TALLINN - Economy Minister Edgar Savisaar slammed Estonia's tax system this week, claiming it has led to the highest level of inequality of all of Europe, while his boss, Prime Minister Andrus Ansip, defended the country's developmental path, saying it made him "proud."
Speaking at a conference of foreign investors, including from the U.S.A., Savisaar said that Estonia's unique tax system 's based on the flat tax 's has promoted investment and enterprise but is socially unjust or even dangerous according to West-European and American standards.
"The taxation system has made it significantly simpler to collect taxes and to prevent tax evasion," the minister said. "If everyone would win by the wealth thus collected, it wouldn't raise any questions, but unfortunately in Estonia, the first country to have adopted such a taxation system, economic inequality is among the highest in the European Union."
Ansip was quick to respond to the criticism from his own Cabinet member.
"Estonia's low flat-tax rate means that the people can decide themselves what they do with their money, that people have more freedom. More industrious and hard-working people are not punished in Estonia by a progressively rising tax, and I am proud that this is so," the prime minister said.
He added that Estonia's tax system was simple and clear, and has turned the Baltic state into an attractive investment country.
Ansip is leader of the Reform Party, a right-wing force, and Savisaar of the Center Party, which is generally considered to be left of center.
Savisaar explained that the Gini coefficient characterizing inequality is 50 percent higher in Estonia than in the Nordic countries and most new EU member countries. He added that all serious research corroborates a causal connection between economic inequality and the crime rate.
Ansip argued differently, saying Savisaar had arbitrarily interpreted data. "Play with statistics and its extremely free interpretation conceals several dangers. When we talk about the Gini index, then the figure for Estonia has fluctuated by only a couple of percentage points. So we can firmly say that stratification is not deepening in Estonia," Ansip said.
The prime minister explained that, according to the Gini index, there is as much inequality in Estonia as, for example, in Great Britain or Ireland. He added that Portugal and the United States have more inequality than Estonia.
"Our primary concern today is that the Estonians' incomes are still lower than, for example, those of our neighbors in Finland or Sweden. The main aim of Estonian governments through time has been to maintain fast economic growth so to raise the residents' incomes," the prime minister said. "Unfortunately, some politicians and opinion leaders see the glass as half empty. Only recently that glass was quite empty, and by today we have been able to fill it to a considerable degree."
To be sure, not all of Savisaar's comments were negative. One of the country's strong points was the development of an integral information society, such as the ID card that the government introduced and whose chip can be used various ways. He also mentioned the e-Tax Board and various operations that can be made by means of mobile phones and the X-tee information exchange portal.
The transit sector, he said, was also competitive.
The volume of U.S. companies' investments into Estonia currently makes up 5 percent of the total. Savisaar said that Estonia was small, but still a part of the European Union's market.
"This means that by investing into Estonia, it is possible to enter the market of the whole of Europe," the economic affairs minister said.
By comparison, Ansip noted, "The basis of our success is the open economy idea all the governments have observed so far 's favoring enterprise, conservative budgetary policy that adheres to a conservative fiscal policy and relatively low taxes. Created over years, this environment has to be maintained."
