Reforms needed, starting with labor market

TALLINN - The governor of the Bank of Estonia, Andres Lipstok, stated that Estonia needs to avoid further tax surges and make its labor market even more flexible than it currently is, reports National Broadcasting. Lipstok addressed the parliament on June 10, noting that the Bank of Estonia agrees with the government’s plan to achieve a budgetary surplus by 2013. According to him, this objective requires an improvement in the budgetary position by 8 billion kroons (512.8 million euros).
The central bank governor recommended avoiding an increase in taxes. “The tax rates that were raised last year and this year will probably place the revenue or the tax burden in a position where it is likely that an increase would start hindering economic growth,” he asserted. Lipstok explained that it seems rather more reasonable to look for options in how to decrease the tax burden on the labor force, one that was raised at a fast pace in 2009 and is an obstacle for creating new jobs.

Lipstok emphasized that in order to achieve sustainable economic growth, while avoiding inflation, additional structural reforms are needed. “In the current state, structural reforms could, for example, mean that the relatively flexible labor market is made even more flexible and the use of different flexible forms of work would be promoted,” he remarked.
The governor remarked that a problem for Estonia is social spending. “Expenses on different social benefits forms a big part of the budgetary spending; the amount of these has grown from the pre-crisis level of approximately 10 percent of GDP to nearly 15 percent by this year,” he said.

Reform of the tax structure could also help serve an effort to collect more of the taxes that are currently not paid.
CV Keskus conducted an Internet poll which showed that 29 percent of respondents received some or all of their wages ‘under the table.’ Nineteen percent of employees taking the survey stated that they get their wages without employers officially declaring them, and 10 percent get some of their pay in an unlawful manner.

Most of the respondents - 71 per cent - stated that they get their wages in an officially declared manner. The poll was taken by 1,874 respondents, of whom 60.2 percent were officially employed and 39.8 percent registered as unemployed.
“This was an online survey and these results cannot be used to calculate how much tax revenue is not collected by the state,” remarked CV Keskus Managing Director Paavo Heil. He noted, however, that the survey’s results still reflect to a certain degree the current state in some Estonian companies. In taking a similar poll in 2007, only 9 percent of individuals stated that they received officially undeclared wages.

“Despite the fact that businesspeople generally have a positive outlook on the future of the economy, there are still very many of those companies that have decided not to pay taxes, either in the name of survival or in order to earn bigger profits,” explained Heil.