Heat no longer cheap

TALLINN - Although thoughts of short, bitterly cold days and warm air
blasting through heating vents are happily pushed back in their minds
for now, soon enough Estonians will be hit with higher heating bills,
thanks to the value added tax.

The question being debated in Parliament now is whether the tax will
be 18 percent - a rate the Moderate faction feels is too high. It is
trying to soften the blow by supporting a bill to ease it back to 5
percent, which will be voted on in Parliament June 13.

The tax cannot totally be avoided, as the government promised the
International Monetary Fund to abolish the present zero-percent VAT
by July. However, the Finance Ministry has warned that if the VAT on
thermal energy is not raised by the full 18 percent as of July 1, a
100 million kroon ($6.13 million) hole will be left in the state
budget.

"We don't like taxes any more than anybody," explained Pro Patria
Union MP Mari Ann Kelam, "but somehow we have to balance the national
budget."

Kelam argued that there is "no free lunch" as far as heating goes,
and Estonians have a tradition of squandering - a bad habit leftover
from the "communal," tax-less days of the Soviet regime.

"People tend to not be valuing, but exploiting natural resources. The
tax will encourage people to become more economical," she said.

But there are wider ramifications. The Moderates faction fears the
nation's poor - namely residents of the depressed northeastern and
southern regions - will not be able to pay such a hefty tax.
According to the Moderates' press spokesman Olari Koppel, the
Ministry of Economic Affairs has "definite calculations" that with
heating prices raised by 18 percent, 10,000 to 12,000 people will
fall below the self-subsistence level, and will need to rely on extra
help from the state.

"It is a rather unclever thing to do, for the Estonian coalition
government to make the number of poor bigger. We have too many social
problems already," he said.

Koppel stressed that the consequences are not just social. He
explained that energy companies, strained because of increased
energy-saving by consumers, will be hard-pressed to pay back their
loans to the European Bank for Reconstruction and Development (EBRD).

Still, the 100 million kroon deficit must be covered, if the 5
percent tax is passed on Tuesday. The Moderates believe this won't be
a problem. It will partially be taken care of through money that
already had been set aside in the budget to compensate the needy had
the 18 percent tax been instated. The rest, Koppel said, should be
made up for by tax money, which he said there is more of than
originally planned.

"This is only a prognosis," he pointed out.

If the motion for the 5 percent tax is not passed on June13, the
government may start a procedure to draft a negative supplementary
budget for the current year, according to a Baltic News Service
report. Under a state budget general framework law, in force since
1999, the government must do this if legislation passed causes
reduced revenue.

Kelam maintained that a 5 percent tax would leave a shortfall too
enormous in the state budget, and that if necessary, programs to help
the poor can always be put into place. The actual amount of the
difference is not extraordinarily high - "not even 1,000 kroons [per
household]" - but, she acknowledged, every little bit hurts.

Koppel said the Moderate faction expects the bill to pass anyway, in
spite of the opposition.