The recent conclusion by Estonian Institute of Economic Research experts, according to which the Estonian economy is not doing well despite lovely late midsummer weather, took hardly anyone by surprise. For some time now we have been treated to news of industrial companies dialing back or closing doors. Minister of Economic Affairs Tiit Riisalo (Eesti 200 – ed.) admitted the situation is serious in an interview to "Aktuaalne kaamera" news but failed to offer a single solution. Indeed it seems impossible for Eesti 200 politicians to propose anything that has not been previously sanctioned by the Reform Party. After all, the former's leader Lauri Hussar did pledge his undying loyalty to the squirrels (Reform mascot – ed.) leading up to the elections.

The Reform-led government seems to be bogged down in domestic spreadsheets and unable to grasp the bigger picture. Our manufacturers and farmers are competing on the common market, and while other countries are rushing to their firms' aid by offering cheaper electricity or tax breaks, we are content to just look on as the situation unfolds. Little wonder then that imported goods are taking over supermarket shelves. Local products are simply too expensive. In Valga, where I live, people are in the habit of shopping on the other side of the border (in Latvia – ed.), which trend is only set to deepen looking at recent developments. The government's inability to listen to entrepreneurs and offer them equal conditions to those enjoyed by their competitors makes me want to scream rather than just sigh.

And what has been the government's summer agenda? The short version is austerity and more austerity. Closing rural schools, ending free public transport, minimizing roadbuilding, dropping teachers' pay rise, taking away the funds of the Estonian School Sports Association and Eestimaa Spordiliit Jõud during the the Be Active year. The icing on the cake is Minister of Regional Affairs Madis Kallas' (SDE) plan of taking away the free glass of milk offered to students in grades seven and above.

Banks' exorbitant profits have been taken from the pockets of Estonians

All of the aforementioned cutbacks could be avoided by introducing a temporary banking tax in Estonia. The Center Party proposed it earlier in the year. It is the government's role to intervene in anomalous economic situations – for example, how various measures were introduced when energy prices skyrocketed.

Estonian banks made almost as much in profit over the first six months of 2023 than they did for all of last year. Market leader Swedbank alone pocketed €214 million. Whereas it has nothing to do with banks' investments having suddenly become profitable. Most of these profits are the result of Euribor hikes and come out of the pockets of Estonian residents, hurting families' ability to cope.

The government's inactivity in supporting business is rivaled only by its apathy looking at the banks cashing in. We could easily lay down a 25-percent tax on banks' profits today. A temporary tax that would remain in effect until the global financial situation stabilizes would help alleviate the chronic shortage of funds in many fields. It would make it possible to hike teachers' salaries, finally finish four-lane highways and support local governments on whose shoulders the current and previous Reform governments have laid new burdens without providing the necessary resources.

Fears that this might cause banks to dial back their Estonian operations are baseless. Estonia is too big of a gold mine for them, and it really makes little difference whether Swedbank turns a net profit of €300 million or €400 million. While the government hopes to make €20 million from hiking the special VAT rates of accommodation providers and media companies, taxing banking profits could yield many times that much. Another important aspect is that this would not exceed society's pain threshold.

The government needs to intervene quickly and decisively to stop [the banks'] profiteering on the Estonian people. Head of the Estonian FSA Kilvar Kessler has also drawn attention to the absurd situation, recalling how the Thatcher administration laid down a one-off banking tax in 1981 after the latter made "too much" money by not paying interest on demand deposits.

I also asked about taxing banks' profits during a Riigikogu sitting in mid-May when Bank of Estonia Governor Madis Müller gave an overview of the central bank's activities in 2022. While Müller remained modest in his reply, he admitted "more can be done" when it comes to banks looking after their customers.

Pulling the wool over simpletons' eyes

Estonia would not be a trailblazer in taxing banking sector profits. The parliament of Lithuania in early May passed a law to temporarily tax bank profits that is estimated to yield €400 million for the budget. Banks were also ordered to hike deposit interest rates and lower those for loans. The aim is to liven up the economy and improve the subsistence of companies and families. All that is needed is a copy-paste, Kaja Kallas!

The Estonian banking sector's talk of profits helping to ensure liquidity of financial institutions, making it possible to offer cheaper loans and pay more on deposits is meant to pull the wool over the eyes of simpletons. While deposit rates have indeed gone up, keeping money in bank accounts is clearly a lossmaking project looking at inflation. And does anyone know anyone who has secured a loan on very favorable conditions recently?

To put it simply, the average Estonian family's role today is to help cool the economy and pay for banks' astronomical profits through more expensive housing loans. And what does the citizen get in return from their government? VAT and income tax hikes, a car tax, higher hotel and restaurant prices, smaller large family benefits and an income tax reform that clearly favors the wealthier part of society. That is not the kind of Estonia I want!

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