Talk of there being no alternatives is brainwashing, as every major choice brings with it a host of smaller choices, all of which represent certain values and preferences – who to tax and who to spare. Right now, it once again seems that less fortunate people will be hit harder by tax hikes.

Much as was to be expected, Estonia's new Finance Minister Jürgen Ligi (Reform) told ETV that strong public finances are crucial. But what about the finances of the people who make up this country? Who in the government might represent the financial situation of the Estonian people, which has been deteriorating in the face of new taxes and price advance, and will continue to do so.

Talking about strong public finances, what are we not talking about? If the government lacks money for certain activities, whence this idea that the citizens and taxpayers must have it?

The coalition agreement promises to abolish the so-called tax hump (Estonia's gradual basic exemption reduction scheme – ed.) and raise the universal tax-free minimum income to €700 per month so the Reform Party can make good on its election promise made to the wealthiest in Estonia. It is estimated to cost €500 million.

This solution clearly serves the interests of high-income people, even though it's clear the middle-class has suffered in the wake of price advance and is set to lose even more through other tax hikes.

A closer look at the coalition's working document reveals how the Reform Party has craftily disguised tax hikes as a national defense tax. Because people who are understandably concerned over national security will not ask too many uncomfortable questions, so as not to be labeled unpatriotic.

But taxing the first euro earned (the planned 2 percent income tax hike has no exemption – ed.) will hit least fortunate people, for whom every euro counts, the hardest.

The sheer level of indifference that led to the agreement and sacrificing the coping of less fortunate people is frankly astonishing. Let us look if only at the comment Lauri Läänemets, head of the Social Democratic Party, gave to business daily Äripäev, when he said that he is not up to speed on the details of the income tax hike and asked the journalist to turn to Minister of Finance Jürgen Ligi instead, nevertheless admitting that taxation from the first euro earned "was agreed upon, I believe."

Curiously, the Social Democrats have been quite outspoken on how they represent the less fortunate in society. These principles went out the window as soon as ministerial positions were put on the table. The Social Democrats (SDE) got an additional portfolio. While infrastructure used to be in the administrative area of the minister of climate, we now have a separate infrastructure minister and their team, while the once influential domain of the economy minister has been all but emptied. Instead of trying to build a systemic and economical state apparatus, the art of political compromises rules supreme.

Estonia, with its already considerable price level, is looking at new tax hikes and price advance. Therefore, the new government's vision offers no solution to Estonia's economic woes. Efforts to return to growth still take the back seat.

It needs to be kept in mind, first and foremost, that higher taxation does not automatically result in more tax revenue, as job creation takes a hit, reserves are not accumulated, economic recovery will be postponed, while efforts to hide income will pick up. Many countries' experience tells us that tax receipts improved after taxes were lowered instead.

The current political compromise adds with a spoon and takes away with a ladle. The Reform Party's plan will see income tax grow to 22 percent next year, with everyone earning up to €654 a month, including pensioners, exempt.

But the additional [2 percent] income tax hike, styled the national defense or security tax, will hit everyone as it will apply from the first euro earned.

Annely Akkermann (Reform), head of the Riigikogu Finance Committee, was right when she said that the added income tax portion that makes up the defense tax will not be felt by the wealthy. Where she is wrong is in also assuming that a low-income worker or an elderly person who is forced to continue working because their pension is too small will also find it imperceptible.

Estonia has 65,000 such low-income households, whereas continued recession will rather add to that number. With each household parting with a little over €13 a month extra, the state stands to take €850,000 from the least fortunate in Estonia. That is how much will be taken from these families' food, clothing and hobby education budgets.

That said, we need to remember that VAT will also be hiked, inevitably leading to higher prices. Every product and services, down to a carton of milk at the shops, will become more expensive.

The Center Party has proposed, on numerous occasions, laying down a temporary banking tax and abandoning plans to abolish the tax hump. Whether a banking tax would be possible, fair and effective doesn't even bear talking about. Lithuania has the tax and has overtaken Estonia in terms of economic prosperity, while how much it will cost to abolish the tax hump was calculated a long time ago.

The coalition agreement that governs life in Estonia will take from where there's nothing left, from the least fortunate. A Trojan Horse has been planted in people's wallets under the aegis of ensuring security. However, the tax burden growing by this much might undermine social cohesion in Estonia to a considerable degree, and then, we really will have a security problem.

--

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