Samost and Luts: Energy price hike to lead to tax debate

Anvar Samost (left) and Janek Luts.
Anvar Samost (left) and Janek Luts. Source: ERR

Journalists Anvar Samost and Janek Luts discussed energy prices that they believe will force politicians to take a look at the Estonian tax system in their Sunday talk show on Vikerraadio. The energy price hike will make its way to all other prices and could have serious long-term consequences, the hosts found.

Statistics from Friday suggests consumer prices grew by 7 percent on year. A home consumer's power bills have grown by 41 percent on average, gas bills by 52 percent and diesel fuel by 40 percent, Samost listed. "To be honest, we haven't seen this kind of price advance… rather, it is something from the first half of the 1990s," he said.

The journalist said that the long-term effects of major price advance can be compared to those of the coronavirus crisis, while the situation does not seem as acute.

"Long- and indeed short-term effects will be mainly political. People will be looking at their budgets, comparing their income and expenses and drawing conclusions in terms of whether their personal choices of consumption and employment have been in line with the cost of living," Samost said, adding that major gas or district heating bills might cause people to vote differently at parliamentary elections.

Luts remarked that the current government has no major link to the price advance and the question is one of future tax policy choices. "The question now is whether the current government, and possibly the next government before Riigikogu elections, will be taking a look at the VAT rate. We hiked the VAT rate to 20 percent in the previous crisis and are overperforming our excise duty obligations. Whether we will see an excise duties and tax debate in the Riigikogu in the coming months should world market energy prices remain where they are," Luts said.

Samost said that people's political choices inevitably depend on whether their lives have improved or not.

Luts added that the next election will be centered around a tax debate as tax policy will have a far more serious effect on consumers.

District heating providers also announced price hikes this week as they rely heavily on imported gas. Samost said that because different service providers depend on gas to very different degrees, the price advance will be uneven.

"It will be a case of massive price differences between customers of district heating providers in different local governments and even inside the same local government," he said.

"A question of whether energy choices made by local governments – as heating decisions are always made in cooperation with local governments and sometimes also the central government – have been the correct ones. We are none of us clairvoyant or able to see 10-15 years into the future, while the fundamental choice is between using sources of energy closer to home, such as wood chips, or those the price of which is, figuratively speaking, controlled 100 percent by the Kremlin," Samost said.

The host added that climate fees will also have to be discussed in the context of energy price advance, with the CO2 quota price another relevant topic on the EU level.

The Center Party has repeatedly pointed to the possibility of lowering VAT on energy for the home consumer. "As concerns VAT, we are looking at an interesting political debate," Samost said.

Those in favor of lowering VAT on energy claim that the effect on the budget would be negligible. "It is hard to say whether that is an honest calculation, with future tax receipt hiding the answer. While I do not agree with those who say it shouldn't even be discussed," Samost offered.

"The whole chain – it is not a case of isolated effect – concerns everything from foodstuffs to other essential goods. If we do decide to lower the VAT rate on district heating or food products, I would not like to hear tax debate staples according to which traders will swallow the difference as profit," Luts said. "There is such fierce competition in food production that I do not think companies would dare gamble," the host offered.


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Editor: Marcus Turovski

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