Employers union: Planned car tax rationale disconcertingly vague

Cars in Estonia.
Cars in Estonia. Source: Siim Lõvi /ERR

A planned car tax is unclear both in its purpose and necessity, in the context of other tax hikes and continuing inflation, the major lobby group representing employers in Estonia says.

The Central Union of Employers (Tööandjate keskliit) says it considers the tax to be spurious.

In a reply to the Ministry of Finance, the Central Union of Employers' CEO, Arto Aas, stressed that Estonian entrepreneurs and consumers are already being hit with several tax hikes, which together will up costs and the overall rate of inflation in the near future, he said.

This as Estonia's economy has been in decline for five quarters in a row, with rising unemployment and falling competitiveness in exports also exacerbating the situation, Aas said.

"Tax takes into the 2023 state budget are nearly one billion euros higher than previously estimated. Seen in this light, the feasibility of introducing a new tax is more than doubtful," Aas went on.

The government should first carry out its planned spending cuts and state reforms, the union says, adding a precursor to introducing a car tax should be a commitment to investing additional tax revenue in the development of public transport and roads. 

As it stands, the planned taxes' raison d'etre is unclear, the organization goes on.

"Is the goal to protect the environment, to limit car use, to collect additional revenue for the state budget, or to redistribute revenues?" Aas inquired, adding that several disparate goals cannot all be fulfilled effectively at the same time.

The tax is presented to the general public as an environmental tax, yet it lacks environmental metrics, while if tax receipts fall with a fall in the number of vehicles being taxed, the tax may then be broadened in scope to make up for this, the employers union says.

Thee risk is that the new, planned tax can be all to easily hiked, just for the sake of meeting budgetary policy goals, Aas added, rather than providing the taxpayer with the assurance that by making environmentally friendly choices, his or her tax burden in relation to transport costs will be reduced. 

Furthermore, the lack of impact analysis means presenting the tax as an environmental tax cannot be taken seriously, Aas added.

Additionally, applying the tax nationwide when the issues it attempts to solve mostly pertain to Tallinn and environs, is not rational, the union says.

The impact of the planned tax should be evaluated alongside tax changes planned at EU level, such as the rise in minimum fuel excise rates and the expansion of emissions trading to the transport sector, the employers union says.


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Editor: Andrew Whyte

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