A draft bill which amended principles of funding to local government was drawn up too hastily, Minister of Finance Mart Võrklaev (Reform) says.
The minister says that the process should have been planned in concert with tax amendments due to come in in 2025.
Võrklaev said: "This bill was drafted too hastily. The changes will reduce the revenue base of some local government units, while the planned increase in the VAT rate will up spending. The explanatory memorandum to the draft act also does not analyze the resulting effects."
The draft bill, which would still need to pass a Riigikogu vote to enter into effect, will redistributed funds to local government on the basis of 3 percent from the state pension fund pertaining to that municipality, up from the current rate of 1.88 percent.
This will have the effect of municipalities with older populations receiving more; Narva's revenue base will rise by €1.5 million, while Tallinn would lose €6.9 million, on the basis of the bill.
In essence the intention is to redistribute wealth from the more well-heeled municipalities in Estonia, to the less well-off.
Võrklaev said that it would have been more appropriate to plan this reduction in the revenue base, where there was a reduction, in tandem with amendments to the Land Tax and Local Tax Act, which will compensate for the fall.
These amendments are to come into effect in 2025.
The Ministry of Finance prepared the bill, then sending it to approval to the Minister of Regional Affairs, Madis Kallas (SDE).
Editor: Andrew Whyte