The biggest challenges ahead for the Kaja Kallas new government: tax policy and minority rights

Neither the war in Ukraine nor the international security in the Baltic region, but tax policy and minority rights will become the major challenges for the Kaja Kallas new government, which took office in April 2023. Whether the government can handle those challenges relatively smoothly or this all ends up with a major social upheaval or the rise of radicalism in Estonia is about to be seen. 

However, conversely, there is no alternative to the Kallas government and Reform Party either, because no other majority coalition could have risen in the newly convened new parliament (Riigikogu) without including the Reform Party. Unlike after the elections in 2019, the populist radical right party EKRE currently lacks sufficient seats and overly willing coalition partners to organize a serious counterbalance to the liberals. Thus, if any shifts in the government happen over the next four years, we will just see the Kallas III government replaced by the Kallas IV government. 

One of the biggest controversies, or the source of public disappointment, regarding the new Kallas government became apparent when the coalition agreement was published at the beginning of April: the Reform Party did not mention taxes or tax policy in their campaign, which was predominately focused on international security and the Russian threat; however, now it came out that the new coalition decided to resort to the biggest tax hikes over the last 20 years. The value-added tax (VAT) and personal income tax will be increased by 2 percent, the excise duties on tobacco and alcohol will also rise, and a new tax for personal cars will be introduced. Kallas' government has sold the new tax policy with the argument that there is an urgent need to balance the budget and it would not be sustainable to finance current (and progressively rising) expenses just by loans. Nonetheless, the raising taxes have caused considerable public resentment, and the popularity of the Reform Party has plummeted very quickly, much more rapidly than has usually been the case for new governments.

However, a more substantial challenge lies ahead, and the keyword here is: "minority rights". First, the new coalition seeks to introduce same-sex marriage (currently, same-sex couples can legally cohabit but not marry in Estonia), which will certainly mobilize the more conservative sections of society. Mass demonstrations in the streets and relentless obstruction in the parliament, organized by the conservative parties (EKRE and Pro Patria), will soon become a part of the everyday political reality in Estonia. Second, the Kallas government has decided to suspend the voting rights of Russian and Belarussian citizens in the local elections (differently from Latvia and Lithuania, Estonia has allowed non-citizens and foreign citizens to vote in the local municipal elections). The argument behind it is straightforward: how can we allow the citizens of terrorist countries to participate in the democratic decision-making process, even at the local level? It is important to emphasize that we are not talking about revoking the voting rights permanently but suspending them, probably until the official peace treaty between Russia and Ukraine is signed. However, what the reaction on behalf of the Russian minority in Estonia to those voting restrictions would be, is yet to be seen. There could be just a resignation and no particular reaction at all, or a massive protest voting for the particularly pro-Kremlin candidates in the upcoming local elections in 2025, even by the Russians who already have Estonian citizenship.

Consequently, Kallas' government is destined to see neither peaceful times nor convenient micromanagement on the minor policy reforms. Instead, a major social and political upheaval cannot be ruled out for Estonia. The worst-case scenario is that the conservative backlash to same-sex marriage, the broader public resentment over the tax policy and the Russian-speaking minorities' pro-Kremlin protest in the upcoming local elections, will ultimately become so powerful and outspoken that it provides too many opportunities to the radical parties and candidates. Thus, one could see both the EKRE's landslide electoral victory and a pro-Kremlin party in the Riigikogu by the next elections in 2027. However, less dramatic scenarios could be equally probable: the people become gradually more accustomed to the tax hikes, the anti-same-sex marriage protests become considerably less spectacular than expected, and the Russian citizens accept the temporary voting restrictions. Thus Estonian politics will soon look the same as in any other "boring Nordic country".