Tax policy

Key objectives of the Employers’ Manifesto chapter on tax policy

1. TAXES MUST SUPPORT THE COMPETITIVENESS AND DEVELOPMENT OF ESTONIAN BUSINESSES
2. TAX INCREASES MUST BE STOPPED
3. RESPONSIBLE AND SUSTAINABLE FISCAL POLICIES

Reform Party

1. Ending tax chaos, the most competitive tax environment.
2. Tax holidays, analyses, advance notice.
3. Justification of budgetary expenditure and structural balance, accumulation of reserves.

Social Democratic Party

1. The promotion of competitiveness is not significantly represented, except for the halving of the excise duty on electricity (which does not yet have a significant impact on the final price).
2. Promise not to raise the overall tax burden.
3. There is no information on the coverage and budget neutrality of the whole programme, except for the promise that the overall tax burden will not increase.

Estonia 200

1. A slightly more principled programme, but with more pro-growth principles in tax policy: labour taxes for employee taxes, a growth-friendly tax system structure (OECD recommendation), simple tax administration and taxpayer confidence.
2. The tax burden must not rise, budget spending cuts and the tax burden accordingly.
3. A very proper activity-based budgeting and spending reduction plan: “We will review all state functions and do a restart on both state activities and spending – stopping activities that do not serve our agreed objectives and zeroing the budget every five years.” At the same time, he does not rule out issuing bonds to “complete the construction of essential infrastructure for Estonia and to make reforms that will have a long-term positive impact.”

Freedom Party

1. They concern the competitiveness of the tax system. Importantly, they point out that the level of the tax burden in the European Union is higher than the world average, and therefore comparing Estonia’s tax burden with the EU average compares it with a high level of taxation. The revenue base of local authorities should support their motivation to develop the local economic environment. Tax frontiers for small businesses. Reducing excise duties to competitive levels. The contradiction between the principle “We do not consider it right to change the current corporate income tax system, where the taxable entity is distributed profits” and the desire to tax “accumulated retained earnings of legal entities” through a capital tax.
2. Targets a reduction of the tax burden to 33% of GDP.
3. Responsible fiscal policies are included in e.g. chapter 45. A slightly looser approach to fiscal discipline is taken in chapters 46-48: borrowing, issuance of government bonds, but aiming at long-term competitiveness and structural reforms.

Centre Party

1. Largely coincides with the manifesto except for the tourism tax and the graduated income tax.
2. Numerous tax reforms, the corporate income tax and the graduated personal income tax plan do not offer much hope for tax revenue.
3. Balanced budget and budget estimates inside.

Fatherland

1. Does not support the reintroduction of the traditional corporate income tax, Introduces a tax exemption for companies on the profits from the transfer of shares in foreign subsidiaries, which encourages the establishment of company headquarters in Estonia. Improve the competitiveness of excise policies.
2. Maintains tax neutrality for the next four years. We do not support an increase in Estonia’s overall tax burden. In the event of higher-than-expected tax receipts, ISAMA’s priority remains lowering labour taxes.
3. We believe that it is right to have a fiscal policy where budgets are run in surplus during periods of high growth, and when the economy is growing more slowly, public investment is used, if necessary, to stimulate the recovery, using accumulated reserves or borrowing. This means that we keep the state budget in structural balance, which allows us to take account of the phase of the economic cycle in which the country is in when we draw up the budget. If tax revenues are higher than expected due to faster economic growth, we will cut taxes rather than diverting the extra revenue to new spending, so that public expenditure does not rise too much in good times. Periodically, when drawing up the national budget, we would review the spending and programmes that have been in the national budget for years to assess their necessity.

Summary

Estonia’s tax system is still considered one of the best in the world. The disadvantages of our tax system are considered to be the high level of labour taxes, which are higher than in many countries and often overwhelm lower value-added and start-up companies. The tax system has also recently been made more complex, and excise duties have been used to take some products out of price competition. There have also been too many changes to the tax system, which have reduced economic confidence and the attractiveness of the investment environment. Keeping the overall tax burden at the same level is not, in our view, a sufficient solution – the problems lie with individual taxes that are reducible in the big picture, which in many cases are significant and change rapidly in different areas.

Therefore, the main proposals in the Employers’ Manifesto are 1) to pay more attention to the impact of the tax system on competitiveness in the future, 2) to introduce tax certainty – not to raise the tax burden recklessly for fiscal purposes, but to create an analysed plan for the necessary tax reforms to support long-term goals – and 3) to plan public budgets responsibly so that public spending does not create harmful tax pressure.

Of the Employers’ Manifesto proposals, the most frequently mentioned in the programmes are restoring competitiveness of energy prices and excise duties (5 parties), tax neutrality (5) and extending tax exemptions for health costs (4).

In total, the manifesto contains 16 concrete proposals, all of which are reflected in the manifesto of at least one political party. Of these, 9 are in the programme of Estonia 200, 8 in the programmes of the Centre Party and Isamaa, 7 in the programme of the Reform Party and 5 in the programme of the Social Democrats, while the Freedom Party has 2-3 proposals.

The Reform, Eesti200, Isamaa, Vabaerakond and Sots parties have specifically promised not to raise the tax burden or tax holidays. In the case of the latter, it is worrying that at the same time they have promised to make social welfare services significantly more generous. To this end, however, they have not indicated where the funding for the new commitments will come from. The programme of the Centre Party includes a number of business-friendly tax breaks and other benefits and subsidies promised to a very large number of target groups, which will probably also be covered by the graduated personal income tax and corporate income tax mentioned in the programme, which will have a negative impact on competitiveness.