Editorial ⟩ The surprise egg of the defense tax

«Stay put, piggy! If we paint the new tax increase in military camouflage and call it a defense tax, maybe the people will swallow it more easily.» Photo: Urmas Nemvalts

• Past decisions must not be a burden.
• Several other sources can provide money for security spending.
• Taxes don't need to be raised.

The arrival of the new prime minister also means new negotiations among the parties on what the government plans to do. Hopefully, this situation will create an opportunity to avoid path dependency: a situation where some alternative future decisions are no longer considered possible because something has already been decided in a certain way in the past and no one considers it possible to change it anymore.

One gets the impression that on the subject of the «tax hump» and the car tax, the prime minister-designate, Kristen Michal, is not burning with a desire to turn away from the trodden path. On the «Otse Postimehest» (Live from Postimees) webcast, Michal stated that doing away with the tax hump has already been decided, and that reversing the decision would mean a tax increase that would require six months' notice. This remark is formally correct, but weak in essence.

The prime minister-designate also spoke of possible cuts, but in rather vague terms. However, the impression was that the government is planning a broad-based national defense tax in the form of an increase in income tax or VAT, or a combination of the two. Because that is what the public has already wanted from the government.

Postimees recalls that in its editorials, it has repeatedly recommended postponing the abolition of the tax hump, as well as for the government to start to curtail state spending so that it is actually a cut. There are enough people versed in economics in the Reform Party who have the experience of executing cuts during the previous big economic crisis, which could be put to good use now.

As always, in the narrative against cuts, we hear the pitiful refrain about teachers, rescuers and police officers with low salaries, like a broken record. In response, we have reminded that wage increases and salary levels in the public sector have exceeded those in the private sector for some time, indicating that there are plenty of areas where cuts could be made, though certainly not among low-paid employees.

An additional tax increase as the primary source to cover security expenses is not a good idea. Let us recall that VAT has already increased from 20 percent to 22 percent, and income tax will rise from 20 percent to 22 percent at the beginning of the new year. There doesn’t seem to be much room for further tax increases without harming Estonia's competitiveness in our region.

While consultations between the coalition partners are necessary and nice, the sources of the solidarity national defense tax nevertheless need to be discussed also with the people.

Postimees' recommendation would be to raise funds for additional security expenditure from three sources: first, to cancel the abolition of the tax hump; second, to decisively cut spending by the public sector; and only third, to think about a temporary increase in income tax or VAT. At the same time, the state could please the people and cancel the car tax, which would not be a huge source of income anyway.

While consultations between the coalition partners are necessary and nice, the sources of the solidarity national defense tax nevertheless need to be discussed also with the people. Now is the right time to do so. As Andrus Ansip has said, the people understand also difficult decisions if we talk about them honestly.

Therefore, Postimees agrees with Kristen Michal's following thought: «It is not the task of the government to surprise the public with different things, as much as it is possible.»