The income tax rate could be reduced to 13-15 percent, sending all income tax to local governments and reducing labor taxes, Minister of Finance Keit Pentus-Rosimannus (Reform) suggested on Monday.
Writing on social media, the minister said this move would help local governments to finance maintenance and care costs.
Pentus-Rosimannus wrote that Estonian labor taxes are too high while health care and social care costs need to be better funded in an aging society. "This can be done by looking at the entire tax system, not by cherry-picking individual taxes," she said.
The minister of finance said elderly care and its financing are big issues. Instead of the idea of a social care insurance tax - which has been suggested by the Center Party - this should have been considered before pension changes were made to the second pillar pension fund by the last government.
"Financing care is part of the overall rising social and health costs of an aging society, which must also be seen as a whole," she said.
Pentus-Rosimannus said the revenue base of local governments could be increased while the share of income tax sent to the state should be reduced.
"We could discuss how to increase the local government revenue base so that they can provide old-age care for their people and cover the growing burden without a new tax. One option is to increase the local government revenue base at the expense of the state income tax," said Pentus-Rosimannus.
Currently, the general income tax rate is 20 percent in Estonia and, of this, 11.96 percent is directed to local governments. The minister said the income tax rate could be reduced to 13-15 percent and would then go entirely to local governments.
According to the minister, in addition to the review of the system, more investments in mental health need to be made due to rising health care costs.
Editor: Helen Wright