Estonian government adopts excise-heavy budget for 2005

  • 2004-09-22
  • From wire reports
TALLINN - The government on Sept. 16 endorsed the budget for 2005 and sent it to Parliament for debate. Calling the bill "rather good," Prime Minister Juhan Parts said he was satisfied with what the government came up with.

"[The budget] reflects the coalition's policy and is an answer to Estonia's current concerns," he said.

The 523-page bill forecasts revenue of 52.909 billion kroons (3.42 billion euros) and expenditures at 52.917 billion kroons in 2005. The deficit thus amounts to nearly 8 million kroons.

Parts named a reduction in the personal income tax rate and a higher level of tax-free income and pensions as two of the budget's cornerstones.

Finance Minister Taavi Veskimagi explained that the reduction of the income tax rate by two percentage points would mean that 1.58 billion kroons would remain in people's wallets.

The per-month tax-free minimum will rise from 1,400 kroons to 1,700 kroons if the budget is passed.

Expenditures on pensions will increase by 1 billion kroons, while the average increase in pensions will amount to 320 kroons.

The national medical insurance fund is set to increase by 520 million kroons compared with 2004, with spending on roads, direct farm support, labor market measures and outlays to local governments in support of investment in education to increase by the same ratio.

Job-creation was also instrumental in drafting the budget. "We hope to reduce unemployment by 1 percent next year," Parts said.

On the revenue-side, a key element is an increase in excise taxes on heavy fuel oil, natural gas, diesel, coal and coke. The government is also proposing to raise the excise on strong alcohol, fortified wine and beer that contains more than 6 percent alcohol.

Farmers and fishermen protested the decision to scrap the low excise tax on diesel, since this will now raise their operating costs sufficiently. The government, however, said it would compensate their losses.

Veskimagi said the government expected to receive 90 million kroons in additional revenue next year as a result of the increase in excise taxes. Of that, 26 million kroons is estimated to come from farmers and fishers.

"We'll compensate them these 26 million kroons," Veskimagi told the Baltic News Service last week.

Agriculture Minister Ester Tuiksoo said this compensation compromise was fair. "In a way I'm satisfied with such a decision," he said.

Ministers from the People's Union had earlier criticized the proposal to raise the excise tax on marked diesel as giving a blow to farmers, but then a party spokesman said the party would agree to the hike only if all of the money diverted out of the farm sector as a result of the measures would be directed back into it.

According to the government's plan, the per-liter price of marked diesel will rise by 0.30 kroon - 0.40 kroon both next year and in 2006.

The decision to raise the excise on diesel was partly justified by the need to combat increasing excise tax fraud and cross-border diesel smuggling.