Tax policy criticized

  • 2011-02-23
  • From wire reports

TALLINN - Several domestic and foreign economists believe that Estonia should not rule out the possibility to introduce progressive taxation reports Postimees. However, any reform should not be rushed through.
“Overall, a flat rate of individual income tax has no advantages in itself. It is also restricting the way the government can re-distribute tax revenues,” says Stuart Adam, an economist with the London-based Institute of Fiscal Studies, one of the leading tax researchers in Europe.

Adam said that the main attraction of a flat rate was that it is a simple tax system, but its main disadvantage is that it reduces the motivation to work and negatively affects economic growth.
Viktor Trasberg, a lecturer of economics at Tartu University, disagrees, and says that economic growth and social equality are not contrary to each other. Trasberg believes that progressive income tax helps the state to collect more revenue, while lowering the real tax burden, since low-income earners would pay less in tax.
He adds that progressive income tax could stabilize the economy, since when people’s income falls, more people would start paying less tax, and vice versa.

Bert Brys, a tax economist with the OECD, says that before Estonia considers progressive taxation, it should revise its tax exemption  rules. “Usually, the case is that the rich will get more benefit from various tax exemptions related to housing and pension saving costs,” he explains. Brys says that much depends on the values of the society, in other words, in how much people are ready to sacrifice economic growth for equality.