Analysis: Economic platforms of parties chips off different blocks
Comparing parties' economic platforms for Riigikogu elections is difficult because they are largely "chips off different blocks." While some parties concentrate on overcoming the crisis, others are after ideological purity. For some, the economy remains a second-rate matter, economist Erik Terk writes.
Estonia has for years been navigating major crises. First the coronavirus pandemic and its consequences, now the need to hike defense spending, soaring energy prices, unemployment. And it is not at all clear how long and in what form the turbulence will continue.
Parties concentrating on solving the crisis is hardly surprising. Things might be looking less rosy for the economy if it is suggested we have a new normality, as opposed to a temporary crisis, where we can forget about recent tenets of economic behavior.
The other end of the spectrum is no better: going with a smooth sailing platform, or concentrating on one's favorite topics and paying external changes no mind.
EKRE meets crisis with eyes closed
The economic program of the Conservative People's Party (EKRE) called "Let us save Estonia from poverty!" does not address economic development and its sustainability in the long run. Innovation is overlooked, the need for the green transition simply denied. The platform constitutes a list of measures and promises meant to help struggling people and companies cope with the crisis.
The Estonian economy is treated largely as domestic, ignoring EU positions is turned into a matter of prestige. To contain the [energy] crisis, the party wants to fire up three Narva [oil shale] power blocks, lower energy prices to the pre-crisis level, lower the excise duty on motor fuel, ensure self-provision of food and lower VAT on food.
The Rail Baltica project, which EKRE backed when it was a member of the government, should be stopped, the party now finds. EKRE joins the Reform Party, Center Party and Isamaa in supporting development of four-lane highways to major cities.
The party also supports constructing a nuclear power plant in Estonia. While other "pro-nuclear" parties (Reform, Center, Eesti 200, Isamaa) remain more cautious, EKRE is resolute. EKRE prescribes borrowing and canceling expensive developments (including the green transition), without taking into account their potential gains, as ways of paying for its plans.
From one extreme to the other
The national conservatives offer a tantalizing prospect for people having trouble coping, including Estonian SMEs sporting a local perspective and scope. That said, finding potential coalition partners that would agree to canceling the green transition and Rail Baltica, arguments in favor of which are piling up in the current geopolitical situation, promises to be rather difficult for EKRE.
Eesti 200 emphasize that the party is looking at least a decade into the future, which is reflected in their platform. Unfortunately, it has failed to address aspects of the current crisis in its economic program and finds it enough to highlight a few general principles. Eesti 200 is against the policy of universal support measures and aimlessly piling up national debt, redistribution of wealth (tax hikes). But the party does regard as permissible borrowing to stimulate enterprise.
Unlike the Reform Party, Eesti 200 perceive a more active state role in guiding economic development. There is talk of a long plan for national investments and a corresponding program. That said, Eesti 200 emphasizes that it does not endorse state capitalism, even though it uses the term "national capital" and considers it necessary to tax (foreign) companies when they move capital out of Estonia.
Eesti 200's plan for more value added
The core tenets of Eesti 200's program are boosting the status of Estonian companies and jobs in Estonia, emphasis on value added in production and export, innovation, capitalizing on the possibilities of the digital turn and clarity in business legislation.
The platform includes the previously advertised idea of bringing companies' headquarters to Estonia and keeping them here for which a social tax ceiling for high-paid specialist jobs is prescribed. The party wants to direct money in Estonian pension funds into the Estonian economy. The party's so-called personal state idea relies on digital solutions that are expected to help cut the number of officials and costs.
Eesti 200 are also somewhat bolder in talking about the future of the proposed Tallinn-Helsinki tunnel, which would amplify the effect of Rail Baltica.
The party emphasizes that economic development must take place everywhere in Estonia, not just in the Greater Tallinn area. For this, several regional policy ideas are proposed. A separate development program is sought for Ida-Viru County and its possible key items proposed.
Prime minister's party avoiding the word "crisis"
The Reform Party's platform sticks with the canon of right-liberal economic policy: economic success is based on private initiative, the state's role is to create a framework to support it, intervene as little as possible and only when it is absolutely necessary. Reform declares its support for the principle of maintaining fiscal balance, warns against disrupting the tax system etc.
The squirrels (Reform Party mascot - ed.) steer clear of crisis-time economic behavior in their program. This is quite paradoxical as the leading government partner positions itself as coping in the conditions of a crisis (while the "crisis" is defined as that of security and national defense), while its economic program rather forecasts clear skies and smooth sailing and that it will be possible for the party to stick to its classic ideology.
The Reform Party hasn't always dogmatically stuck to its ideological guns in the conditions of past crises, which might be another reason for the party to try and avoid using the word "crisis."
Reform's position is radical regarding the green transition, especially the part concerned with energy. Green investments are described as "the opportunity of the century - Estonia needs to be a promoter and trailblazer."
Center Party as the great helper
The Center Party's election platform highlights the need to develop natural resources and raw materials, job creation in less developed regions (seemingly in traditional sectors), support for industrial parks, measures in shipping etc. In agriculture, the party proposes a system of loans on mortgage with land as security.
Without contesting the switch to renewables, Center considers it necessary to maintain oil shale energy generation until energy and supply security can be ensured through other on-demand capacity. The party emphasizes the need to construct a pumped storage hydropower plant in Paldiski, which would fit well with the roadmap to renewables and help compensate their fluctuating output.
