State debt burden, taxation system in focus on Vikerraadio electoral debate

A recent debate hosted by Vikerraadio ahead of the March 5 Riigikogu election saw most panelists finding that the Estonian tax system was not in need of a major overhaul, and that any new category of taxation on property would prove inefficient.

Participants, from all the major political parties (see gallery), disagreed on increasing the state's burden of debt, however.

On state revenues, Aivar Kokk (Isamaa) said that the CO2 fee should be removed, in order to bring down soaring energy prices, while a recently introduced tax on services provided via online platforms would boost revenues.

Annely Akkermann (Reform) said market distortions must be mitigated, due to the high social costs they cause. The current taxation system should remain as is, she added, stating that if market distortions evaporate, the market will function properly and revenues will grow.

Lauri Laats (Center) called reducing energy prices "imperative", while options for cutting taxation, particularly with regard to tax on the consumer, would help bring more money back into circulation.

Alar Voitka (Parempoolsed) said irrational state subsidies must be eliminated, since these represent a significant financial burden for the state.

Lauri Paeveer (SDE) said there is no way to avoid altering the tax system in Estonia, however, due to an aging populace and concomitant shrinking of the workforce.

Joakim Helenius (Eesti 200) found that the state apparatus should first be made to operate more efficiently, after which between €500 and €700 million in extra state revenues might be viable.

Kokk, who chairs the Riigikogu's finance committee, concurred with Helenius on this, adding that reasons for continued support being paid to foundations (identified by the SA appellation) and NGOs (MTÜ in Estonian) formed to join NATO and the EU (which Estonia did in 2004 in both cases) could be examined further.

Akkerman said that the 2024 state budget will for sure aim to cut costs and cut energy subsidies, since direct subsidies are one of the major drivers of inflation, she said.

Laats said that the same inflation the state has been combating has also caused the country's own operating costs to rise terribly, leading to a €2 billion swelling in budget.

Tax system does not require major alterations, no property taxes needed

Pohlak said his party's goal is to direct tax changes more towards the profits earned by large corporations, while individuals should be left untouched by these tax changes. A 30 percent taxation of the profits of large corporations would bring at least €500 million to the state budget, he said.

Paeveer added that in Estonia, a principle could be applied to taxation whereby while becoming wealthy was favored, actually being wealthy led to taxes being levied.

Kokk said that while a vehicle tax in the capital might make sense, in more outlying or rural areas of the country where there was little alternative to quick travel, it would not.

Laats opined that right now is certainly a good time to implement new taxes; this should be done when the economy is booming.

Both Voitka and Helenius noted that the Estonian tax system is healthy, and no changes are needed. According to Voitka, the introduction of property taxes would not bring significant growth to the state budget. Helenius provided the example that it is for precisely this reason that many western European countries have now renounced property taxes. An environmental tax package should be considered instead, he said.

Akkermann added that she thought there is not a sufficient number of wealthy people living in Estonia whose properties could be taxed, which would make such a move inefficient.

Raising the debt burden question led to disagreement

On the subject of the state's debt burden, Laats said rapid moves towards a balanced state budget cannot be made in the current situation and this should rather be a long-term goal, at the moment it is necessary to inject more money into the economy.

Laats' proposal that the state direct money to those who invested in, for instance, widening the main highways to four-lanes, found support from both Kokk and Paeveer.

However, Helenius noted that such investments would be pointless from the point of view of the Estonian economy, as they would not boost competitiveness. Potential loan money should be directed towards investments in green energy, namely electricity, as there is potential for growth in this sector, he said.

Voitka said even now, a balanced budget should be the target, and reducing the deficit by half of one percent, per year should be the goal.

Akkermann found that according to preliminary data, last year's budget deficit narrowed from to 2.6 to 1.2 percent, rather than the initially projected 1.9 percent.

At the same time, Akkermann, who is also finance minister, said her party would certainly not go into coalition with any parties with the express goal of drawing up a negative, or "cut-off" supplementary budget.

Balanced budgets have long been a dogma for many Estonian politicians and other leaders, with the Reform Party particularly committed to this end. Recent crises, starting with the outbreak of Covid three years ago now, have placed enormous pressure on this ideal.

Two supplementary budgets were issued in the face of the coronavirus crisis, in 2020 and in 2021.

The Riigikogu election takes place March 5, with energy prices, taxation and the economy being one of the major themes facing voters.


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Editor: Andrew Whyte, Marko Tooming

Source: Vikerraadio

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