Jaak Aab: Sole purpose of car tax is to fill state coffers

Jaak Aab (Center).
Jaak Aab (Center). Source: Priit Mürk/ERR

The two possible models for the Reform Party's proposed car tax are hollow of substance, nor do they contribute to the achievement of set objectives, said Riigikogu Finance Committee deputy chair Jaak Aab (Center) following the Center parliamentary group's meeting with Minister of Finance Mart Võrklaev (Reform) on Monday.

"Instead of boosting the economy and supporting business-owners, the government is burdening our people with more and more new taxes," Aab said. "In the face of high inflation, VAT and income tax hikes for private individuals, increasing VAT on restaurants and accommodation establishments as well as media companies, the abolition of free public transport and this additional car tax are reducing Estonian families' ability to cope."

The Center Party board member noted that the justifications cited in the bill's legislative intent only thinly veil the new tax's true intent — to raise additional money for the implementation of the Reform Party's €500 million, wealthier-favoring income tax reform.

"The car tax, which the Reform Party didn't say a word about before the elections, will hit low wage earning rural residents the hardest," he said. "Apparently this car tax idea was the result of discussion among unreal politicians, and it wasn't deemed necessary to seek the opinion of people involved day-to-day in car sales. Car dealers have highlighted the fact that even without this tax, car prices are continuing to go up 8-10 percent a year, and to treat people in the face of high inflation to an additional tax is just low."

Aab added that Võrklaev, the minister of finance, failed to sufficiently justify the implementation of the planned car tax at his meeting with the Center parliamentary group on Monday either.

"The government's actions are incredibly chaotic," he said. "On the one hand, they want to reduce environmental impacts; on the other, implementing a car tax will make buying all new vehicles more expensive, and abolishing free public transport certainly won't help contribute to the goal of reducing motorization."

According to the Finance Committee deputy chair, they still have yet to receive an analysis from the finance minister of the impact of all of these tax hikes on the Estonian economy.

"The EU's various regulations for meeting climate objectives and the government coalition's springtime excise duty hikes will drive the price of diesel fuel, for example, up by €0.50-0.60 per liter by 2027," he highlighted. "That's something to seriously consider — whether an additional tax burden on car owners in the form of a car tax is even sustainable."

He believes that a car tax should be treated as a luxury tax, and additional fees should be paid by the owners of more expensive than average vehicles.

"Right now, the Reform Party is just taking an ax to everyone — even disabled people who live mostly off of support [payments] and who often have no other means of transport than a personal vehicle," Aab criticized. "When implementing a car tax, the development of public transport and creation of alternative opportunities must be addressed simultaneously. But it isn't possible to fast-track all of that."

SDE chief: Filling state coffers can't be goal of car tax

Speaking at a party council seminar over the weekend, Lauri Läänemets, chair of the coalition Social Democratic Party (SDE), said that the planned motor vehicle tax should take regional differences into account too, and stressed the need to consider the motor vehicle tax and public transport mobility reform in tandem.

"The design of the Reform Party's proposed uniform car tax needs more work to ensure a clearly bigger regional dimension and that it takes distinctions into account," Läänemets acknowledged.

"A car tax is a supportive component in a major mobility reform, where a new level of public transport will reduce the number of cars on city roads for the sake of the living environment," he continued. "Without the mobility reform, the principles of which will be established by the start of the new year, the only clear impact of the car tax would be filling state coffers in order to balance the Reform Party's elimination of the tax hump."

According to the Social Democrat leader, over the next four years, the state has to direct at least twice as much money into the development of public transport as the car tax is expected to bring into the State Treasury.

"Our objective cannot be to punish drivers who are forced [to drive] on a daily basis; rather, [it has to be] to fundamentally revamp public transport in such a way that an Estonian resident's daily movement might be more environmentally friendly, accessible to everyone and would value our time," he said.

"An all-time record high number of luxury vehicles were registered in Estonia last year, meaning clearly even a registration tax of a few thousands euros wouldn't influence people to behave in a more environmentally friendly manner," Läänemets highlighted. "I appreciate the finance minister's proposal to tax the owners of older cars less, but people in rural areas own cars because for the most part you absolutely cannot do without one there. Therefore the car tax plan now has to be seriously developed further, because this tax cannot punish those people who at low income levels want to replace their vehicle with a more efficient and newer car."


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Editor: Aili Vahtla

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