Like Eesti 200, Center supports labor tax ceilings to promote highly qualified workforce.
In true Center fashion, the party paints itself as a great helper of people and companies. It promises various benefits and price caps, as well as taking to task (foreign) companies moving proceeds out of Estonia free of tax and commercial banks turning undeserved profits in the conditions of the crisis.
Abolishing the "tax hump" or tax reform?
The Center Party wants to replace the one-time political compromise of the current so-called income tax hump (system of gradual basic exemption - ed.) with a more avowed progressive tax system (three rungs). The idea is opposed by right-wing parties, largely following ideological considerations. While Center have also sought the abolition of the current corporate tax system in the past, this has been removed from their program for these elections.
Center's program can be criticized for overestimating the potential regulatory influence of the state and fragmentation of economic policy measures. While the latter include several sensible ideas, promises seem to amount to too much on the whole. Several support measures would not be needed in a normal economic environment, while a more serious crisis would only see a very small part of promises covered with ways to pay for them.
Birth of national capitalism
In Isamaa's program, the economy serves either as a guarantor of security or a way to address problems Estonianness is facing - birthrate, Estonians being masters in their own land.
General economic ideological statements pledge allegiance to free initiative, oppose tax hikes and seek to rein in inflation. There are few goals in terms of economic development.
Isamaa want Estonian companies to be treated fairly on foreign markets, bigger KredEx loans to improve their competitive ability on foreign markets, and more ships registered under the Estonian flag. The party prioritizes a long plan for infrastructure investments and support for lifelong vocational learning.
Isamaa also want a family-based tax reform to help families with many children, as well as to support farm businesses. It seeks to avoid agricultural land concentrating in the hands of foreign companies and real estate firms not interested in food production.
The party expresses concern for the survival of Estonianness in a world dominated by international corporations and international higher education. Isamaa is cautious when it comes to foreign labor but considers it a possibility to a point and under certain conditions. If a sector is short on Estonian labor, provided foreigners learn Estonian etc.
The Social Democrats' strict revenue policy
The Social Democratic Party's (SDE) economic program treats with both Estonia's long-term development potential and measures aimed at surviving hard times. That said, compared to EKRE and Center, the party's direct crisis rhetoric is more restrained as SDE are part of the current coalition and therefore less enthusiastic about pledging crisis-time spending when compared to the opposition. At the same time, their main slogan of "Subsistence is security!" is telling in terms of the focus of their program.
The party's ideological niche means SDE has more serious expectations for revenue policy. Minimum wage needs to reach €1,200 in three years, the average pension should rise to 50 percent of average salary etc. This would create a "buffer" for working people.
SDE say that the days of the thin state concept are numbered, setting itself in clear contrast with right-wing forces. The party does not shy away from taxing income in the form of dividends and proposes, as an original idea, a temporary 1 percent war tax on all income to help cover defense spending. SDE joins Center in seeking a progressive income tax system for individuals, while it does not believe in slashing VAT on food.
In the field of innovation, its scope goes beyond technology and manufacturing. Innovation is also sought in public administration and a smart workforce (giving employees one day a week for self-improvement).
More expensive labor eroding crisis resilience
Not to challenge Estonia's focus on performing more complex tasks in the international economy, which logically requires a more expensive workforce, the question of the effects of labor becoming more expensive in the conditions of Estonia entering a potential crisis is raised. It could deliver a spike in unemployment.
Party platforms do not allow for concrete predictions in terms of the future of Estonia's fiscal and tax policy. Parties' go-to reaction according to which it is okay to borrow for development projects but not recurring expenses is hardly informative.
It is a sensible attitude under normal economic conditions, especially considering higher interest rates, and we can only hope it will be realized. However, it is another matter entirely what parties would do in case of a more serious crisis, one that delivers a social cataclysm. Then, Estonia's loan burden rising further would not be ruled out even under right-wing forces. Another question in the conditions of a potential crisis is whether crucial developmental investments would still be made in the case of hiked social spending.
Extensive tax reform unlikely
Unfortunately, a systematic tax reform remains unlikely in the conditions of high economic uncertainty. It seems, which message has been communicated in addition to economists by some parties (Eesti 200, SDE), that Estonian tax policy needs to be revisited in the interests of future needs, and changes should consider the system as a whole.
In current platforms, parties have only tinkered with isolated tax ideas that matter to their core voters. Some by trying to abolish the "tax hump," others by slashing or hiking particular taxes in narrow categories so as not to anger broader voter groups.
In place of a summary
Allow me to summarize parties' economic platforms in short.
EKRE's program reveals a protectionist pre-crisis economic policy, with a notable lack of emphasis on longer-term developments. Parempoolsed and largely the Reform Party have populated their programs with "liberal dogmatic filler" as an omnipresent and victorious ideology. The Parempoolsed (Right-wingers) are even trying to outdo other right-wing forces in this respect. Both parties ignore the topic of crisis management.
Eesti 200 concentrates on development, trying to introduce new solutions, including some previously not endorsed by the so-called right-wing mainstream. At the same time, crisis-time solutions are ignored.
The programs of Center and SDE betray the desire to distance themselves from market liberalism and cope with the crisis and developments. Both programs can be attacked by asking how to finance tackling both headings. Isamaa have come out with a national capitalist program in which economic success is not a separate goal but primarily serves the purpose of meeting patriotic goals.
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Editor: Marcus Turovski