Prime minister: Main taxation criticism has revolved around lack of debate

Kaja Kallas appearing on an earlier edition of 'Esimene stuudio'.
Kaja Kallas appearing on an earlier edition of 'Esimene stuudio'. Source: Kairit Leibold/ERR

While the coalition has received much criticism over an apparent lack of dialogue over proposed new taxes, there is time until July next year to both have that discussion and to find means of making budgetary expense for the following year, Prime Minister Kaja Kallas (Reform) says.

The prime minister also says that the recent controversy surrounding her spouse's business interests has not hindered her work, that of her government nor Estonia's international reputation.

Appearing on ETV politics show "Esimene stuudio" Wednesday evening, the prime minister said: "Naturally attacks are always a part of this job and that will continue to be the case, but has it in any way prevented me from doing my job, at present and as of now? No, it hasn't."

As for President Alar Karis statement that, were he in Kallas' shoes, he would have resigned in the wake of such controversy, the prime minister said that she, too, would do some things differently if the roles were reversed.

"I have great respect for the president and always have done, bearing in mind that I was the person who convinced the other political parties to support his candidacy."

"It is true that there are some tensions between us; I have tried to resolve these tensions one way or another and, hopefully, this will change in the future," she went on.

As to whether she would have commented on the situation more or differently when it first broke a month ago, given what she knows now, the prime minister said that what is done cannot now be un-done.

"This matter concerns me personally; I was very disturbed by it, very emotionally affected, so it was very difficult to provide the right messages at that precise point in time, because, very clearly, it was affecting me. Naturally I have committed plenty of human errors in communication, but we are all human. Who wouldn't do so," Kallas added.

As for her spouse – it was his business interests and the fact a small proportion of them related to providing logistics services to a related company exporting items to Russia that was at the heart of the controversy – Kallas noted that he was not a public figure nor a political one.

"My husband is not involved in politics and he probably wouldn't have been able to assess the risks the way I could have, had I known about them. And yes, we don't talk about this at home. Do you really think I could have maintained a poker face for a year-and-a-half and then go and fight for everything like I have been doing, while you wouldn't have cottoned on to the fact that I had some kind of risk hanging over me? I'm not an actor, it would have been as clear as day from the outset," the prime minister added.

While the prime minister's husband cooperated in providing information and interviews, as a non-public figure he was only able to do so much and to speak about what has been shared with him with regard to the firms involved, or even what he has read in the media.

"I don't know the full details on the activities of these companies. Regarding my husband's companies or ... business partners, I can't give full clarity on that," Kallas said.

As for the ever-present question of how Estonia's international reputation might have suffered due to the scandal, the prime minister, who recently appeared in another round of articles in the Western major publications, said that the saga itself had not been covered nearly as much as those involving previous administrations in Estonia – likely referring to the Center-EKRE-Isamaa coalition of 2019-2021.

Foreign media coverage of Estonia has been mostly positive during her time in office (since January 2021) and the recent episode has not changed that, she said.

As to whether it could have affected Kallas' own future ambitions, she answered that the mere fact she had even been considered in the running as a possible candidate – likely referring to media reports which linked her name to Jens Stoltenberg's successor as NATO secretary general – was of great credit to Estonia as a whole.

"This doesn't mean that it was an actual thing though," she added.

At home, Kallas confirmed that she is seeking reelection as party leader at the upcoming Reform Party congress.

The prime minister also noted the long hours without breaks that facing Riigikogu committees – she appeared twice before the Riigikogu's anti-corruption select committee, most recently on Monday – parliamentary question time, presentations, media interviews, press conferences etc. entail.

"I'm a human, not a robot," she went on, adding that it is easier to play Monday-morning quarterback to the various media appearances, though in practice this is much harder, even when experienced.

The current "controversy" concerns the state budget for 2024, which the prime minister announced on Tuesday was ready for processing at the legislature.

Kallas said that additional revenue sources had taken precedence of wide-ranging cuts, within budgetary rules.

"But above all, we need to have a lower debt burden, lower interest payments and, ultimately, a better business environment."

Part and parcel of this was taking on the more relaxed EU budgetary restrictions rather than further feeling the squeeze into Estonia's pre-existing rules, she added: The latter would have required more new or novel taxes or more cuts.

Controversy over the news that the banks have boosted their dividend payouts this year, at a 20 percent corporate tax rate, bringing them forwards from next year when the rate would be 22 percent, could be explained, Kallas said, by the fact that there were three options on the table regarding the banks' profits: One, to do nothing, two, to introduce a bank tax from 2025, or three, convince the banks to make an additional contribution to the state budget at a time when they have record profits and the state needs money, i.e. in 2024 and 2025.

Kallas noted that over these two years, the banks are due to pay nearly 500 million in corporate income tax into state coffers. "I say the taxpayer definitely won here," she said.

Kallas dismissed a suggestion that her negotiating position has been weakened by the Russian transport saga.

"Fortunately we have a liberal party, one where everyone can express their opinion, and they do do that, very loudly in fact."

Kallas also said that criticism from without about the proposed tax changes – a planned car tax is the most prominent of these – is behind the move to provide time until July 2024 for discussion involving stakeholders and society as a whole, before these taxes are finalized.

The newly unveiled four-year state budget strategy (RES) also includes an empty budget line in its 2025 tax take, with a projected amount of €400 million but no specifics on what taxation types this would derive from.

This €400-million gap needs to be covered, Kallas added, but if any areas of potential cuts are found, that figure may be revised downwards.

Kallas also stopped short of saying that Reform would be ditching a flagship policy going into the March elections, of eliminating "bracket creep," known in Estonian as the "tax hump," given the tight budgetary situation.

Bracket creep occurs when rising salaries push more and more wage-earners into the next tax bracket, thus paying more tax in both absolute and relative terms. Reform wanted to put in place a €700-per-month income tax-free threshold, which it says would alleviate this phenomenon.

Kallas said: "Should we remove the 'hump' then everyone who earns less than €8,000 [per month] would benefit from it, which in turn takes the pressure off raising wages, as in that case people would get more money in their pockets.

"True, we made these tax changes in the spring, but to my surprise, even after making them – quite a difficult process – the tax burden did not rise. If our revenues fall and expenditures rise, the tax burden over time in fact falls. But then again with a low tax burden, we cannot maintain a state that was anything like, say, Finland, or in any case the kind of country we would like. These are the choices we face."


Follow ERR News on Facebook and Twitter and never miss an update!

Editor: Andrew Whyte, Barbara Oja.

Source: 'Esimene stuudio,' interviewer Andres Kuusk.

Hea lugeja, näeme et kasutate vanemat brauseri versiooni või vähelevinud brauserit.

Parema ja terviklikuma kasutajakogemuse tagamiseks soovitame alla laadida uusim versioon mõnest meie toetatud brauserist: