Is the Riigikogu about to hike the tax burden of consumers?

Allar Jõks and Piibe Lehtsaar.
Allar Jõks and Piibe Lehtsaar. Source: Sorainen

Estonians have not yet recovered from this fall's electricity price shock, while the 2022 state budget already aims to considerably hike traffic fines and state fees. As if that was not enough, the government introduced a bill in late September that promises to increase the tax burden further, Allar Jõks and Piibe Lehtsaar write.

The Riigikogu is processing bill 442 to amend the Competition Act with the aim of charging a fee from water utilities, power, district heating and gas companies and transmission network operators that are supervised by the Competition Authority. In other words, entrepreneurs would be paying the state for control exercised over their activities.

The draft's explanatory memo reads that companies will add the supervision fee to their customers' bills. Irrespective of whether the fee will be great or small, the bill raises several fundamental questions. These matters require broad-based discussion.

The first important question is whether a person over whom supervision is exercised as a core task of the state has to finance that activity. Outside of the financial domain, the answer to that question has been no for decades.

A separate fee is sought for funding the Competition Authority on this quest for new revenue. The explanatory memo reveals plans of using a similar model to fund other watchdogs in the future. It is not out of the question that persons over whom control is exercised will soon be funding the Health Board or the Labor Inspectorate, for example.

Right now, state agencies are funded using tax or state fees revenue from the state budget. A state fee is a sum that a person is charged for a legal act or document. In case of taxes, the state does not offer the person a specific return service.

Because the planned supervision fee is not a state fee and the entrepreneur is not given anything in return, it constitutes an indirect or hidden tax. This in a situation where the coalition partners promised not to introduce new taxes and ensure a stable tax environment.

The bill's explanatory memorandum justifies the solution by claiming that tax revenue of persons who do not use district heating services should not be used to fund supervision of the sector. This reasoning is hypocritical. Tax revenue is used to fund a lot of different activities not all of which are in the interests of all taxpayers. Therefore, the supervision fee is not motivated by feelings of fairness but rather constitutes a back door to boosting state budget revenue.

Even if we accept that the state is allowed to fund control activities in this manner, the fee would have to cover supervision of a specific entrepreneur's field of activity. Funding supervision over company B from the free paid by company A should be ruled out.

Therefore, the answer to the second important question of whether the bill ensures funding using the supervision fee of supervision only in the entrepreneur's field of activity is unfortunately also no.

The explanatory memo makes no attempt to explain how the budget of the Competition Authority is distributed when exercising control over power, district heating and gas providers. That makes it impossible to verify whether proceeds are proportional in terms of the cost of regulating a particular sector. At the same time, the fee could be freely used to finance justice tourism or participation of the authority's employees in international working groups and the annual bonuses of board members.

In a situation where the authority measures every inch of entrepreneurs' justified expenses, its own funding is handled from the hip.

For example, it was originally planned to use the estimated fee revenue of €1.6 million to finance the authority's tasks of combating unfair trade practices in the agricultural products and food supply chain in the volume of €264,000. While the plan did not make it to the explanatory memorandum presented to the Riigikogu, fee receipt is still estimated at €1.6 million.

The bill is further justified by claiming the Competition Authority is looking at more work in the wake of new and complicated legislation. Therefore, we could phrase the third important question as whether the consumer can be expected to pay, in the form of various fee hikes, for Estonia and the EU passing more complex than average legislation in certain fields that in turn increases the cost of supervision?

President Alar Karis talked, in his inauguration speech, about an intelligent people that does not walk the line. We can only agree that an intelligent people does not require a law and a supervising official to solve every single question.

We can hope that President Karis will use his authoritativeness to influence decision-makers to shift the state reform from words to action and reduce regulations that hinder enterprise and foster red tape.

The coalition agreement of the Reform Party and Center Party promises to reduce bureaucracy, simplify legislation and retain state reform efforts to expedite enterprise. The first reading of bill 442 on Monday will show whether they meant it.


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Editor: Marcus Turovski

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