The Reform Party's tax hikes first took the people by surprise following the [2023] Riigikogu elections. The same happened again after European elections, while the fast one Kristen Michal pulled on the taxpayer was executed with much more finesse

The Reform Party's package of tax hikes since the previous general election has been the most extensive in the history of re-independent Estonia. I'm afraid it is a pattern we'll see repeated following the 2027 elections.

Talk of these hikes being temporary is hardly convincing as it would require the new government to concentrate on public spending instead. While the government has promised to save 10 percent over three years, it is not enough for the already agreed-upon tax hikes to be reversed.

Nor do the tax increases in any way help render the public sector more effective. Rather it is the opposite, because there will be new tax revenue and no politician will make more sparing use of taxpayer money without considerable pressure.

Instead, the new tax hikes will once again postpone solving the chief problem of Estonia living beyond its means. Once in enough trouble, the rulers will look to yet other tax changes, as it is the quickest and fastest way to raise public funds.

Raul Eamets, economist at Bigbank, hit the nail on the head this week when he pointed to the paradox of tax hikes. While tax increases and public sector cuts rather slow down growth, households could boost spending before their entry into force.

That is why growth might pick up temporarily in the face of tax advance. This adds to public revenues and creates the illusion that everything is fine. But the new government's tax changes will come to hold back the economy in the long run by scaring off foreign investments, impacting domestic companies' ability to invest and the competitive ability of exporters.

I understand that the new government had few alternative levers with which to rapidly improve the fiscal position. Kaja Kallas and the Reform Party, by spearheading different coalitions and desperately clinging to the prime minister's chair, led Estonia into a deficit spiral, which is just what the Reform Party had been trying to avoid in the past. It will be very difficult to climb out of said spiral now.

Now, when we absolutely need to invest in national defense, hiking taxes is pretty much the only option. On the other hand, were we to forget about EU fiscal rules and hike our loan burden, it would seriously limit Estonia's investment capacity in the future. While reducing the deficit is crucial, new taxes might amount to shooting ourselves in the foot.

It is a shame that we have largely eaten recent years' deficit so to speak, instead of investing it. And it seems that we'll see more of the same from the new government as new sources of covering expenditure have been agreed in the form of tax advances, which in turn postponed serious public sector cost-cutting for an unspecified time.

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