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Upcoming budget negotiations: no great surprises in store regarding tax

View of the (relatively) new ministerial building in Tallinn, where among other authorities the Ministry of Finance is based.
View of the (relatively) new ministerial building in Tallinn, where among other authorities the Ministry of Finance is based. Source: Siim Lõvi /ERR

Next week the Ministry of Finance is due to publish its autumn outlook, after which budget negotiations between the parties will begin. As ERR's Huko Aaspõllu writes, no great surprises are ahead, as the most important issues were already agreed on in spring this year. The main points still to be discussed are additional revenue sources.

Pro Patria, one of the junior partners in the governing coalition, supports a reduction of excise duties, backed up by some members of Prime Minister Jüri Ratas' Centre Party. At the same time, the coalition found itself exposed to harsh criticism over both alcohol and fuel excise duties, which is why most of Centre would like to keep the issue out of the media and thus isn't taking a clear position in the matter.

For SDE, lowering alcohol excise duty would amount to vote of no confidence in chairman

The Social Democratic Party (SDE) would rather like to see excise duties at the current level in the future as well, and think that Estonia should wait for Latvia to increase its own taxes on alcoholic beverages and fuel for the respective cross-border trade volumes to decrease.

Competing with Latvia makes no sense here, the party thinks. Also, supporting an excise cut would amount to a vote of no confidence in party chairman Jevgeni Ossinovski, who earlier this year bore the brunt of the media's attacks on the government's excise policy.

Income tax law: Centre interested to introduce cuts for pensioners

A topic still up in the air are further changes to the income tax law. The current regulation, which introduced a de facto progressive income tax by manipulating the tax-free income amount, is seen as too complicated. On top of that, with a view to next year's Riigikogu elections the Centre Party would like to introduce further cuts in favour of pensioners.

This course would open up the government coalition to attacks from the centre-right, with the Reform Party continuously criticising the "overly complicated" current set-up. At the same time, Centre depends on Estonia's pensioners come election day.

Fuel and electricity excises: further reduction too expensive, of little effect

Another issue that will be discussed is a reduction in excise duties on fuel and electricity. Though this is an issue for several parties, any such reduction would be too expensive considering the other cuts currently on the table, and on top of that the reduction would probably not be enough to get the international logistics companies back who are currently filling up their lorries in Latvia.

Increase or lower tax-free minimum?

While the Reform Party wants to bring the income tax system back to the principle that the tax-free amount is the same for everyone, and want to set that amount at €500, the Social Democrats would like to increase it to the level of the minimum wage under the current system.

"Possible tax changes depend on the autumn outlook of the Ministry of Finance," SDE chairman Jevgeni Ossinovski told ERR. "The preference of the Social Democrats would be to raise the tax-free minimum to €540."

This year both the tax-free minimum as well as the minimum wage are at €500. Employers and employees have agreed on a minimum wage of €540 a month for 2019, an amount that could be made tax free, according to Ossinovski.

Compromise could go either way

Considering the current situation, both making changes as well as making very few changes is a possibility, though the coalition is likely to unite to push the budget through. According to a source in the coalition, any of the individual changes "has a likelihood of less than 50%"—though the same source thinks the likelihood of some sort of change is still relatively high. "A coalition of three partners is difficult, and the principal debate is still ahead."

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Editor: Dario Cavegn

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