Government tax policy seems random

Lehis said it was probably feared the tax's considerable area of effect would cost ruling parties votes.

Lehis also criticized the government's recent idea: a new 14-percent income tax obligation for banks. The prepaid portion of income tax would be taken into account when the bank pays dividends later. Sester said the government opted for this solution as it renders tax revenue from banks more stable, fits banking sector business logic, and considers the need for financial stability.

Banking tax at the expense of the future

Tax expert Lehis said the system constitutes borrowing from future tax revenue – banks are forced to pay income tax in advance.

“This means that the bank will not have to pay income tax on dividends because it has already paid it. In other words, the government wants to start spending future governments' tax revenue,” Lehis said.

This might be questionable from a constitutional point of view as it translates into a restriction of democracy and the right to vote: the next Riigikogu and government will have fewer options to change policy as the previous composition has spent some of the election period's revenue that will considerably restrict the freedom of drafting the state budget, Lehis found.

“It might also be a breach of the principle of equal treatment when a single area of enterprise, in this case the financial sector, and not even the entire sector, is forced to pay taxes differently,” the head of the taxpayers' organization explained.

Estonia's largest commercial banks were reluctant to comment on the new income tax system individually and passed the ball to the Estonian Banking Association. “The government's desire to find additional ways of paying for its policies is understandable; however, banks are clearly not overjoyed when it comes to this new tax obligation. That said, prepaid income tax is the least burdensome potential solution that comes with the fewest risks for the sector while providing a necessary contribution to the state budget,” said head of the association Katrin Talihärm.

Deficit looms

Even though experts doubt whether the new government's revenue can cover its expenses, Sester said at yesterday's government press conference that next year's budget is set and that everything in  it now fits. The minister said the cabinet has agreed the budget will see a deficit of 0.5 percent in the next two years, meaning the government can make use of reserves.

Sester also said the government will not use reserves from previous periods to cover day-to-day expenses or fulfill new promises but only for strategic long-term investments, like new roads, renovation of the Linnahall building, and development of the broadband network.

The finance minister is convinced the government's tax policy is integral and aimed at economic growth. “Tax policy changes will render the tax structure more friendly toward economic growth: reduce taxes on income and hike consumption taxes,” Sester said.

The government also agreed on 2018-2021 fiscal strategy principles that form the foundation of the state's financial plans for the next four years. Prime Minister Jüri Ratas (Center Party) said the government's four-year plan aims at four major goals: population growth, improved social well-being and cohesion, exiting the economic standstill, and strengthening the country's security.

Lennart Ruuda
Governmenttaxpolicyseemsrandom
If you notice an error, highlight the text you want and press Ctrl + Enter to report it to the editor
3 views in november
I recommend
No recommendations yet

Comments

Post your comment to communicate and discuss this article.

Politics
More than half of all Estonian residents support as liberal an alcohol policy as possible or one with few restrictions (54% in all), while another third favour more stringent restrictions, according to the alcohol yearbook, titled "Market, consumption and damages of alcohol in Estonia," introduced at a National Institute for Health Development (NIHD) conference on Tuesday. According to a poll conducted by the Estonian Institute of Economic Research (EKI),...
Society
Trying to keep on top of the movements of the political parties in Estonia can be a bit like herding the proverbial cats at times, particularly now we're in election season. From an "anglophone"* perspective, there are plenty of parties — around nine in all, three in government, three in opposition and three more potentially winning a few seats in March. This compares with three and a half parties in Britain (UKIP is the "half"), outside of Northern Irelan...
Politics
The opposition Conservative People's Party of Estonia has in large part decided its top candidates for the March 2019 Riigikogu elections, to be officially confirmed by the party board on Friday. EKRE's top candidate for Harju and Rapla Counties, Estonia's largest electoral district, will be MP Henn Põlluaas. Party chairman Mart Helme, meanwhile, will run in the number one spot in Pärnu County. Monika Helme will top the party's election list in Lääne, Saar...
Society
Hot on the heels of the Social Democratic (SDE) and Reform parties announcing their primary candidates in each of the 12 electoral districts at the March 2019 general election, ruling coaltion majority party Centre has done the same. Centre, from whose ranks Prime Minister Jüri Ratas comes, will run the latter in Harju and Rapla counties, with three current ministers, one MEP and the deputy head of the Riigikogu joining him as front-runners in other distri...
Society
Prosecutor General Lavly Perling will present an overview of requests for legal help, originating from the Russian Federation, to the Riigikogu on Tuesday. Letters from Russian authorities in 2012 and 2014 reportedly made clear reference to money laundering activity and requested witness input. According to business daily Äripäev, Ms Perling confirmed the letters contained direct reference to money laundering but were confidential and their contents not or...
Society
Coalition partner the Social Democratic party (SDE) has announced its top riders for the March 2019 elections in Estonia's 12 electoral districts, though its full list will be confirmed in December, the party says. There are no real surprises on a well-stocked list which includes the recently-attracted Indrek Tarad, currently still an independent MEP. Mr Tarand, whilst standing for SDE, has not as yet become a party member. Since the system in Estonia is a...
Society
According to Statistics Estonia, the change of the consumer price index in October 2018 was 0.5% compared to September and 4.4% compared to October of the previous year. Goods were 3.7% and services 5.7% more expensive compared to October 2017, while regulated prices of goods and services increased by 9.1%, and non-regulated prices by 3.1%. Compared to October 2017, the consumer price index was affected the most by transport, which contributed nearly a thi...
Society
The Ministry of Culture has rejected the request of English-language web magazine Estonian World (EW) for support from the state to to the tune of €5,000 for the remainder of 2018. The ministry has, however, promised to seek opportunities for supporting the portal in 2019. "Unfortunately, the support to this extent of English-language Estonian media outlets is not provided for in the agenda and budget of the government-approved Compatriots Programme for th...
Society
Last Wednesday, Theatre NO99 abruptly announced that it would be closing its doors, with its final performances scheduled for November and December. The theatre will be vacating a large building at the Central Tallinn address of Sakala 3, interest in which has been expressed by Sakala Skene, a new open centre for the performing arts and theatre education. Sakala Skene is a new brand uniting Polygon Theatre and Polygon Threatre School, Old Baskin's Theatre,...