Only Isamaa in favor of retaining Estonia's so-called income tax hump

Euros (photo is illustrative).
Euros (photo is illustrative). Source: Pixabay

Political parties' stances on taxes are in line with their ideological positions before the March elections, with right-wing forces looking to return to a simple flat tax system, while the left would like to switch to progressive income tax. Only Isamaa is in favor of retaining Estonia's gradual income tax exemption.

The Reform Party and Eesti 200 have similar views when it comes to the tax system. Reform deputy leader Jürgen Ligi and Eesti 200 chair Lauri Hussar said that stability should be among the chief virtues of a tax system. Estonia should abolish its current "tax hump" and return to a flat tax rate.

"I believe we could return to the previous system. The Reform Party has suggested as much, while it is unlikely they would be able to realize it without Eesti 200. Therefore, we certainly have overlapping interests," Hussar remarked.

Martin Helme, chairman of opposition leader EKRE, also criticized progressive income tax. The Center Party and the Social Democrat Party (SDE) are of the opposite mind. The latter would hike the income tax rate to 25 percent starting from a monthly income of €3,000, while Center would make it 30 percent starting from double average salary (currently around €3,400).

Isamaa is after a family-based tax reform where, for example, taxable income would fall by €5,000 per child. EKRE leader Helme agreed that the income tax rate should fall by 5 percent per child in the family.

Isamaa chairman Helir-Valdor Seeder was the only party leader in favor of retaining Estonia's current so-called tax hump that sees the basic exemption gradually shrink before disappearing completely at a monthly income of €2,100.

"The 'tax hump' needs to be revised for which there are several possibilities. It is some time since [it was introduced] – we have hiked the minimum exemption since then and the average salary has grown, meaning that the instrument has become outdated. But whether this means hiking the rates and retaining the hump, abolishing the hump or turning it into a progressive system – we will have to hash that out with our colleagues. Isamaa would gladly retain the hump and recalculate the thresholds," Seeder suggested.

There are other nuances to parties' tax-related promises. The Center Party would lower VAT on food, while EKRE would do it for both food and medicines. The Social Democrats would lay down a 1 percent national defense tax for a period of one year, while Eesti 200 are after a green tax once the Ukraine war ends. Not to mention different approaches to excise duties. Only Reform deputy head Jürgen Ligi said he was opposed to tax exceptions in general.


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Editor: Maits Ots, Marcus Turovski

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