Last year, we were promised tax hikes with the aim of "fixing state finances." By now, it is clear that finances have not been sorted. Rather, it is the opposite. But, once again, VAT will go up. Why should things turn out differently this time? Are we working with the right diagnosis?

Budgetary expenses have exploded in recent years. Compared to the pre-coronavirus period (2023 vs 2019), state spending has grown by 50 percent, while revenues have grown by 38 percent. Nominal economic growth came to 34 percent, and while that is more than decent, inflation has bitten off a large chunk.

For almost thirty years, nominal growth – or budgetary growth in simpler terms – has outpaced inflation. That is also why a lot of public expenses have been indexed to inflation. This has acted as a minimum benchmark for how much costs, government employees' salaries and pensions could increase.

It has worked and left a little room in the budget for new promises. Not anymore. We are in our third year of recession, meaning that inflation is greater than nominal economic growth. This is why budgetary spending is growing faster.

I believe that we absolutely need to either untie spending from indexation or bring inflation down while fostering growth.

Decisions taken by the government this year and the last will, on the contrary, add to inflation and curb economic growth. This is also why the deficit will continue to grow. Getting inflation under control would also help competitiveness.

I would make decisions that would not increase inflation but would try to rein it in instead. I would not have and would not touch VAT or excise duties. I would untie a part of spending from indexation and hike taxes for the wealthy and companies.

Because progressive income tax and corporate tax are taboo subjects in Estonia, abolishing the second [pension] pillar would be the only alternative. Since the previous reform, most people who continue to save in the second pillar would afford to save money voluntarily and without a state contribution.

What is more, nearly 90 percent of the money ends up abroad, meaning that its disappearance would not affect the Estonian economy. Other types of budget cuts would impact consumption and relevant revenues, while this approach would not.

It would also be fair to tax dividends the same way salaries are taxed, up to a certain point. We will soon have a situation where everyone has their own limited company and only pays themselves the minimum wage. That is no way to maintain hospitals.

It would furthermore be fair to tax electric vehicles as the wear and tear they cause on the roads is at least on par with other vehicles. While they are exempt from excise duties. The Finns are planning to do it. They want feelings of fairness to persist in society, and we should emulate them in this.

But the most important thing is to avoid adding to inflation, which works to reduce both consumption and competitiveness. We also cannot forecast the effect of higher prices on consumption. In other words, how many purchases will move to neighboring countries and how much tax receipt will go with them.

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