TALLINN - Commenting on the Bank of Estonia's proposal to drop the present tax exemption on housing loans, Prime Minister Andrus Ansip said that he took a cautious look at the idea but that it was currently not on the government's agenda.
Ansip said that fundamentally the Bank of Estonia idea was right in proposing to drop the exemption, but dropping it in the present situation would not be fully justified.
Only recently the government lowered the tax exemption ceiling from 100,000 to 50,000 kroons (6,400 to 3,200 euros), the prime minister explained. He said the effect of the tax exempt on the housing loans market was not very significant.
But he admitted that Estonia's tax exemption housing loans were among the most advantageous in Europe.
Estonia's leadership is struggling to combat a bout of high inflation that threatens to derail the country's euro plans.
On the other hand, the example of neighboring countries, including Finland, where the state offered exemption of tax on loan interests sped up a real estate boom, would be an argument in favor of dropping the tax exemption, Ansip said.
The Bank of Estonia announced on Dec. 13 that it would toughen regulations for banks connected with housing loans and forcing them to put more of their own capital into housing loans.
The bank decided to propose that the government significantly cut the deduction on housing loan interest payments from income tax or to stop the practice altogether.
The income tax applicable to housing loans brings the actual interest level of these loans below the level of interest on time deposits and gives loan takers a wrong signal in the calculation of related risks, the central bank said.