TALLINN - Consumer prices in Estonia continued their monthly ascent in June, rising 5.8 percent compared over the year since June 2006 and highlighting the escalation of macroeconomic imbalances in the Baltic states' most developed economy.
The rise was led by food prices, which increased 6.6 percent, and services, up 9.4 percent, the Statistical Office reported on July 6. Housing costs were also an important factor in the gains by the consumer price index, which has steadily crept upward since February, when annual price growth was 4.7 percent.
Analysts stressed that the index would not slow down any time soon due to several factors, including a new value-added tax on heating and an increase in transportation costs.
"The extensive rise might hold back an increase in prices of other goods but certainly not to any significant extent, because employment and wages keep growing as before," Maris Lauri, an analyst with Hansabank Markets, said. Hansabank Markets has forecast a price rise of 5.1 - 5.2 percent on average this year 's provided the world market price of oil remains stable.
But 2008 promises to put added pressure on the consumer price index. The government recently adopted measures to increase the excise tax on cigarettes, alcohol and gasoline in 2008, the retail price of which will on average increase 30 percent, a Finance Ministry report stated last week. The government has also decided to increase the minimal exclusion on taxable income to 3,000 kroons (192 euros) and decrease the income tax level to 18 percent over the years 2008 - 2011.
On July 6 the center-right government approved a series of measures to harmonize the country's tax laws with those of the European Union, in particular involving the parent-subsidiary directive.
Re-invested corporate profits will remain tax-exempt, Finance Minister Ivari Padar told journalists, while Estonian tax authorities will stop levying the capital-gains tax at the time of distribution of profit and instead switch to taxation on an annual basis.
"Corporate taxation in Estonia has always corresponded to the meaning of the parent-subsidiary directive, which is to avoid double taxation. But it is clear that our laws have to be uniformly understandable to everyone," Padar said.
He noted that it would also be expedient to introduce the obligation of advance tax payments if the abovementioned payments exceed a certain sum. The Finance Ministry has submitted for consideration four different corporate taxation models to the government.
