Siiri Suutre, the head specialist of the Ministry of Finance's communications department, explained to ERR the potential impact on Estonia's state budget if the minimum tax-free income were reduced or eliminated.

"In 2023, the tax-free income was set at €704 per month for pensioners, and for working-age individuals, it increased from €500 to €654 per month. The total tax-free income amounted to €4.15 billion. The impact on the state budget would be 20 percent of this amount," Suutre responded when asked about the potential effect on the state treasury if the tax-free minimum were abolished.

Suutre noted that this year, the tax-free income for pensioners increased from €704 to €776 per month, further increasing the volume of tax-free income.

The ministry did not have a forecast for this year's tax-free income. "This year's tax-free income forecast is part of a broader income tax forecast, and we currently do not have a separate extract to offer quickly," Suutre said.

"Whether and how much to change the tax-free minimum rate in the future, and what solutions or ideas are on the table, can be commented on by coalition negotiators," Suutre added.

Outgoing Prime Minister Kaja Kallas (Reform Party) said Thursday that the Reform Party had previously proposed reducing the tax-free minimum to increase state revenues, but this idea did not gain support from coalition partners, as they believed it would primarily affect low-income individuals.

Prime ministerial candidate Kristen Michal (Reform Party) confirmed on Friday that the Reform Party would not enter the coalition negotiations starting next week with a proposal to reduce or eliminate the tax-free minimum.

Minister of the Interior Lauri Läänemets (Social Democratic Party) stated that reducing the tax-free minimum requires a progressive tax system, and that eliminating the tax-free minimum could only be done for the wealthier segment of the population.

In an interview published on Saturday by Delfi, former Prime Minister Taavi Rõivas said that the state should lower the tax-free minimum.

Rõivas pointed out that the biggest deficit in the state budget was due to the progressive tax system, which is now being abolished. "But the only solution in my view is not to create an even more costly solution and raise the tax-free minimum for everyone to around €700, but to return to the same scheme that was in effect in 2016," he said. "At that time, the income tax was 20 percent, and the tax-free minimum was about €200. Compared to today, and keeping other conditions the same, reverting to this system would yield €700-800 million per year."

"The direction should be that the tax-free minimum as a tax measure is not very essential," suggested Rõivas.

Tax-free income is part of the income on which no income tax needs to be paid. Separate tax-free income applies to individuals who are not of pension age and those who are or will reach pension age during the year.

In 2024, the general tax-free income is €7,848 per year, or €654 per month, but if a person's gross income exceeds €14,400 per year (€1,200 per month), the tax-free amount starts to decrease linearly, reaching zero at an annual income of €25,200 (€2,100 per month).

Starting in 2025, for individuals who are not of pension age, the annual tax-free income will be €8,400, or €700 per month, regardless of the person's income level. In other words, from 2025, the income size consideration will no longer be necessary, and all Estonian residents will be able to apply the tax-free income.

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