A drop in Euribor is expected this fall to ease uncertainty and slightly increase purchasing power. However, in the Estonian context, this will not have a broad impact on all consumer groups, as the tax changes planned for the next and subsequent years will further complicate the situation.

For both consumers and businesses, price rises are peaking in some ways. Instead of the anticipated economic growth, we are witnessing the continuation of a stagnant economic situation, with this period likely to be dragged out compared to nearby and competing markets.

Cuts and tax increases will have a short-term effect. To improve our competitiveness, we need to look in new directions: towards industry and innovation. Estonia is too small to follow a traditional path. We must find additional ways to attract foreign investments and create new jobs here.

Lithuania has made solid progress compared to Estonia

Estonia has long been known for its successful startup culture and e-residency program, which attracted foreign investors and entrepreneurs. Estonia was a flagship of innovation and digital development, giving rise to globally successful companies such as Skype, Wise and Bolt.

Recently, however, Lithuania has made impressive strides to take over this position. For example, Lithuania is home to the largest fintech hub in Europe, and Vilnius has created a favorable environment for the development of fintech companies. The legal framework there is more flexible, and the costs of starting a business are lower.

In addition, the Lithuanian government has launched the so-called Green Corridor for Large Scale Investments project, aimed at attracting high-impact investments to the country. The primary goal is to offer investors favorable conditions and expedited processes to bring massive investments to Lithuania, particularly in sectors that are strategically important for the economy and national development.

The Green Corridor initiative seeks to make certain exceptions for large projects by offering tax incentives in some sectors, faster administrative processes (such as permit issuance and processing speed), government support and an emphasis on sustainable development. This would help Lithuania achieve its long-term climate and economic goals.

Estonia losing its competitive edge

The planned 2 percent increase in Estonia's corporate income tax rate, set to take effect in 2026, could indeed impact Estonia's attractiveness in the eyes of foreign investors. Foreign capital is always on the lookout for countries with lower tax burdens and more stable business environments. In recent years, Latvia and especially Lithuania have taken decisions that make their economic environments more investor-friendly. For example, Lithuania has introduced tax incentives for research and development, which have helped attract international technology companies.

Estonia's geographical location, which has long been a strong argument for connecting the Baltic Sea region with Scandinavia, has been one of our advantages. However, Latvia and Lithuania have successfully leveraged their proximity to Western and Central Europe, also in the context of the Rail Baltica project. The railway connecting the Baltic countries provides Lithuania and Latvia with a certain competitive advantage in the field of transit in the future – an inevitability of geography and logistics.

Estonia's uniqueness needs better harnessing

Estonia faces challenges with rising labor costs and an aging population. There is already a labor shortage in several sectors, particularly in IT and technology. In contrast, Lithuania is actively encouraging its citizens working abroad to return and is offering favorable conditions for young professionals to come back home. Such measures help the country maintain competitiveness in the labor market and ensure sustainable economic growth.

Estonia should focus on its unique strengths, such as the IT sector, cybersecurity and digital innovation. The country should invest more in education and research and development to remain attractive to foreign investors and entrepreneurs. Additionally, it is crucial to conduct thorough impact assessments before making major economic policy decisions to avoid unexpected setbacks. The current plan to bundle and spread out tax increases and introduce new taxes over several years moves us further away from these goals.

Estonia must preserve, not dismantle, its competitive advantages. We must avoid excessive bureaucracy and high tax burdens at all costs, as these could lead to the departure of investors and businesses.

Estonia is small, but our strength has always been in flexibility and innovation. To remain competitive with neighboring countries and even surpass them, the Estonian government must focus on a long-term strategy that ensures a strong economic environment and sustainable development.

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