Ansip: rapid economic growth allows for reducing income tax to 18%

Stenbock House, Tallinn, 25 January 2006 — Meeting with the members of the Estonian Chamber of Commerce and Industry this morning, Prime Minister Andrus Ansip proposed that the income tax rate be further reduced to 18% by the year 2011.

According to Andrus Ansip, a foundation must be laid for the economy during good times, which means the development of enterprise. “If the state budget increases nearly 15% a year, it is tempting to distribute the surplus through different expenditures. If the people in Estonia can keep the additional amounts generated by economic growth, its use will certainly be more efficient than the decisions made by the state. After all, what we are dealing with is the money that has been earned by the people themselves,” said the Prime Minister.

According to the Prime Minister, the general tax burden should not increase in Estonia. “In a situation in which indirect taxes in the form of excise and other duties increase, for maintaining the balance, it is reasonable to continue to reduce the income tax rate after 2009.”

Andrus Ansip considers it important to have clearly defined priorities when using the resources to be acquired from the European Union funds over the next seven years. “When using both European Union and our own finances, we must focus on the future. By future investments I mean above all increasing the industrial performance, the development of a knowledge-based economy and improvement of additional training opportunities for employees,” said Ansip.

At his meeting with the members of the Chamber of Industry and Commerce, the Prime Minister emphasised the need to maintain an economic growth rate of 6–10%, a balanced budget, and the stable economic environment that has proven successful so far.

The Prime Minister confirmed the government’s established target of adopting the euro in Estonia, starting from 1 January 2007. According to Andrus Ansip, conversion to the euro will have a clearly positive effect on the economy and make Estonia more attractive for foreign investors.

“I do not consider it possible to introduce the euro in Estonia unilaterally. The sense of the rule of law that our people have is one of the highest in Europe and it is extremely important to follow the agreed upon rules. One of the established rules is that a country is invited to join the euro club, and by taking unilateral steps we will give a very wrong impression to the other countries. Estonia definitely does not need such an image,” said Ansip.

“Estonia will continue the preparations required for the conversion to the euro, and already by April we will be able to predict with a degree of certainty whether we will be able to fulfil the Maastricht inflation criterion by autumn. The Government, the Bank of Estonia, the Ministry of Finance and all other relevant institutions will lobby actively to achieve an interpretation of certain criteria that is more favourable for Estonia. A stable economic environment is very valuable and no cheap tricks are planned in order to introduce the euro,” said the Prime Minister, repeating the government’s position that had been disclosed previously.