Lauri Läänemets: Taxing poverty does not a richer country make

Lauri Läänemets presenting the 2024 state budget together with the prime minister.
Lauri Läänemets presenting the 2024 state budget together with the prime minister. Source: Siim Lõvi /ERR

The burden of a proposed national security tax should fall on the wealthier in Estonian society, since Estonia as a whole will not get richer by taxing the poor – a situation which would be exacerbated by the need for higher support measures, Social Democratic Party (SDE) leader and Interior Minister Lauria Läänemets says.

The recently unveiled 2024 state budget bill and four-year state budget strategy included a €400 million unspecified tax entry due to be collected in 2025, and labeled as a "broad security tax."

Speaking to ETV politics head-to-head show "Esimene stuudio" Monday, Läänemets said it was his party which had come up with the concept of a national defense and security tax, ie. a tax whose revenue would be spent on this object, ahead of the March elections.

Läänemets said he is encouraged that the necessity of this concept is now understood, adding that when planning defense and any other expenditure, it is responsible to cover this with projected revenues.

In the view of SDE, there remain several areas of unfinished business with regard to Estonia's tax landscape, Läänemets said. These include a "Western"-style classical corporate income tax – currently companies are not liable to tax on reinvested profits – yet, Läänemets went on, burdening those with lower incomes with more taxes will also require more support measures.

"From our standpoint economic and financial policy should be such that the state does not just dole out subsidies to people, but instead we create a situation whereby everyone can live normally, within their salary range," the minister said.

On the other hand, previous tax cuts twinned with the rising costs has led to the current need for austerity measures, Läänemets said. "In the end, we have reached at which we are today – the state is thin, the state was built on thin air, so as soon as the coronavirus crisis came along we had to invest in that, and immediately things became tough for society."

"And another thing. We used European money incorrectly. When the EU provided more funding, it was not with a view to Estonia using its own funds for road construction, but so that we would have built the roads in the first place. The right-wing parties took the initiative; they said, at election time, we will now lower taxation as we can carry out these things using EU funds. To date, however, half of the things that could have been achieved have not been," Läänemets went on.

SDE as a party is not against cuts per se, the party leader said, but added this must be done rationally and not simply with the axe taken to various services.

"Let's take internal security. We are currently dealing with the fact that in 2021 the Center-Reform administration took away fire brigade funding. This was written out of the budget, the cut was made," he said, with reference to how not to do it.

On the other hand, a media-fueled "austerity extravaganza" seems to have started and then taken on a life of its own in the state budget process, where that need not be the case, Läänemets added.

"There are certainly things that can be implemented better; certainly there are things that may not be needed, but we need to understand what the money actually goes on. Take road construction for instance. If the state does not put its funds into that, we will then observe the sector perishing, as the state is the main customer here too."

On the other hand, SDE and Eesti 200 balances out Reform, within the coalition, Läänemets said – for instance, the prime minister and Reform Party leader had demurred initially from taking part in any discussions on a bank profits tax, an SDE proposal, yet ultimately it was she who invited banking chiefs to the table.

State and public sector employees ended up not being frozen for a four-year period, thanks to this balance, Läänemets added.

SDE would prefer a rise in income tax to a hike in unemployment insurance contributions, he added – given that the latter pertains to those who are employed and who thus meet their tax liabilities, whereas the former pertains to those who have various sources of income and types of work.

"A much larger or wider group would actually contribute in that case," Läänemets said.

Ultimately, the 2024 state budget is one of the most complex of all time, equating to talks on a par with the coalition negotiations earlier this year, but squeezed into a time frame of just a few years, Läänemets said.

Had the process started earlier and involved more stakeholders, things might have gone better, the minister conceded.

As for why SDE went in with Reform in the first place in the current coalition, agreeing as it did on the Reform-sponsored overhaul of the income tax system, policies not outlined ahead of the election in March Läänemets said that the quid pro quo was a minimum wage hike.

"In conclusion, I must note that the people of Estonia have given the Reform Party 37 mandates at the Riigikogu, so this has also been the wish of the people of Estonia. I only hope that the next time elections come round, those parties, like SDE, that dare to speak honestly and openly about taxes and state finances, before and during the elections, will meet with more success.

In a recent interview with news portal Delfi (link in Estonian), Läänemets said that the key message is that those that have the capacity to contribute, must do so, and the state budget can get its funding from where the funding is, rather than creating more problems by taxing the poor.

Ultimately national security was worth a couple of bottles of expensive wine, he added.

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Editor: Andrew Whyte, Barbara Oja

Source: 'Esimene stuudio.' interviewer Liisu Lass.

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