have said they support reforming and modernizing the Estonian tax system but actions have not yet been taken.

Ratas: Social care and dividends taxes should be considered

Speaking on Saturday while introducing the party's local election pledges, Ratas again raised the subject of new taxes. He said there should be a social care insurance tax and that social tax should be paid on dividends withdrawn from private companies.

Ratas said the social care tax could be a 2 percent tax divided between the employee and the employer which could help to ensure people can age with dignity in their later years.

Ratas said the Center Party continues to stand for the introduction of a graduated income tax and also raised the subject of corporate income tax. 

"This is undoubtedly an issue that does not spark much enthusiasm, but it is clear that with today's tax burden, many important issues will remain unresolved or become even more urgent over the years," Ratas said.

"During the crisis, we saw particularly clearly the importance of a strong safety net and the state's support to the businesses and people of Estonia. Now that there is hope of overcoming the crisis that has been ravaging us, it would be wrong to think that help is no longer needed. On the contrary, the crisis pointed out even more clearly our needs for improvement as well as our weaknesses," he added.

Ratas noted that the Center Party continuously strives towards a progressive income tax system, the key objective of which is a more coherent society. In terms of possible new taxes, the care insurance tax proposed by Minister of Health and Labor Tanel Kiik (Center) merits serious consideration, according to Ratas.

"A 2 percent tax divided between the employee and the employer would give a positive push to the concern plaguing tens of thousand of families in Estonia at some point - how to ensure dignified retirement and care to one's next of kin," the Center Party leader said.

The G7 initiative to establish a 15-percent global minimum corporate tax rate should also be discussed in Estonia, he added.

"We also need bolder discussions of various wealth and property taxes, which should not deal a hard blow to taxpayers but would enable to contribute to resolving various concerns," Ratas said, citing as an example levying social tax on dividend income earned from a person's own company

"As to property taxes, we should first and foremost discuss real estate and car taxes. With a real estate tax, we should be guided by the logic of land tax that a person's home is tax-free and taxes are levied on other real estate," he noted.

The European Green Deal is a landmark agreement constituting a new paradigm for taxation -- unless one invests in equipment or changes their behavior, they need to pay, he said.

"That way, we could preserve our clean living environment and motivate entrepreneurs to contribute to innovative solutions," Ratas said. "In conclusion, all of it comes down to the issue of the state we really want. Is it a thin and individualistic state or one that provides support and solidarity? I am of the opinion that the tax system needs to support continued welfare state," he concluded.


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Editor: Helen Wright

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