Minister of Regional Affairs Madis Kallas has been fighting to introduce additional changes to how local governments are funded, which those who oppose his proposals have described as Robin Hood policy. It is a solution brought by the Social Democrats meant to balance a funding model that sucks dry smaller local governments while pumping more prosperity to wealthier counterparts. The planned turn would benefit over two-thirds of Estonian local governments.

Statistics Estonia highlighted in the recent census how Harju County municipalities make for the most rapidly developing region in Estonia.

A blog post from November 2022 reads:

"Local governments bordering Tallinn (Viimsi, Jõelähtme, Rae, Kiili, Saku, Saue, Harku) have gained 17,300 people between them and are home to almost 110,000 people, which is more than the entire city of Tartu or roughly the same as a quarter of all people in Tallinn. The same pattern can be seen around Tartu where Kambja and Luunja municipalities have seen their populations grow by around 25 percent, while Kastre and Tartu municipalities have gained 10 percent. The difference is that while the population of Tallinn has also grown by 10 percent, that of Tartu has shrunk by 4 percent."

Fast forward to 2024 and the trends remain very much the same.

Larger cities and their near vicinity have gained residents and prosperity at the expense of faraway regions, which only works to deepen the latter's backlog. Income tax is the main source of income for local governments (their share in total income tax receipt coming to 11.96 percent until 2024) and depends on the number of working-age residents. A part of taxes paid by a working person go to the local government where they are registered as living.

The more people move to major centers, the smaller the budgets of peripheral municipalities become. At the same time, the relative importance of retired people living in the countryside keeps growing. But people still need services there: effective public transport, healthcare, social service, but also culture and entertainment.

Cities and rural municipalities with dwindling populations face constant pressure to optimize their activities and services in a way to keep their availability and quality intact. A tall order in a situation where income tax has to pay for more than half of local government tasks.

Therefore, snappy remarks by some Harju County local government heads, according to which the budgets of most Estonian local governments are strained because of poor management, are little more than simple arrogance.

To reduce regional disparity that is putting a strain on the whole of society, the Social Democrats have proposed a system of balancing out the revenue base [of local governments] that considers both population distribution and age composition.

The first step was taken in January with the entry into force of amendments that lower the general private income tax share of local governments to 11.89 percent but also give them 2.5 percent of income tax on pensions. This will free up €8.3 million this year which will be placed in the equalization fund. These additional millions will be given to local governments that are home to relatively more elderly people and tend to have smaller budgets.

Differences in pension are smaller than differences in pay in Estonia. For example, average pension payments differed 1.2 times between Viimsi Municipality [near Tallinn] and the City of Narva. At the same time, the difference in wages was 1.9 times in Viimsi's favor.

We want to gradually equalize by 2027 the income tax rates on people's pension incomes and other revenues collected by local governments. As a cumulative effect of the proposed changes, the growth of income tax revenue will slow down in 13 wealthy municipalities, while accelerating the income tax and equalization fund revenue growth in all others. This step would also contribute to the ability to attract European Union funds for investment and development projects implementation.

Let us take the example of Viimsi that is looking to be raided by "Robin Hood." Without changes, the municipality's €53 million budget would grow by €10.5 million or 26 percent over the next four years. With planned changes to the revenue base, Viimsi's budget would grow by €6.5 million or 16 percent for a slower growth of €4 million over four years. Whereas this calculation does not consider continued population growth, which is sure to bring the municipality even more money.

Let us also admit that the municipalities currently fighting against "Robin Hood 2" have for years failed to create enough kindergarten places and have engaged in shoddy planning, which is an important task of local governments. It is irresponsible to try and saddle the state with one's shortcomings in management.

If we do nothing, the rest of Estonia will fall even further behind Tallinn and the golden ring of municipalities surrounding the capital, which would in turn encourage emigration. It would mean more community centers and libraries closed. It also reflects in local governments' ability to pay competitive wages to teachers, kindergarten teachers, schools' support specialists and many others.

We have the chance to realize a plan that prevents Estonia being given to Tallinn and Harju County. It is the state's task to reduce inequality, stop Estonia being split in two and make sure life would be livable everywhere in the country.

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