Läänemets: This state budget's problem isn't cuts, it's structural

Lauri Läänemets (SDE).
Lauri Läänemets (SDE). Source: Ken Mürk/ERR

According to Social Democratic Party (SDE) chair Lauri Läänemets, Estonia's state budget is short more than €200 million, which cannot be offset with cuts. Läänemets recalled saying before this spring's elections already that tax changes lay ahead regardless of who would end up in power, because the state budget is just so short on money.

Minister of Finance Mart Võrklaev is looking pretty worn out ahead of the budget talks at Vihula, because despite all the austerity plans, €200 million still remains outstanding. Lauri Läänemets, are you still against cuts?

The Social Democrats have been pointing out all along that it's not actually a matter of savings. We have to save; we've found opportunities [to do so] in the Interior Ministry's area of government too. No additional funding is being given for operating expenses; this means that we need to come up with €16 million internally, and that is a very large sum for an austerity plan. But that we'd discontinue any services vital to the state, such as in the internal security field — that we certainly don't support.

And we've said that it's rather a question of the revenues side. And that €200 million — I actually estimate that to be even bigger. Because we have certain critical needs that the state should still address or which we cannot forgo. Some things have gotten more expensive, but the service must function. And I think that part of the debate really must be the fact that in today's economy, it would make sense to invest in roads or put money into construction. To keep the economy going, and to save jobs. We don't have to look at just the expenditures side.

Can you specify what those critical things are that have gotten more expensive? Are we talking about the National Library of Estonia, for example? Are we talking about wages, some of whose still need a boost? What are we talking about here?

Of course we're talking about wages. Not next year, but it isn't reasonable to freeze wages in the following years. But we're also talking about the transition to Estonian-language education; that's short €27 million too. You can find more and more such very critical expense lines in one field or another.

How enthusiastic are you that the government might start thinking about investments in the current economic situation? That we can't stand by and watch exports collapse and the construction sector collapse?

The logic that we have low flat taxes that we use to tax the middle class or poor people but at the same time also want a country with our current level of security — then the current economic model and tax model aren't gonna work.

I believe all topics are open to discussion. Including — I haven't spoken about this in the coalition yet, although I've forwarded the Ministry of Finance's corresponding calculations to our coalition partners — we're going to start talking about a solidarity tax on banks as well. About taxing their massive profits. This is a topic that isn't off the table, because if there are such big deficits in the budget, then that is exactly the right place to look.

Let's talk taxes. Must the car tax and the personal income tax and VAT hikes definitely remain in place in the current situation?

The Riigikogu has already made the decisions regarding the elimination of the tax hump. And the elimination of the tax hump is actually going to drain very large sums out of the state budget. That needs to be covered somehow. Ministry of Finance calculations show that we'll be reducing the overall tax burden by 1 percent. But despite the fact that quite a few taxes are increasing, eliminating the tax hump will have such a big impact on the state budget that the overall tax burden will actually decrease by 1 percent.

And in this situation, it is't possible to give up everything else. Let's add a faster minimum wage increase on top so that people with lower incomes can get by. In parallel with the car tax, it's certainly very important to Social Democrats that more trains and buses start traveling around Estonia. In other words, for us, mobility reform is tied to the implementation of the car tax. We're going to start discussing that at Vihula as well.

It's clear that a mobility reform can't be implemented in just a few months, and the car tax is slated to enter into effect next summer. Surely nothing will essentially happen by then?

The mobility reform could start from the beginning of next year. Initially moreso in a planning phase, but it's possible to run more buses next year. It's possible to start changing the ticketing system so that there would be an integrated ticketing system throughout Estonia. It's possible to make all kinds of infrastructure investments, or start with enhancing mobility at the start of 2025. But we can always run more buses. There is nothing standing in the way of that, and we could run more of them starting January 1, even.

But standing in the way is the fact that public transport is already short tens of millions of euros, and that amount will only go up next year. Isn't [Minister of Regional Affairs] Madis Kallas struggling with that?

Yes, subsidy funds end up short if more isn't allocated there and life gets more expensive. Absolutely nothing new there. And public transport isn't some free thing; society has to pay for that. But it isn't possible to introduce a car tax — where the idea is to get people to use public transport more — if no buses are running. What's that person supposed to ride, then?

In other words, public transport is all of society's solidarity project, so that those without cars are able to get around too. Elderly people take public transport; it's very important that they can get around. A huge amount of kids take public transport. Good public transport links are crucial for people getting to work so that they aren't forced to leave rural areas.

In other words, in summary, your position is that because our economy is still in decline with no signs of recovery in sight, then budget cuts should be postponed a bit? That you just have to take out a loan in these challenging times?

I don't know if that's taking out a loan. It's the tax system too. If we want to invest in roads in Estonia, for example, then the solidary taxation of banks could bring in €400 million in 2025, if you look at Lithuania's tax scheme. €400 million into the state budget — you could make a lot of investments and keep the economy running with that. We don't necessarily have to take out a loan.

But it's clear that this state budget's problem isn't cuts. It's just that the missing amounts are too big to be saved somewhere. The problem is on the revenues side, and the problem is structural anyway.

According to Ministry of Finance data, Estonia's labor taxes are lower than elsewhere in Europe. Estonia contributes less to the social system. Estonia doesn't tax wealth. These are areas where we've actually reached an impasse, where changes have to start being made. It doesn't matter what your worldview is; it's not possible to sustain a welfare state like this with such high defense costs, such social security costs, if you don't take money from those who have it.

Does this mean that some other taxes will need to be increased in addition to the agreed upon tax hikes? Cancel the expensive elimination of the tax hump — the Reform Party wouldn't allow that!

I described the big picture. We have quite a few right-wing parties in the government. The elimination of the tax hump paved the way for the implementation of a normal progressive income tax in Estonia.

I said before [this spring's] elections already that regardless of who ends up in power, tax changes would be coming because the state budget is just so short on money. I can say that after the next elections at the latest, it will be that regardless of who ends up in power, a progressive income tax is coming.

What could those percentages be, then? How much more would people earning more than €3,000 or more than €4,000 [a month] pay?

I can't tell you that percentage right now; that's ultimately a matter of agreement. But I do believe that the richest people could easily contribute significantly more in Estonia so that the elderly are cared for, that children get a better education and that the country's security is ensured. This won't hurt them. They won't be worse off for paying €100 more a month in taxes. But the impact at the other end would be huge.

How much is the eastern transport scandal overshadowing budget talks? Is Kaja Kallas' position insecure, and will that impact the [next] two days in Vihula?

We haven't even commenced these talks yet. Generally speaking, for us, drawing up the budget and this scandal aren't in any way connected.

The thing is, at the table are two right-wing parties and the Social Democrats as the left-wing party. Let's just say that there will be an ideological debate, and [we'll be] seeking common ground.


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Editor: Aili Vahtla

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