Mart Laar: Pummeling by taxes has brought Estonian economy to its knees

Mart Laar served as prime minister from 1992-1994 and again from 1999-2002.
Mart Laar served as prime minister from 1992-1994 and again from 1999-2002. Source: Siim Lõvi/ERR

Mart Laar, former prime minister and long-time leader of the forerunner to day's Isamaa, and as such synonymous with the flat rate approach to taxation, told ERR that, instead of focusing on science and research, the government could cut down on bureaucracy in state institutions and leave business be.

Regarding the messages arising from the ongoing state budget talks, Laar mostly had strong criticisms, in an interview which follows in its entirety.

How much have you been following what has been going on regarding the budget talks?

I've certainly been following it. What else is there to follow? It affects everyone, directly, next year, and in the years to come.

What thoughts do the messages from the government bring to mind?

Sad thoughts, some very sad thoughts. If you go to the manor for a lot of money (last week's two-day state budget cabinet summit was held in the luxurious surroundings of the Vihula Country Club and Spa – ed.) to discuss how to assemble a budget and cut the necessary money therefrom, in order to move things towards budget balance, and even then, despite spending money at the manor, you come back empty-handed, this is highly shameful. I remember how I myself dealt with rather harsh budget cuts, while sitting calmly in the Stenbock House and on Toompea. 

Andrus Ansip's government also managed to achieve this from the Stenbock House. No one needed to splash state money out on a manor house. It seems to me that the prime minister failed to understand altogether, what she wants to cut, and why.

When we talk about the plans that have emerged, where it is necessary to find €200 million in revenues, while the ministries are directed to cut even more...

Look, the point is that nobody has cut anything right now. They have in fact spent more money. If the government has the funds to hold such empty sessions at manors, then it seems that the government still has sufficient funds.

As things stand, they want to change the state budget's basic law, in order to relax those rules that we have established ourselves, plus to establish those rules that have been established by the EU instead, in order to make it easier to assemble this budget. What is your take on that?

I honestly don't know whether to laugh or cry.  Most likely the latter. To call it shameful is putting it very mildly. It's in fact totally absurd.

In other words, we should actually deal with the rules that we currently have enshrined in law?

This would certainly be logical, since then why establish these rules in the first place. This way, way we can say we can't handle things, and then change the rules.  That would be a disastrous principle to introduce.

The argument from the Ministry of Finance is that the EU rules are more flexible.

You know, we certainly find quite a lot of cases where Europe's regulations are worse than our own, but... The fact is that we have a piece of legislation in front of us which we have passed ourselves and which we had, until last Sunday, been following, which we must proceed from. But it now transpires that we cannot manage to fulfill it, where we find that it is not necessary to fulfill it, as the EU's rules do not allow us to. This is not the way things should be. This is surely a very special kind of hypocrisy.

If you had the chance to make any decisions now, is there any area where you see that certainly should be cut back?

Bureaucracy. The whole bureaucracy, the state apparatus. Not cuts from those who actually do work, like teachers, police, first responders, but from the officials who run the country. The matter has always let out of hand by the people who implement and invent all kinds of orders, commands and regulations. In addition there is the huge number of communications specialists, yet I don't see particularly effective communication going on anywhere.

You wrote in an opinion piece in the springtime (link in Estonian - ed.) that raising taxes is not an effective way to patch up the budgetary hole.

Unfortunately, as of now life has probably shown that I was unfortunately right. If anything it's even worse. Estonia's economy has still been very badly hit by this propagation of taxes. These ideas of making cuts where money is really needed, such as in higher education, research and teacher salaries, are extraordinarily short-sighted.

Businesses also say that they certainly expect the government to take actions to stimulate economic growth.

The government cannot carry out economic growth itself; the entrepreneurs can, but the government could do well by leaving the entrepreneurs alone. Not in this way where new tax increases are announced with four days notice, and everything is constantly changing; there are new taxes all the time. And when I read the "excellent" statements by the Minister of Finance to the effect that €400 million tax in increases will be entered into the budget strategy, but we will not say which taxes we will be raising; well, again I do not know whether to cry or laugh.

Things like that cannot be written into the state budget plans?

Certainly not at this juncture.

What, then, could be done right now, to revive the economy, and also to fix the state budget?

I would leave business alone first, for example: Simple advice. And bureaucracy must be severely and decisively cut.

I understand that you do not support the additional taxation of corporate revenues.

I certainly don't.

And what about the taxation of banks' profits?

Definitely not, either. These are completely populist, and socialist, ideas. In other words, if someone does well, we will take their money away. While we don't know exactly how much more we're going to get, since you did well last year, we're going to follow it up. This isn't even just socialism any more; it's communism, or even war communism (a system put in place by the fledgling Soviet Russian state, of which Estonia was not a part, during the 1918-1921 civil war, superseded by the somewhat more liberal New Economic Policy – ed.).

So is there any type of taxation at all that you would impose at this time?

You should definitely pause and take stock calmly and leave business alone.

One can talk about all kinds of things. But the state itself has so much room to make savings. When I look at how this money gets spent, how it is thrown away yet there is this avalanche of orders and regulations that have fallen on the necks of people and companies, I would certainly take that as the starting point, and then we would seriously be able to get this state budget into a better position.

Mart Laar was talking to Kadri Põlendik.


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Editor: Andrew Whyte, Aleksander Krjukov.

Source: ERR Radio News.

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