Social minister: Tax changes to hit pensioners
While Minister of Social Protection Signe Riisalo (Reform) approved the government's tax changes package, she added several comments and emphasized that the changes will negatively impact the situation of pensioners in Estonia.
Riisalo pointed out that bills to amend legislation pertaining to taxes were sent as a single letter and there are plans to adopt them as a single package, even though the bills this "cluster" includes are different and their explanatory memos lack a common dimension.
"This means that it has not been analyzed which income groups will see their expenses grow more than their income or vice versa," she said.
Riisalo said that the explanatory memo of the Income Tax Act provides that people in the 1st to 6th decile will gain up to €100 per annum (this is €0 for the first two), while the financial impact of the VAT hike has not been considered, meaning that people could end up losing more than they gain.
"Therefore, hiking the VAT rate and introducing a universal basic exemption could lead to a situation where lower-paid people will have to bear relatively more of the burden. This effect would be the opposite of what is said in the Income Tax Act's explanatory memo," Riisalo said.
The minister said that pensioners are of special concern as the average old-age pension is exempt from income tax, meaning that the income of retired people will not grow as a result of changes, while the VAT hike will still add to their expenses.
"This means that the financial situation of pensioners is not set to improve as a result of these changes. What is more, pensioners will be at a disadvantage compared to other social groups because income tax is a regressive tax – lower income groups will spend more of their money on paying income tax," Riisalo added.
Another problem Riisalo highlighted is that while the VAT hike will enter into force from January 1, 2024, income tax changes won't take effect until a year later.
"This aspect has also not been treated with in the explanatory memos, which need to be complemented." the social protection minister found.
The government on Monday approved and forwarded to the parliament a so-called cluster bill of tax changes to hike income tax and VAT rates from 20 percent to 22 percent and abolish accommodation providers' special 9-percent VAT rate.
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Editor: Marcus Turovski