No. 19




Estonian tax system is in need of changes

  • Jüri Ratas

    Jüri Ratas

    Second Vice-President of the 15th Riigikogu

Discussion in the European Union does not concern the progressive income tax itself, but rather the number and level of income brackets.

Estonia has opposing positions on progressive income tax. It was as recently as 1993 that Estonia effectively had a progressive income tax. In 1994, it was replaced with a proportional income tax. Even though the Estonian Centre Party introduced a proposal to reinstate the progressive income tax, which reached the Supreme Court in July 1998, we still have a proportional income tax. At the same time, the percentage of indirect taxes in the state budget compared to direct taxes is disproportionately high, as a result of which receipt of revenue is to a relatively great degree tied to consumption. In better times, economic growth fed the state budget and problems were not obvious, but the author believes that now is the right time to re-open the debate on tax reform as in difficult times people tend to want a stronger government, not a weaker and more inexpensive government. The current low income tax burden means that people in Estonia lack benefits that would be taken for granted in Western Europe, such as effective medical care and functioning infrastructure. Whereas the more affluent part of society is able to buy private medical care, streets and roads are everyone’s common assets. Private roads for only the rich are not known in Europe.

Full article in Estonian