The aim of the new government is to reverse Estonia's nine straight quarters of recession. But taxes are going up. As an entrepreneur, what is your opinion of the government's tax plan?

There's an attempt to cure everything that ails the state budget in one move. Unfortunately, that is not possible. There are a lot of holes they're trying to patch. But it is somewhat surprising to hear that they're planning to deliver the economy by raising taxes. It's impossible.

Talking about the new coalition agreement, the biggest change is taxing corporate profits. What is the significance of this step?

It [lack of a corporate tax] has been considered an advantage of Estonia so far. Tearing it down and hoping it will improve matters... Businesses are clever, and they'll find ways to optimize profits. It will not prove successful, I can tell you that much.

The decision by the Reform Party, in 2000 I believe it was, to tax dividend income instead improved tax receipt by leaps and bounds. Because people gave up trying to optimize taxes, keep two sets of books or whatever.

I'm sure you talk to a lot of other entrepreneurs. Where should Estonia start to make a change for the better?

Entrepreneurs are not in favor of sharp tax hikes, more so as taxes last went up a year ago. Now, if every new government seems to hike taxes as the first thing in the conditions of a recession, the effect will be the opposite of what is sought.

I have talked to more than a few business people about it, and I see lowering the tax-free minimum as the least painful solution. I think it stands at €654 today and there are plans to hike it to €700 per month. If we lowered it to €200 for a year, it would yield €800 million.

The other thing I'd propose, but where politicians are even harder to convince, is freezing indexation [of pensions and benefits]. Which would yield another few hundred million. Those would be the least painful options for a year. And they would yield a billion euros with which to patch the hole in the budget.

Looking at painful reactions to the 2 percent income tax hike not being subject to the basic exemption and also hitting the least fortunate, society would quite likely not go for a lower tax-free minimum.

At the same time, we say that the problems started with the state budget. It depends on what we're trying to cure. If we want everything, want to buy munitions so to speak, balance the budget, improve the state of the economy, while the Health Insurance Fund is also in the red... If we want to fix all of it at once, I would suggest talking to economists and experts first.

The other idea I had several years ago, when we had the energy crisis, is looking what our neighbors, Latvia, Lithuania and Finland, did. If the Estonian economy is the worst off in the EU today, Lithuania's grew by 3.5 percent and I believe it was 1.8 percent for Latvia. We could take a look at what our neighbors are doing right.

But why aren't we? [Former Prime Minister] Kaja Kallas' economic adviser Ardo Hansson told Postimees that while inflation started growing at the same pace in the Baltic countries, Estonia's neighbors came out the other side at one point, while we fell behind. Why is that?

You know, when the energy crisis started, entrepreneurs were very concerned, and I met with the prime minister to discuss the situation. I feared the exporting industry would be hit hardest, and that is just what happened.

I remember talking to Riina Sikkut (SDE) a few times, trying to tell politicians that we're not after money, while they should take a look at what Estonia's neighbors were doing. For example, Latvia suspended transmission fees. Every country made some changes to try and prop up the economy. We did not ask for money, but even those efforts came to nothing.

Why is it that entrepreneurs and scientists are ignored, with continued efforts to reinvent the wheel to no apparent effect? And it keeps getting worse.

I believe there are two reasons. One is that politicians play for votes. Jürgen Ligi once said that entrepreneurs only make up 2 percent of society. Perhaps that is where it started.

The other reason, I believe, is education. Looking at who will be leading us [in the new government], most have studied public administration. It is also surprising that while they're attaching industry to the title of the economic affairs minister, the person studied political science. I believe the economy should be managed by people with a background in business, while that is not the case today.

[Former Finance Minister] Annely Akkermann (Reform) told Vikerraadio that entrepreneurs have been calling her and other Reform politicians to ask for a new tax through which they could contribute to Estonia's weapons and munitions purchases. Do you know any entrepreneurs making such calls and asking for these things?

Unfortunately, I do not. I have no acquaintances in those circles.

What is your opinion of Estonia's growing defense spending?

We probably have little choice today. But politicians also make decisions to protect and boost their ratings. It would be sensible to consult knowledgeable people, why not also entrepreneurs. Income tax does not make enemies of the state of entrepreneurs. We all want the economy to work, because if we look ahead just six months, receipt of tax will only continue to fall provided growth will not return. I think efforts to improve matters should start there.

Coming back to taxing corporate profits, the ruling parties have described it as a temporary measure. How confident are you that the 2 percent corporate tax will be lifted once enough money has been raised for defense procurements? Or will it rather amount to opening Pandora's box?

Rather it is the latter. I would ask you in turn whether you remember a temporary measure ever being reversed?

The temporary VAT hike ended when they added another 2 points to the tax rate.

Exactly. It was during the [Andrus] Ansip era when it first went up in connection with the switch to the euro, whereas we have by now gone from 18 percent to 24 percent. The situation is...

You're rather pessimistic about the future I take it?

Let's say I don't see the light at the end of the tunnel just yet. Nothing will get better this year. And let's look at politicians' tweets on how we need to conquer new markets. Our main export markets are nearby Finland and Sweden. We're out of options if things don't start improving there. Because finding new markets takes time. Secondly, it is more expensive to sell to faraway markets due to soaring transport prices.

Some entrepreneurs say that exporting to Germany already makes up 20 percent of the product price. Customers are not willing to simply pick up the tab. And looking at excise duties on fuel going up, it is very difficult for us to export to markets further away.

Minister of Finance Jürgen Ligi (Reform) says in Eesti Ekspress that Estonia has never had as fine a finance minister before, and that even if he cannot fully fix public finances, things will start to improve. Are you as hopeful?

If he says he is the best, points for confidence at least. And I'm sure he will do something. But I am reminded of 2010 or 2011 when Jürgen Ligi moved the Unemployment Insurance Fund's reserves to the state budget, which for me was the first signal that perhaps we're short of money. It was over €700 million too.

So I think this thing has been ballooning from one year to the next, and we have now come to – as pointed out by Ligi himself – two billion. I would look to politicians and ask who is responsible for the situation we find ourselves in today. If we fail to get to the bottom of it, we'll keep raising taxes forever.

--

Follow ERR News on Facebook and Twitter and never miss an update!