Your browser is outdated. For everything to work properly please upgrade your software.
Cookies enable us to provide our services. By using our services you agree with our cookie policies. MORE INFO >

Life after spreadsheets

COMMENT PRINT ARTICLE
Send us a hint
PHOTO: Urmas Nemvalts

For the past few decades, Estonian governments have upheld the mantra of fiscal balance; that you don't play with taxes and take loans. It is possible the latter two dogmas will now change as the incoming coalition is dominated by parties who have traditionally promised their voters to concentrate on redistribution.

Of course it must be the goal of our government to make sure people in Estonia can live equally well, not equally poorly. How to achieve this goal remains another matter.

Poverty has been the number one problem in Estonian society throughout our history, and gross salary of 500-600 euros and pensions of 300 euros cannot offer a dignified life even today. While a lot of experts have seen progressive income tax as the most effective way to combat poverty, its opponents have pointed to several bottlenecks, from increased motivation to hide income to a growing gap between centers and provinces as income tax is the number one financing instrument of local governments.

Today it remains true that the Estonian voter has not provided a mandate for progressive income tax, meaning it cannot be laid down before the 2019 parliamentary elections. That said, the incoming coalition's tax incentive for low-paid workers would come as a prelude.

One undeniable effect of tax incentives for people earning modest salary would be reduction of salary advance pressure on employers. Low labor costs were among our advantages during the previous century; by now we have lost that edge as corresponding expenses are 20 percent lower in Poland, and lower also in Latvia and Lithuania. The initiative proving to be a new engine for growth therefore remains questionable.

One sure principle of ongoing coalition talks is abandoning spreadsheet-based economic policy. That is definitely positive; concentrating on numbers alone, the previous government often forewent more thorough analysis that lead to a vague vision that in turn became one of the more important reasons for stagnation in Estonia. The new coalition has chosen the path of phrasing core problems and looking for possible solutions, which is the normal approach.

Another important change is that the new coalition does not rule out borrowing, while it promises to use loans only for major projects and in case of concrete goals, as opposed to covering everyday expenses. Should such a scenario manifest, it is imperative the government keep its word and only use the money for projects heralding new growth and jobs, instead of simply pouring loan money into infrastructure.

Back up