"No party will hinder growth, but the economy probably would not grow as fast as it could with leftist parties in a coalition government," said Marek Lepamets, a macroeconomic analyst with Uhispank.
The leftist Center Party, led by Edgar Savisaar, an ex-Communist who served as leader of the Estonian Supreme Soviet during the last years of U.S.S.R., captured the most votes of any party during elections held March 7. With the support of 24 percent of voters, the Center Party has 28 seats in the 101 seat Estonian Parliament.
To lead the next government, Savisaar needs to stitch together a coalition of other like-minded parties. The task will not be easy. Even with the support of all other left parties, a Center Party coalition government would still be two seats short of a majority.
Traditionally the party that captures the most votes is invited by the president to form the country's next government. But this is not a requirement of the Estonian constitution, and President Lennart Meri has made it known during the election campaign that he is not a Savisaar supporter.
The business community hopes Meri will ignore tradition and invite a more market-friendly party to lead Estonia's third post-independence government.
The Center Party platform calls for greater state intervention in the economy and wants Estonian trade to be balanced between Russia and the European Union in order to take advantage of the country's geographical position.
Some predict this talk of greater state intervention in the economy would put an end to the boom in foreign investment that has fueled Estonia's growth rate and won the country praise from the EU last year.
"A leftist government could increase foreign investors' readiness to take profit out of the country," said Maris Lauri, an analyst with Hansapank. "And some investments may not come at all."
Before the collapse of the ruble last August, Estonia's GDP was growing at nearly 10 percent and stock prices were rising. But since August stock prices have slumped on the Tallinn exchange as investors around the world have cooled to emerging markets.
Analysts like Lepamets are not confident a Center Party led government would do much to woo investors back to Estonia and encourage growth.
"Savisaar will not give as many advantages to businesses. In the long term this could be bad for investments," he said.
Still, other investment analysts see reason for optimism in Saavisaar's commitment to a stable kroon. The Center Party wants to see the Estonian currency pegged to the euro as soon as possible, but it wants this done without changing the current exchange rate. Since 1991, the kroon has been fixed at eight per German mark.
"No party has said the kroon should be devalued and that is the only major factor with capital markets which would push investors away," Maivi Hanson of Hansapank's interest rate kroon department told the Reuters news agency.
What is most worrying to entrepreneurs about Savisaar are his plans to completely overhaul the country's up till now simple tax system. Since the early '90s both corporate profits and personal incomes have been taxed at the flat rate of 26 percent.
But the main plank in the Center Party's platform was a proposal to introduce a progressive rate for personal income tax in the year 2000. Under this system people who earn more would pay a higher rate of taxation, while lower income earners would pay less.
"The business community feels the current tax policy is very good, very simple and very transparent," said Andrus Saar, head of the Saar Social Research firm. "They do not like the progressive tax proposal. It will make calculations more difficult, entrepreneurs fear they will be under pressure to make some employees' incomes seem smaller so they can pay a lower rate of tax."
Estonia's simple corporate tax system has been appealing to foreign investors.
"Foreign investors like the flat tax, it is easy for them to understand," said Arki Paagal of the Estonian Investment Agency.
But the Center Party would put an end to this simple system, according to the Estonian Chamber of Commerce, which issued a statement during the election campaign opposing any changes to the country's tax system.
"If the proposed changes to the tax law went through as they are now, the instability it would create for businesses would be great," said Reet Teder, a lawyer and tax expert with the Chamber of Commerce. "The best tax system is a stable system."
Aside from introducing progressive tax rates, the proposed tax legislation would change some accountancy rules. For instance, under the Center Party's tax plan, fixed assets and moveable assets, which are currently taxed and registered on accounting books separately, would in some cases be counted together.
"As the proposed law is written now, it is not clear exactly in what situations they would be counted together," Teder said. "It would be a big mess for businesses."
And under Savisaar's proposal, all tax revenue would go to the national government's coffers. Currently 70 percent of all tax revenues go to municipal governments with the rest allocated to the state budget. No mention is made of how municipalities would make up for their cash shortfall.
The party's tax proposal does not mention making any changes to the corporate flat tax on profits, but Teder said it leaves the door open for corporate incomes to be taxed at the personal income tax rate.
"The proposed law says that in some cases income of a legal entity [like a corporation] could be considered the income of a physical person. That means they could be taxed twice."
Savisaar argued during the election campaign that a graduated income tax system would lead to a redistribution of wealth and higher growth rates. But according to a study by the Alexis de Tocqueville Institution, a Washington based think-tank, countries with flat personal tax rates experienced higher growth rates than those with other tax policies.
Researchers from the think-tank examined the tax system of 86 countries and found that half of them had flat personal income tax policies such as the one currently in place in Estonia. Developing countries included in the study with a flat personal tax system grew at an average rate of 2.7 percent between 1972 and 1997, compared to just 0.7 for all developing nations during the same time period.
"An overhaul of the whole tax system should be done on economic and financial grounds, every detail should be very carefully considered for its impact on business and the economy," said Teder. "This tax proposal obviously did not do this, it was done solely for political reasons."
Even if Savisaar manages to put together a coalition, many doubt he will be able to get his proposed tax changes approved. Only three other parties support the creation of a progressive income tax rate. And only two of them, the Country Party and the United People's Party, received enough votes to gain some seats in the new Parliament.
"Since the new government will in any case be a coalition, the policy of no single party will dominate the general course of the government," said Ulo Parnits, head of the AS Mainor investment company.
His comments and those of Lauri were made to the Baltic News Service on March 6.
But Center Party officials insist they will not drop the tax plan in order to win the support of other parties in a coalition.
"The tax plan is one of our main ideas, we are not going to scrap it," said party Vice Chairman Peeter Kreitzberg on election night. "We could talk of establishing it later, in 2001 or 2002 but we will never give it up."
Most entrepreneurs, 30 percent according to a poll published by Aripaev, supported the Reform party that strongly opposes the creation of a progressive income tax and wants to eliminate all taxes on corporate profits.
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