Estonia’s new government looks for ways to curb inflation

TALLINN, July 23 (Xinhua) — Estonia’s newly sworn-in government, led by Kristen Michal, has announced plans to combat inflation through increased and temporary taxes and efforts to stabilize the economy.
Under the new coalition government, comprising the Reform Party, the Social Democratic Party (SDE), and Estonia 200 (Eesti 200), value-added tax (VAT), income tax, and excise taxes on alcohol, tobacco, and gasoline are set to rise according to their new main action plan.
VAT and income tax will increase by two percentage points to 24 percent, starting July 2025 and early 2026, respectively. A temporary two-percent corporate income tax, known as the “defense tax,” will be introduced in early 2026 and remain in effect until the end of 2028.
The coalition aims to maintain defense spending at a minimum of 3 percent of gross domestic product, fund the hosting of NATO allies, and use the defense tax revenue to acquire long-range weapon systems and ammunition to address security threats.
The coalition also plans to enhance Estonia’s digital sectors and cyber defenses. Over the next three years, it aims to reduce the budget deficit from a projected 5.6 percent to 3 percent in 2025 — maintaining the level until 2026 — and further reduce it in 2027, cutting labor and management spending in ministries and operating and earmarked subsidies by 10 percent.
Excise taxes on alcohol, tobacco, and gasoline will rise by 5 percent annually, and the elimination of the income tax-free threshold, known as the “tax hump,” scheduled for 2025 will be delayed by a year.
Kristen Michal, the prime ministerial candidate, said on Friday that the government plans to sell various assets and privatize non-essential companies. The coalition agreement states that the government elected after the 2027 Riigikogu (the Parliament of Estonia) elections will have to decide whether to maintain or alter this tax. ■