The Social Democratic Party (SDE) will present three proposals at Monday's coalition council meeting, which they say will help stimulate the economy and strengthen national defense: a €1 billion economic package requiring the formation of a working group, a review of pending tax changes — including lowering the value-added tax (VAT) on food products — and a more ambitious national defense plan.

Kristina Kallas dismissed the idea of a €1 billion economic package as a hastily made proposal.

"We already have around €1 billion in European Union funds that we are investing in the economy, and our main issue has been that we struggle to utilize these investments within the required timeframe. Businesses and organizations meant to receive these investments cannot operate at such a rapid pace. Simply throwing an additional billion on top — I'm not sure that's a reasonable approach," Kallas said.

Maris Lauri also expressed skepticism about the proposal.

"Spending a billion euros without knowing where it would come from doesn't seem like a well-thought-out idea. It's just a proposal for the sake of making a proposal," she stated.

Lauri also sees no reason to form a new working group to discuss the economic stimulus package.

"Discussing in a committee what needs to be done — I don't see the point in that," Lauri said.

"This is a substantial sum, not a small amount of money. If we were to find it somewhere, there are only two options: taxes, and it's clear that we shouldn't even be talking about tax hikes. The Social Democrats have been pushing for tax increases for a long time, despite the agreement not to raise taxes. The other option is cost-cutting, but when we look at practice, there are certain ministers where implementing cost-cutting measures is extremely slow, if not entirely absent. This is neither a reasonable nor a credible approach," Lauri added.

According to Lauri, businesses are waiting for legislative initiatives that the Social Democrats are obstructing.

"This includes expanding opportunities for bringing in skilled labor, reducing bureaucratic hurdles and adjusting various regulations. These changes don't require financial resources; they are simply barriers that need to be removed," Lauri explained.

Kallas added that delays in amending the Competition Act to bring it into conformity with EU regulations are resulting in a €3,000 fine per day.

"And yet, the Social Democrats are stalling without any explanation as to why they are doing so," she said.

SDE's proposal to lower VAT on food would result in tax hikes elsewhere

The Social Democrats propose lowering the value-added tax (VAT) on food products and canceling the planned corporate income tax.

According to Kristina Kallas, reducing the VAT on food means that taxes will have to be raised elsewhere.

"The revenue shortfall in the state budget caused by this would be quite significant. The amount lost from reducing corporate income tax would be about three times smaller than the shortfall from lowering the VAT on food products," Kallas said.

Maris Lauri argued that cutting VAT when the state's revenue situation is already difficult is not a sensible move, adding that lowering the VAT on food products does not actually help those in financial difficulty.

"Various analyses indicate that most of the benefit would go to sellers rather than consumers. For consumers, any price reduction would at best have a short-term impact, or possibly no impact at all," Lauri stated.

Lauri did not completely rule out lowering corporate income tax.

"This is something that needs to be carefully reviewed. There is some hope because last year's budget situation was better than expected. The Ministry of Finance will soon conduct calculations and forecasts, which will clarify the outlook for this year and next. Perhaps there will be more fiscal space next year," Lauri said.

What will the coalition council decide on Monday?

According to Kristina Kallas, the recent government crisis discussions have helped clarify the priorities the government should focus on in the current situation.

"This crisis has, in a way, cleared the air, allowing government members to clearly express what should be the government's primary focus right now," Kallas said.

She hopes that the Social Democrats will abandon political maneuvering and stop delaying decisions.

"In a situation like the one Estonia is facing today, coalition partners cannot operate this way. Decisions need to be made quickly and efficiently. Of course, they must be well-prepared, but dragging out the decision-making process is unacceptable to us," Kallas stated.

Kallas considers a government with a 52-seat majority in the Riigikogu to be entirely realistic.

"It is certainly realistic. The question is how stable and lasting it would be. A 52-member team in the Riigikogu would need to be very united and work together closely," she said.

Maris Lauri noted that continuing the coalition with the Social Democrats offers the advantage of broader political representation and a larger parliamentary majority.

"Party leaders will definitely meet within the coalition council to discuss these matters. However, the fact remains that the behavior of different partners has at times sparked strong reactions and significant emotions within the faction," Lauri said.

The government crisis started when Prime Minister Kristen Michal suggested last week that because SDE have engaged in slowing down processes and incomprehensible initiatives only adding to red tape during their time in the government, the Reform Party is theoretically prepared to continue ruling with just junior partner Eesti 200, with the latter having repeatedly criticized SDE as well.

The coalition council is set to meet and discuss how the government will move forward at 1 p.m. Monday.

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