More than 80,000 pensions will start to pay income tax from April 2020 after the €45 increase pushed thousands of people over the minimum income threshold.
Currently, if a person's income is less than €500 euros they do not pay income tax. Next year the average pension will increase to €528 meaning many pensioners will start to be taxed on the income they earn over the non-taxable income threshold. Currently, the average monthly pension is €483.
ERR reported that as of September 2019, there are 332,000 pensioners living in Estonia and 211,000 pensioners currently have a monthly income of less than €500.
But from April 2020 the number of pensioners who are predicted to have an income of less than €500 is 130,000. So it is thought that around 85,500 will start paying income tax.
However, their income tax will not be very high, ERR reported. As long as a person's monthly income is less than € 1,200, only the excess of €500 will be taxed.
Next year's budget will see pensions increase by an average of €38 due to indexation and €7 due to a one-time extraordinary increase. This will require an additional €196 million and the total amount of pension payments will amount to €1.94 billion. This is about 16 percent of state budget revenues.
The government also wants to increase pension payments over the next four years, ERR said. By 2021, it is expected to increase extraordinarily by €7 per month, by €8 in 2022 and by €9 in 2023. Therefore, the average old-age pension of a person with 44 years of employment, including indexation, should increase from €483 in 2019 to €528 in 2020, to €557 in 2021, to €582 in 2022 and to €608 per month in 2023.
The extraordinary increase in pension expenditure will cost €20.8 million in the coming year, €28.2 million in 2021, €31.4 million in 2022, and €33.5 million in 2023.
Editor: Helen Wright