Opposition: No country has ever taxed its way to prosperity
No country in the world has ever boosted economic growth through tax hikes, opposition politicians said Wednesday evening on the "Esimene stuudio" talk show, while criticizing the government's plans.
The opposition Isamaa party on Wednesday proposed an alternative version to the government's 2025 draft budget, which includes, among other things, a proposal to cut €300 million in public costs sooner than over three years.
"You're saying that you will save €300 million over three years if you stay the current course. My message is clear – do it without delay. While the private sector is forced to adapt, you have not shown relevant initiative. Your finance minister said, upon taking office, that his doctrine is two-thirds cuts and one-third tax hikes. But the government's approach is the opposite of that. Ten times more taxes for Estonian people and companies next year," Isamaa leader Urmas Reinsalu said on "Esimene stuudio."
"Secondly, talking about austerity, I would remind you that while you claim to be cutting back in several ministries, you're often simply transferring the same sums to next year's budget," he added.
Reinsalu gave unnecessary government programs as an example of potential cutbacks, and using a clear set of rules for dialing back administrative costs.
But Kristina Kallas, minister of education and head of the coalition Eesti 200 party, criticized Isamaa's alternative budget.
"I had the honor of reading it – both pages. The main proposal in the so-called perfect budget was to cut public sector expenses by €300 million. Where and how to save €300 million? It is the Ministry of Culture's entire budget. So, you'd have us axe that and then somehow raise teachers' salaries?" Kallas commented.
Minister of Health Riina Sikkut (SDE) said that benefit cuts always hit the least fortunate. That is why the Social Democrats are in favor of two-thirds in new revenue and a third in austerity when trying to patch holes in the state budget.
Sikkut said that it is possible to dial back red tape. "It is true that people want less bureaucracy, that we can do many things simpler. That is where these cuts are aimed – labor costs, administrative and ministry jobs. That is where we need to find the money. It cannot come from healthcare or pensions where the sums are greater, while that's only on the surface."
"I also agree with Kristina Kallas about Isamaa. When Isamaa needs money, it is taken from the second pension pillar. It is not sustainable or something that could deliver us from deficit," she noted.
Reform's Andres Sutt said that it is unfair to suggest ministries have done nothing to cut back. "It is clear that we cannot include every last detail of how a ministry dials back in the state budget. Ministers have been given their targets, they will decide how to meet them and we have no reason to believe they will fail in this task," Sutt said, giving the example of the State Forest Management Center (RMK) laying off 50 people.
"Talking about cutting €300 million from the central government's operating expenses, the ballpark is the combined salary funds of all ministries. We cannot just shut the whole country down," Sutt remarked.
Opposition EKRE MP Siim Pohlak said that even if some ministries are cutting costs, it is being done in the wrong places.
"Experience tells us that cuts always hit frontline activities – agencies, rural areas. Costs are cut where they shouldn't be. We should look inside ministries first, instead of going after frontline tasks. It has always been the case in Estonia that cuts hit rural regions, services and jobs first. I'm saddened to see the current government continue in Kaja Kallas' footsteps," Pohlak said.
EKRE believe that slashing €210 million in Rail Baltica funding could help cut the necessary €300 million.
Center party leader: No examples of labor and consumption taxes bringing growth
Urmas Reinsalu said that the government's tax decisions will add to inflation and curb growth next year.
Inflation growth is set to more than double as a result of the government's tax decisions, compared to the spring economic forecast. Secondly, as concerns the effect of tax hikes, even the government's own extremely modest forecast suggests they will subtract 1.2 percent from growth. This leads us to an interesting point – conservatively speaking, your hostile economic policy will cost us €180 million in tax revenue, as you are postponing recovery. Your starting point is way off. It should be how to restore confidence and return to growth.
Andres Sutt countered by saying that he does not know a single country which has succeeded in putting its finances in order without resorting to tax increases and austerity.
"Cutting our way out of deficit is not viable in real life. The U.K. financial secretary presented his bill to the Parliament today, and it was full of tax increases. We need to address both sides," Sutt said.
Mihhail Kõlvart replied by suggesting that he does not know a single country to have achieved economic success through tax hikes.
"Revenue for the state comes primarily from taxation of consumption and labor. I do not know of any country to have ensured economic growth this way. Consumption is falling, based on data from the Estonian Institute of Economic Research, because confidence and salaries are falling too. Less fortunate people cannot afford to consume if consumption is being additionally taxed, not to mention saving money. When consumption as a whole starts falling, the economy falls too, which in turn causes tax revenue to fall. That is the effect we are seeing for the second consecutive year," Kõlvart explained.
"It is not just about cutting costs. There can be various taxes. Today, we are taxing less fortunate people, while we're also cutting back benefits and education, meaning that we are taking aim at the most vulnerable part of society. There is an alternative – taxing banks and major corporations," Kõlvart said
Siim Pohlak agreed.
"We also do not know of a single country to have taxed its way to prosperity. We need to fix our economy. Roughly 140,000 people are paid by the state in Estonia, while we also have around the same number of active companies. This means that every company is paying for a state-employed person, figuratively speaking. And if we ruin the economy, foster uncertainty, causing companies to close doors, then it is clear our deficit will only continue to mount," Pohlak said.
"We first need to restore confidence in the economy, and only then can we start talking abut other things. The most important thing – we need to bring energy prices under control, as our neighbors are outcompeting us every day."
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Editor: Merili Nael, Marcus Turovski