Heido Vitsur ⟩ THE THIRD GOVERNMENT: What has been done right, what has been done wrong; how to perform better?

Heido Vitsur Photo: Sander Ilvest

• ​Entrepreneurs do not value the government's actions highly.
• It is not possible to maintain competitiveness with rising prices.
• Estonia urgently needs state reform.

Economic analyst Heido Vitsur lists the current government’s shortcomings in steering the Estonian economy.

When giving an assessment, one must agree with the point of view of the entrepreneurs: decisions on economic matters that one could be satisfied with were made considerably less than others in the past twelve months. The Economic Survey No. 1 at the end of April reveals that only 2 percent of 536 Estonian entrepreneurs rated the government's activities positively, and this was the case for the third quarter in a row already, while 62 percent rated it negatively. Compared with the indicators of the first government of Kaja Kallas, these estimates are more than six and two times poorer, respectively.

The change in ratings cannot be softened with the claim that the sky was bluer under the first government. The tenacity of the government, the rationality of its decisions and the ability to communicate with partners stand out better namely in difficulties, and this can be appreciated in Estonia as well.

But still, when dissecting the decisions that have caused discontent over the past 12 months, we must take into consideration that almost none of today's problems arose during those months, but much earlier – mostly in the days of the energy crisis of 2022, when inadequate decisions laid the groundwork for today's troubles or the amplification of previous problems.

After all, it is not possible to maintain economic growth or competitiveness in the euro area if your prices rise twice as fast on average as those of others and this is followed by wage growth much faster than that of your competitors and the budget deficit increases.

However, if we add to the above the desire to quickly give several hundred million to those who currently need it the least, we get a reality where there was no room left for considered action even with the best of intentions.

It is quite natural that in such a situation everything related to taxes went awry as well. The increase in the VAT rate was gulped down, but it still meant further deterioration of our already poor competitive position. Price growth accelerated and the pressure for salary growth increased. In return, we got a somewhat better budget balance.

When talking about the motor vehicle tax, we must start with the fact that the proposal of the bases of taxation was guided by some kind of "generally recognized" model and there was little interest in how much we differ from the «generally recognized» in other matters, how and for what passenger cars are used in Estonia at all.

Thus, when justifying the necessity of the tax, it was also pointed out that Estonia is at the forefront of European countries in terms of the prevalence of cars. However, lawyer Indrek Sirk had no difficulty convincingly proving that the number of cars actually in use is about a quarter smaller than the number given in the justification, and thus Estonia is among the countries with the smallest figures in Europe when it comes to the number of cars per person.

In other words: there are enough situations in our life where it is easier to cope without a bed than without a car.

If we add to this the disabled people who have been deprived of the necessary attention, Estonia's traditional dispersed settlement and the urban sprawl of the last few decades, as well as the difficulties caused by the latter two in developing an efficient and inclusive public transport, it is obvious that the painful reaction to the annual car tax was not a temper tantrum, but a protest against the fact that the government was trying to limit something vitally necessary. In other words: there are enough situations in our life where it is easier to cope without a bed than without a car. Also, the existence of a converted vehicle cannot be the only criterion for mobility impairments. After all, a car is the only means of transportation also for those whose back or joint pains prevent them from being able to walk much. But when thinking about the taxation of cars in collections, the words «simple, uniform, without exceptions» involuntarily start ringing in my head.

And the sugar tax issue was not much clearer either. If there is too much rushing, everything ends up being «like always».

It must be recognized that the misunderstandings of the last 12 months arose primarily from the fact that we have a habit of acting reactively, not proactively. That we constantly confuse principles and goals and tend to think that adherence to principles is politics in its entirety.

More specifically: we still focus on Excel, the size of expenses, cuts and additional income, etc., without realizing that even though these activities are also necessary, require work and attention, they are nevertheless elementary. That in addition to them, it is also necessary to find and implement measures that would put our economy and entrepreneurs in a relatively equal competitive situation with competitors. We must think about what would get our economy going again.

There is a need for an economic policy that would not be based only on emphasizing generally accepted positions, but would take into account what is happening in the world and Europe as well as the connections between fields in a deeper and more detailed way than before. We can no longer allow the economy, energy, budget, tax laws, innovation, infrastructure development and everything social – education, health care, social security, etc. – to meet only in an Excel table, but they must be in constant back and forth communication with each other.

So, for example, one of the main questions for any serious investment today is the security of energy supply and its price in the future.

It is also not the case that the market will fix everything the way we need it to even if we prevent it ourselves.

Although we want to switch to renewable energy (mainly wind energy) faster than anyone else, we don't seem to care at all about what long-term contracts electricity producers and consumers in Northern and Central Europe have already signed for a long time in advance, including in order to ensure sufficient resources for smoothing out the intermittency of wind energy even when wind energy is produced several times more than today. The empty talk that we can get what is missing cheaply from Finland does not encourage anyone to invest here.

It is also not the case that the market will fix everything the way we need it to even if we prevent it ourselves. It is a matter of institutions, of a concrete and business-enabling legal space, where there are no obstacles or prohibitions hidden in the depths of texts. For development, everything that hinders development must be discarded. To do this, we must first start with a comprehensive revision of our institutions so as to then carry out a state reform that has been anticipated for more than 10 years already.