Ligi made his remarks during an appearance before a Riigikogu committee Monday, where he argued that one factor which is serving to drive up prices is the very fact that complaints about rising costs are a type of self-fulfilling prophecy – in other words societal expectations are for price increases in any case.

The minister gave his presentation to the Riigikogu's State Budget Control Select Committee.

He was accompanied by Raoul Lättemäe, who heads up the Ministry of Finance fiscal policy department, and Kadri Klaos, head of state finance services.

The latter summarized the ministry's summer economic forecast.

According to Ligi, this forecast gives the lie to the claims that tax hikes will cripple the Estonian economy.

"Things do not go that way, in an economy," he said.

"It also does not go like this, whereby a VAT increase an inflationary long-term cause. It creates only a temporary price increase. It can certainly reduce the purchasing power of retail buyers a little and affect the general mood, but it is not a long-term source of inflation," Ligi went on.

"It can be a temporary technical source of inflation, but later it will start to limit demand. At that point, what matters is overall demand and whether the state compensates for this via its expenditures."

"It is also so that in any case the majority of commentators have failed, who have been discussing the economy here," he continued.

This is why next year's economic growth will be smaller than it would be without the government's decisions; then That difference is called fiscal stimulus," the minister added.

"How tax increases, cuts, or some other measure affects the economy is a matter for the next round, because really most budgetary expenditures tend to stay within the economy."

As an exception, Ligi brought out defense, much of whose spending on toward imports, and these generally cool the economy.

"But things issue must certainly be viewed macroeconomically as a stimulus. The state is obliged to shrink its deficit, and what method used to do this is far less important," Ligi said.

The minister also said that the abolition of the so-called "tax hump" income tax system would have boosted consumption, though this reform has been postponed.

"Earlier forecasts had indicated that one source of economic growth next year would have been restoring the income tax-free minimum; boosting people's purchasing power, but we can't do that because it would boost the fiscal stimulus, which we are not permitted to do," Ligi went on.

In response to a question from committee member Anti Allas (SDE) on what primarily is behind the rising prices, Ligi pointed to the public's complaints about those very rises, which in turn create expectations and an environment of further rises.

"The talk about how taxes raise prices is generally nonsense," Ligi said.

"Because taxes really serve to redistribute demand, with the first blow they reduce purchasing power when raised. It can't be that they continue to accumulate."

"Another factor is the creation of expectations. When all the time there is whining and complaining only about prices, then market players will start expecting price increases, which always contributes to inflation," said Ligi.

"When the expectation is that prices will rise, as everyone is talking about, then that expectation grows; consumers accept it more lightly, and producers or sellers more easily raise prices, since everyone believes prices will rise anyway," Ligi elaborated.

As a source of the price increase, Ligi also highlighted the state pumping borrowed money into the economy.

Ligi made public his bad feeling that critics of the government's tax rises are not basing their arguments on economic theory: "Some bad tempered old men have been talking all the time. They are highly articulate and intelligent, but they don't base their opinions on economic theory."

Riigikogu committee chairman, Urmas Reinsalu (Isamaa) rejected Ligi's stance, stating that a false narrative can arise from fundamentally different approaches.

Reinsalu said: "When there's an additional 4 percent VAT on electricity, then that's comparatively more being taken from people. This isn't forecasting, but a question of arithmetic."

Ligi's response was to say that the impact of a 2 percent VAT hike on inflation translates to 1.4 percent.

The minister also stressed that one aspect of people's well-being is whether the state is financially stable.

"To many, this is crucial. For the most vulnerable, it is vital that the state can pay its bills. This means we shouldn't build up a disdain for a financially sound state which actually belongs to its citizens," said Ligi.

Ligi noted that tax hikes won't solve economic problems either. "Our direct responsibility is ensuring the state functions properly. Business organizations have recognized that there is no good alternative. Plus while it is bad for the economy that the state has to adjust its operations, this is unavoidable," Ligi stated.

According to Ligi, ensuring the state's functionality will not impoverish the population. "Let's not pit people's well-being up against the state's well-being. Let us be patriots," Ligi urged.

Reinsalu called Ligi's line of reasoning hypocritical, however. "This is where we differ; one side is hypocritical, and that's not me," he retorted.

Reinsalu said that for him the principal question is whether the economy can recover without a cascade of tax hikes. "My contention is that it can," he said.

"Here our understanding diverges. And my invitation was to openly consider alternatives," the Isamaa leader added.

Reinsalu and Ligi also disagreed on whether EU funds could be funneled into to stimulating the economy. Reinsalu's rationale was that they would boost tax revenues, while Ligi countered that the state would immediately be required to find co-financing, but, in the long term at least, EU funds are not a solution, he said.

Isamaa adopted a political statement in late August urging the government to abandon its current tax hikes policy, to cancel the planned new tax hikes, and to critically review the tax decisions already made.

Reinsalu noted that as early as January the government had incorrectly assessed the impact of its tax increases on the cost of living, resulting in the deepest economic downturn EU-wide.

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