Hartman wants the bill to be discussed in the Riigikogu on Thursday. The bill is expected to enter into effect at the start of 2025 and should be passed by MPs shortly.

In the last 20 years, the number of residents living outside of Harju County and Tartu County has decreased by nearly 20 percent, and the number of children and working-age people has also fallen. At the same time, the number of people ages over 65 has increased.

Regional inequality has risen as well as the share of people living in relative poverty.

The government wants to balance local governments' revenue base and avoid the bad effects of urban sprawl.

According to the draft bill, the principles of allocating income tax to local governments will be changed so that in 2025-2027 the share of the local resident's state pension paid to the local government will gradually increase from 2.5 percent to 10.23 percent. This means municipalities with a high proportion of elderly people will benefit from faster growth in income tax revenue, while growth will slow in municipalities with a higher proportion of working-age population and higher wage levels.

The state budget will not change as a result, and neither will the revenue base of local governments.

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