Prime Minister Kaja Kallas said that the Reform Party proposed fixing Estonia's flat income tax system that was dismantled in 2016, while its coalition partners Isamaa and SDE did not support the initiative.
"We proposed repairing the income tax system that was ruined in 2016 when Estonia's simple income tax system was dismantled and ratios introduced. Yes, we will be hiking the salaries of teachers, rescuers and police officers, while this will take them beyond the first decile and see some of the money taken away [in taxes]. Isamaa and the Social Democrats (SDE) were part of the cabinet that introduced the system and do not support abolishing it," Kallas said on "Terevisioon" on Monday. (The so-called tax bracket creep sees basic exemption for salaries of €1,200-2,100 gradually fall the closer it gets to the €2,100 mark – ed.)
She added that the Reform Party drew up various models for having the creep apply to higher salaries or abolish it altogether, while Isamaa and SDE did not go along.
Talking about next year's budget and the four-year fiscal strategy (RES), Kallas said that inflation has bolstered tax revenue, making it possible to give money back to the people.
"The RES is laid down for four years, and our aim was to retain deficit at 2.6 percent. Expenses also need to be distributed over four years. Medium-range air defense is a major investment but must also be spread out over four years."
The PM added that forecasts suggest the Estonian economy will return to moderate growth after a cooldown next year. Kallas does not believe it right to cover ballooning costs using loan money.
"This does not mean extra borrowing. The tax burden will also remain unchanged. These are difficult times, and taxes used to discharge public tasks is how the system works. We are in a complicated situation where Putin's energy war affects everyone equally, and we are temporarily forced to help everyone cope," the prime minister offered.
She said that public investments need to be aimed at guiding Estonia's development.
"For example, green energy investments are necessary as they can unshackle us from fossil fuels and Russian energy dependence," Kallas noted.
Editor: Marcus Turovski