Conservative Critics Blast Increase in Taxes by Government
Estonia's Economically Tough Tide: Low Purchasing Power and the VAT Hike Debacle
TALLINN - In the Estonian political scene, The Right, a party currently without representation in parliament, has voices blazing against the incoming Value-Added Tax (VAT) hike on July 1. They claim the financial strain on Estonian residents is already intense, and it's past time to tighten the government's purse strings instead of burdening citizens further.
"Estonians rank second to last in European purchasing power, with only the Hungarians lagging behind," declares board member of The Right, Andrus Kaarelson. He bases this statement on a recent survey that compares residents' purchasing power.
Kaarelson argues that the strain on Estonians is stark. "If a liter of milk costs the same in Estonia as Germany, but our wages are much lower, then poverty isn't just a statistical illusion—it's a daily struggle at the dinner table."
Consumption taxes like the VAT increase, jumping to 24 percent, especially sting those with lower incomes, according to Kaarelson. This regressive tax takes a more considerable portion from low earners who tend to spend a larger portion of their income on taxed goods and services. In addition, the excise duty on gasoline will witness a 5 percent rise on July 1, raising gasoline prices by 6.1 cents per liter. This increase, as a key input cost, will drive up prices on other goods and services, creating a new inflation driver in Estonia, which already boasts the highest inflation rate in Europe.
"The Reform Party's tax policy keeps the poor in poverty while the government doesn't cut its expenses—we're on the wrong path," Kaarelson contends.
The Right presents a policy to free people and stimulate the economy. They propose reducing VAT to 20 percent, lowering personal income tax to 18 percent, and reversing car tax, excise hikes, and other consumption tax increases.
The Ministry of Social Affairs' sector already consumes 41 percent of the state budget. In 2025 alone, automatic indexation will raise spending by nearly 500 million euros—450 million from automatic pension increases and the rest from growing benefits. The Right believes the government can save another half a billion euros by postponing the abolition of the income tax hump, which would reduce the annual budget deficit by more than 550 million euros from 2026, creating room for tax relief across society.
However, Kaarelson asserts that abolishing the income tax hump may be a wise long-term move but not at a time when the Estonian economy is stagnating, and competitiveness is plummeting.
In Europen terms, Estonians' purchasing power ranks among the lowest, causing hardship for many low-income individuals who struggle more compared to wealthier European countries when attempting to purchase basic necessities.[2][1][3]The proposed VAT hike and increased fuel taxes will disproportionately affect low-income Estonians by increasing living costs and inflation, further widening economic disparities and increasing inflationary pressures in Estonia.[2]This low purchasing power combined with rising consumption taxes creates a substantial burden on vulnerable Estonian populations, indicating the socioeconomic challenges posed by the proposed fiscal policy changes.[2]
The planned VAT increase risks intensifying rather than improving the precarious economic situation for low-income Estonians.
"The proposed Value-Added Tax (VAT) hike, coupled with an increase in fuel taxes, is expected to exacerbate the economic hardships faced by low-income Estonians, as these policies disproportionately affect vulnerable populations, widening economic disparities and increasing inflationary pressures."
"In the Eurozone, Estonia's low purchasing power contributes to the struggle of low-income individuals to afford basic necessities, and the planned fiscal policy changes could further burden these populations, highlighting the socioeconomic challenges facing Estonia."
