Indrek Neivelt: It would be good to avoid dogmas in tax debate

Indrek Neivelt
Indrek Neivelt Source: Kairit Leibold / ERR

It would be good if the tax debate could avoid dogmas and all proposals would be given a chance. We must definitely tax polluting the environment more and introduce a tax on sugar, Indrek Neivelt said on Vikerraadio's daily comment section.

Prime Minister Jüri Ratas encouraged a public debate on taxes a few weeks ago. It was the right thing to do. Our tax system is stuck in the nineties, while tax discipline and our capacity for tax collection were different. There was also no wealth to tax. Fifteen years ago, we lacked capital. The situation is very different today.

The best time for change would have been immediately after the previous crisis; however, there was no political will to get it done then. In any case, I would like to thank our PM for launching this debate.

Before we get down to specific tax rates, we should agree on what different taxes should be used for. We should also look at where we are today and where the world will be heading in the next 20-30 years. 

We have reached an era where financial capital is cheap while people are expensive. It was the opposite 20 years ago. Our salaries have grown and are fast approaching the European average. At the same time, we have a high social tax rate.

Thinking about the future, we will see low interest rates and robots taking a lot of jobs from people. But robots do not have to pay social tax. Our high tax rate puts us at an additional disadvantage, which is why we need to look for ways to lower labor taxes, especially social tax.

People who receive a salary pay social tax on it. Not all income, just salary. Thirty years ago, most people earned a salary. That is no longer the case. People take dividends or rent out real estate today.

The relative importance of salaried workers has fallen sharply, while we still collect taxes on salary. Not income. This means we have placed people receiving a salary at a disadvantage compared to those who own businesses. That is not fair. We could increase the tax base here by treating income as we do salary.

At the same time, social tax comes to a third of people's salary and is too high for people earning a better wage. That is why a social tax ceiling is necessary. It could be somewhere around two or three average salaries. It would render our tax system fairer and boost receipt of tax. Hower, social tax making up a third of salary is still too high, and we should look for ways of lowering it.

It would make sense for the Health Insurance Fund to share in tax revenue from unhealthy habits. Tax revenue from duties on alcohol and tobacco should definitely go to the fund.

Considering how much sugar we consume and how unhealthy it is, we should absolutely tax sugar. We could start by laying down an excise duty on sugary drinks. A mild tax on sodas, following the example of Latvia, but also many other European countries.

Their tax on sugary drinks is believed to be the reason the number of overweight children has stopped growing in Latvia in recent years. The significance of this tax would be behavioral rather than fiscal. If a soda costs considerably more than water, a child is more likely to opt for the latter.

Taxation of sugary drinks could be among the first steps. We should tax more unhealthy foods in the future. Even if it won't bring more money to the budget, changing behaviors is very useful. Even if collecting the tax would cost as much as it would yield in revenue, such change is necessary. It would pay off through better public health.

We must tax pollution to a greater degree. Not just air pollution, but polluting the environment in general. I have no specific proposals in this field.

I have been talking and writing about the need to change taxes for years, and I'm glad the PM has put it on the broader agenda now. It would be good if we could avoid dogmas in the tax debate and for all proposals to be given a chance.

We need to see to a tax system that could serve us for the next few decades. For that purpose, it would be good to achieve a consensus on trends that are bound to affect our world in the coming decades.

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Editor: Marcus Turovski

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