Indrek Neivelt: Seven dogmas Estonia needs to abandon
Entrepreneur, former banker, and commentator Indrek Neivelt writes about seven economic-political dogmas that have defined Estonia in the last two decades, and which he thinks the country needs to move on from. The message is simple: we live in a fast-paced world, and the ability to adapt is more important than it has ever been.
Some ten years ago, I asked myself why a lot of principles that are common in Finland are taboo in Estonia. If anyone in a leading party so much as expressed doubt about these ideological points, they were shamed and either called stupid or pro-Kremlin. Or both. In any case, plenty of those points are very basic principles in Finland, and the society there has lived by them for decades.
So why is it that our relatives across the Gulf have such a different understanding of economic and political principles?
And listening to plenty of Estonia's leading politicians today, I find myself thinking that perhaps it is time to abandon these dogmas.
Here are a few examples:
1. Progressive income tax. For more than 25 years, we've been explained that progressive income tax is the devil, and that anyone who so much as thinks about it is entirely on the wrong track. But actually, progressive income tax is the standard in every highly developed country. It can't be that all those countries richer than us are wrong. That's our problem rather than theirs.
That is why I think that we need to get used to the idea of having to introduce a progressive income tax sooner or later anyway. And looking at the current budget revenue, that day may not be too far off.
2. A balanced budget. All Estonians know that the state budget needs to be balanced. But nobody really knows why. It just has to, and that's the end of it.
This kind of principle was justified in the times of the Estonian kroon, but the adoption of the euro changed the situation. We don't need to worry anymore if our budget is at a half-percent or one-percent deficit. Even if we continued the way we're doing things at the moment, 100 years from now we would still be among the EU member states with the lowest loan burden.
I know that those in favor of a balanced budget will try to scare us here by saying that we will borrow ourselves to death. But I'm talking about sensible borrowing, not about going overboard. We are far away even from that.
3. No debt for coming generations. This is connected to the balanced budget dogma. This is again an issue where plenty of highly developed countries take the opposite position. They think that any kind of investment in their infrastructure shouldn't be paid for just by today's taxpayers, but also by those who use said infrastructure in the future. Which is precisely future generations.
I like this logic better than Estonia's current ideology, according to which all investment has to be paid for by today's taxpayers. Believe me, our children will think of us as rather stupid when they ask why we didn't pick up zero-interest loans in 2015 or in 2020 to build highways, for example. It is better to leave them a state with a proper infrastructure than to make it a debt-free country where everything is in terrible shape.
4. No corporate income tax in favor of attracting investors. This was a very good solution 20 years ago, but no longer. The situation in the global as well as the Estonian economy has changed, and investments are going where good and smart people are. If any kind of tax influences investors at all, it is taxes raised on labor, not corporate income tax.
5. The state can't interfere with the economy. Our richer neighbors don't think this way: I've brought up the example before of Sweden, where a state bank was founded to rekindle competition in the market. The profitability of our banks is higher than that in Sweden, but our central bank doesn't think it necessary to interfere. Again, I don't think the Swedes are wrong.
6. The lately fashionable claim that with abolishing the second pillar pension fund, low-income individuals lose the most. The opposite is the case. Even if the funds should manage to increase their performance to the economy's nominal growth, it is still more profitable for someone with a low or lower-than-average income to only have the first pillar. The second pillar is more individual and a better fit for those with a higher income.
7. Our relations with our big neighbor. Where the Finns have dealt directly with Russia all the time, we've been of the opinion that we'll let Brussels and Washington deal with Moscow, and ourselves look on from afar. President Kersti Kaljulaid's visit was very successful despite opposite predictions by plenty of experts. One can only hope that the frequency of such meetings will become the rule, because neighbors need to talk to each other. That way we all profit, and it would be great if beyond business connections, there would be more cultural connections as well.
Unfortunately we're currently moving in the opposite direction, and even business connections have suffered substantially compared with a decade ago, while more economic connections also increase our own security.
These are seven examples of current dogmas. It would be good if we could overcome them. We are living in a fast-paced time, and the ability to adapt quickly is more important than it has ever been.
Indrek Neivelt is an entrepreneur, investor and former banker. Starting 1991, Neivelt worked for Hansapank, first as a department manager, later on as a member of the bank's management, and from 1999 to 2005 as its CEO. He left when Hansabank was taken over by Swedbank. At the time of the takeover, Neivelt was one of the Estonian bank's biggest private shareholders. He founded Pocopay, a financial technology company, in 2016.
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Editor: Dario Cavegn