Big parties would bring taxes down

Photo: SCANPIX

For years, the pre-elections political rhetoric has been don’t play with taxes. This time, all parties are throwing proposals more or less radical.

Soc dems want to raise minimum wage to €670; IRL would spare those earning up to €500 of all income tax while cutting it for those making €840 max. Again, Centre Party would bite into the purse of the wealthy – this time, they’d lift tax burden from 20 to 33 percent for those earning €2,000 and beyond.

Even Reform Party has proposed to raise basic exemption – twice! i.e. from current €154 to €308, and to lower social tax by two percents.  

Independently from politics, but the more forcefully tax changes are being pushed by the entrepreneur Indrek Neivelt who would boost basic exemption to €400 and substantially lower social tax while lifting private persons’ income tax where it begun to fall from years ago.  

By the abundance of percentages and numbers, voter heads may go spinning. Broadly speaking, the changes would affect the lowest-paid people the most. While making no-one rich, they’d offer some breathing space. But to vote according to who leaves more in our purse on payday is not easy, for the differences aren’t big.

So how come now, all at once, the political forces have realised it’s time to play with taxes?

«The tax system does not work,» answers Mr Neivelt, all decisiveness. While at it, he refutes the myth that taxes aren’t played with. «Hogwash! In crisis times, they raised them like crazy.»

As one, Anvar Samost from IRL and economist Heido Vitsur said that taxes are to be discussed, having become out-of-date.

«Most tax decisions are 15 and 20 years old; during that time, a lot has changed and it would be weird to not review stuff that has been decided long ago, in a different kind of environment,» said Mr Samost.

«Another issue (on top of the tax system being of age – edit) is that over time even an ideal thing will become boring, overly ordinary,» said Mr Vitsur. «The fire just needs some poking, and it’s not so much the issue of whether it is good or bad; rather, we need to be shaken out of the routine,» he added.

Former finance minister Jürgen Ligi (Reform Party) begs to totally differ. «There’s nothing the matter with our tax system. Estonian tax system is very competitive, as just affirmed by OECD,» hammered Mr Ligi. Why, then, has his very own party set forth its several proposals?

«There’s no urgent need, but all are competing for a stronger interference of the state,» he explained. «Our proposal is in line with the OECD model saying that the worst tax would be corporate income tax, regarding which we are very competitive, but with labour taxes we are the average sort,» said Mr Ligi. «Lowering labour taxes is the right direction,» he admitted.

Competition with other EU countries on labour market was also pointed to by Mr Samost. «Estonia is in competition with all other EU states for labour force and in this fight we are being whipped,» observed Mr Samost. «Not as bad as the Latvians and the Lithuanians or some other Eastern-European nations, but the fact remains: people from the rest of Europe aren’t in masses coming to work here; rather, people are leaving,» he said.

«We are cutting everybody’s tax base, as if that would make everybody richer, but this isn’t solving the structural problem,» said Mr Neivelt, painting a broader picture. «The structural problem is that, in the wage category where we are, Finland has lower labour taxes,» he specified.

As admitted by Mr Samost, the IRL model of cutting tax burden for the lower-paid – borrowed from the Reagan-time America – will not solve the daily coping issues for those toiling hard eight hours a day while paid €400–€600 and often less than that. «Even so, for someone making €500 a month, €70 (as the average monthly income tax he pays – edit) is significant to keep,» said Mr Samost, detecting a measure of progress.

«Those earning very little (numbering at least 200,000 according to IRL calculations – edit) will have it a better,» agreed Mr Vitsur.

Mr Vitsur is a bit sceptical whether the pre-election time is the best for such essential debates. «It is very difficult in propaganda (to explain essence to voters – edit), as no-one has an advantage black-on-white – [some] may scream louder that they have it better, but that is a belief not confidence,» said Mr Vitsur.

He added it was good anyway to have a discussion going. «I’d hope for it to continue after the elections, as the need is there – the readiness for change is there,» believes Mr Vitsur.

As admitted by Mr Samost; Mr Neivelt’s suggestions are somewhat better (than these of IRL – edit), but Mr Neivelt’s hand are more free as well. «He is not running at the elections and has no need to reach a coalition treaty with anyone, after elections,» underlined Mr Samost, adding that we can’t go on without a major revision to the tax system.

«As WTO and EU members, we have little economic-political room to play and taxes are among the few things we can change,» said Mr Neivelt, to explain why he’s been addressing the tax issue for years now. «I think there have to be constant changes, even if something is working. If we’d think nothing needs to change, then I don’t know what we’d be doing – at some ape stage still,» noted Mr Neivelt.