In addition to the large tax increase, hundreds of millions of euros have been included in the Estonian state budget strategy (RES), in relation to items that have not yet been passed into law. One of the largest is a 0.9 percent rise in unemployment insurance contributions, which Minister of Finance Mart Võrklaev (Reform) hopes will be welcomed by employers and trade unions.
The revenue line in the 2025 state budget strategy (RS) includes an additional €114 million under the heading "reform of special cases of social tax payment." This €114 million increase means the total contribution would rise from 2.4 percent to 3.3 percent. Have I understand correctly that this increase in unemployment insurance contributions has been included in the state budget strategy?
It is in the RES and there is a bigger reform underlying it. [Minister of Economic Affairs] and IT Tiit Riisalo (Eesti 200) came up with the idea of making the payment of unemployment benefits more flexible. To make it more flexible in difficult tims, from workers' point of view, and also to motivate people to enter the labor market (at times) when we have labor shortages.
But where will these extra unemployment insurance contributions go?
There was indeed a debate about the unemployment insurance contribution. It was then proposed by one of our coalition partners.
Specifically, by the Social Democratic Party (SDE). And that could be a part of this reform. This is not something that the state can decide on its own, it has to be negotiated among the parties.
You have put it into the State Budget Strategy (RES).
We put it in the RES because the RES is the document in which we, as a government, set ourselves objectives and the ministers are given mandates to fulfil them. Just as there are a lot of other things written in there. So that they don't come as a surprise, but the parties know about them in advance.
But if the workers and the employers don't agree, then you will be left with a €114 million hole in the RES.
Well let's hope that they agree. And that's the job of a minister. Everything is a forecast. Just as we have put the car tax into the budget strategy, or other tax changes. It's a guide, in which we tell the public what we're dealing with and what the minister is going to do.
By 2025, the car tax is expected to bring in €200 million. By 2027, it will be €242 million. What is behind this increase?
Again, this is a forecast. But the logic behind it could be connected to the registration fee. So, first of all, the cars we have will have to pay an annual tax. But now, when cars are exchanged, the registration tax will [also have to] be paid. And that may increase over time. But, again, that's a fairly general projection. It's not at the point where the draft is being finalized, or going through public consultations, when these numbers might become more precise.
The renewable energy tax reform is expected to generate an extra €60 million per year by 2025 and beyond. Who will pay more for what?
This is, in many ways such a new approach and it needs to be negotiated among the parties. However, the idea would be that the renewable energy fee would be offset by CO2 funds and electricity excise tax would go up slightly to bring additional money into the state budget, while at the same time making electricity more affordable for people.
In short, will the bills I end up paying then become cheaper or more expensive?
Rather, they could become somewhat more favorable, as the renewable energy fee will disappear, but we will increase the electricity excise duty. However, what the final formula ends up being is again up to the minister for that sector.
With more efficient tax collection processes, it is hoped an additional €7 million will be raised next year and €37 million in 2025. Will this mainly affect businesses?
Yes, this is about closing the tax loopholes, so to speak, through the development of various IT systems and changes to certain laws. All of this is possible in today's digital world. The state has its own environment for e-invoicing, where this can be done free of charge. In this way, we are able to collect taxes more efficiently and avoid tax fraud. My aim was that when raising taxes, we would be able to close these tax loopholes and prevent these issues as effectively as possible. So that those who are paying taxes honestly know that everyone else also has to do the same.
I may be wrong, but the biggest tax evaders tend to be small businesses, who say they can't manage any other way. Will the system be much more demanding now?
I think the move to e-invoicing and declaring taxes from the first euro could bring about changes there. And I don't think it's right in any way to have the attitude that, if I pay taxes I won't get by. After all, taxes are there for everyone to pay, and it is the state's job to ensure that they are paid equally. Because if one person can choose not to pay, then why should another pay. If that were the case, we would have chaos.
Editor: Michael Cole