Businessman and former banker Indrek Neivelt has provided ERR with a devastating assessment of the current Reform-Eesti 200-SDE coalition's tax policy.
Indrek Neivelt, who went on to co-found fintech firm Pocopay, highlighted the railroading of the legislature by the executive in fast tracking legislation which gave the new taxes a legal basis.
Neivelt also hit out at the fact that bumper profits on the part of all of Estonia's major banks in 2022 are apparently going untaxed, along with the content of a proposed car tax.
Speaking to Vikerraadio's "Vikerhommik" morning show Thursday, Neivelt said: "In my opinion, the changes which were hastily adopted in the spring - if none of these had been made, the situation now would have been better for everyone. This is of course my opinion."
Neivelt said that: "I actually still cannot understand what we are doing, do we want a balanced budget or do we want it within three percent. Today, without doing anything, we would have been within the three percent limit, which meets the Maastricht criteria, and which meets all the agreements so we can nicely say that our finances are in order. Everything. We should not have done anything - not a VAT hike, not an income tax hike, not a removal of bracket creep, none of these things. We would just have needed to act calmly."
Neivelt also lambasted the fact that no substantive discussion about taxes seems to have actually taken place in Estonia: "Actually, there has been no discussion. There was no discussion in the Riigikogu in the spring either [when the legislative amendments were subject to an opposition filibuster-ed.]. There was merely some kind of fighting going on. That someone might have rationally discussed what would be beneficial to the economy over the long run and where we would place our priorities within the plan; this did not happen either, not before the elections, and not after them, either."
Neivelt backs additional taxation of banks
Neivelt spoke in support of a special tax imposed on the vast profits enjoyed by banks in Lithuania, and found that the same could be done in Estonia, since as much as anything this concerns questions of justice and equality.
He said: "I have provided the example of Lithuania many times. When they first started talking about this, I thought it was yet more populist talk. But then, when I saw the nature of the bill they took to their parliament, I understood that it was, in that logical, that well thought out – I still know a little bit about banking – that I was really drawn to it."
"It seemed to me to be fair very logical. The fact that it was planned to last for two years and constituted a solidarity tax – well we all know that we currently are experiencing higher expenses as an effect of the war in Ukraine. In this case, those who have more money, contribute more," Neivelt continued.
"At present, however, we are instead foisting the tax burden onto the regular person, boosting VAT and everything else. But those who simply have too much money, once again – the banks don't care if they clear €1.1 billion or €950 million in profit this year," Neivelt went on, with reference to the difference before and after a tax along the lines of that put in place in Lithuania – which may seem like massive sums to ordinary people, but in banking terms, are not.
"Nobody seems to grasp that the €150 million we would take from the banks under this 'Lithuanian' system is essentially small change for the banks," he went on.
When asked what prevents Estonia from doing this too, Neivelt admitted that he did not know: "You have to ask the government. I am not in government. But again, €150 million is the same amount as the planned car tax take. Then there are child benefits; we are not giving children free school milk any more, but at the same time, what are we doing?: We grant subsidies for electric cars, we grant support for demolishing old stoves - this thing has gotten out of hand."
Neivelt also said that additional taxation will not harm them the banks themselves. "It won't hit anyone hard, and no one will be brought to their knees either. By way of example, whereas a few years ago banks' profits stood at around half a billion euros per annum, their return on equity was more or less double the European average."
"And now, profits are twice as high. There's no point in saying anything more. If you strip away the dull statistics, there's nothing to be done here," he went on.
Neivelt also argued out that while the banking sector in the Nordic countries is more similar to than different from Estonia's, banks in these countries do not earn such hefty profits.
"In most European countries, the banking sector is an oligopoly - there are a few major players. Let's take Sweden, Finland, Denmark, Norway as examples; all are very concentrated markets," he said.
While the same can be said of Estonia, where the oligopoly for the most part consists of Swedbank, SEB, LHV, Luminor and Coop, so far as private customer banking goes, the difference, Neivelt said, is that: "There is a social contract whereby noone takes profits on that scale. This is just not best practice."
In Estonia, such etiquette does not exist, however, Neivelt said.
The car tax should be imposed on electric vehicles first
Speaking about the proposed car tax, Neivelt suggested extending this to electric vehicles also.
"I think it is clear that today, we are all having to pay a car tax if we put gas or diesel in the tank (ie. fuel excise duties.-ed). But the case of a car tax, we should start by taxing electric cars. This would be fairer, since as of today these do not contribute to the costs of road construction (ie. via taxation-ed.) and other things. So this obviously represents unequal treatment of those who use fossil fuels. This should be our starting point."
At the same time, when it comes down to brass tacks, Neivelt said he is in favor of a car tax as such.
"But I would start with electric cars and then move on to the other vehicles," he added.
"Nowadays we seem to be forgetting one of the principles of taxation, namely that tax must be taken from places where there is something to take. But the current government is trying to take from places there is nothing to take. People are having a very hard time in many sectors, and that is the problem. Again: Those who have expensive cars pay off their €30 per month, it's not a problem for them," he went on, referencing the higher relative tax burden which will fall on owners of older or cheaper vehicles, for instance, ie. predominantly lower earners.
"The thing about the car tax is that we have been talking about how we want to protect the environment, get rid of old scrap etc. whereas in reality we sell that to Africa. But we have one planet, we have to take care of everyone. At the same time when we talk like this, we are being very hypocritical . We're not honest people, in that regard," Neivelt went on.
"If we really wanted to make a green transition, we should make products that last longer, repair them – that would be a real green transition. Right now we don't have any green transition; right now, we only pretend that we want to preserve nature, whereas in fact what we really want is economic growth, and nothing else."
Editor: Andrew Whyte, Mait Ots