Social tax collection lower than expected

TALLINN - Estonia's new government could be forced to draw up a deficit budget if tax collection does not improve, analysts have warned.

Fears were also raised that the Ministry of Social Affairs would have to delay the payment of pensions if a solution to the social tax collection problem was not found.

Estonian newspaper Aripaev claimed tax collection for the first two months of this year was behind the budget plan by 400 million kroons ($29.6 million).

If collection doesn't improve, the budget shortfall could reach 1.5 billion by the end of the year, the newspaper wrote.

Experts have said the shortfall in the collection of social tax was due to a reform of social tax collection.

The reforms have meant social tax collection was carried out on a different day of the month and some companies had transferred pay days from the end of one month to the beginning of the next - delaying the payment of social tax by a month.

Lauri Leppik, adviser to the Ministry of Social Affairs, said, "Of course we are concerned with the fact that social tax revenues for the first two months have been below expectations but there are no implications to the payment of pensions, and according to forecasts made by the Finance Ministry, there will be none.

"Pensions, health and insurance systems have reserves, so there has been no delay to the payment of bills. The reason for concerns is that the size of reserves has been declining."

Minister of Social Affairs Tiiu Aro met outgoing Prime Minister Mart Siimann and a representative from the Finance Ministry to discuss the problem.

Leppik said he understood that the Finance Ministry would find resources to cover any shortfall.

Tax Board Director General Aivar Soerd said, "We had a problem with social tax because of the social tax reform. There is always a lower collection at the beginning of the year than in the second half of the year. Data from March shows the collection is increasing."

And he said it had been clear even before the reforms that it would be necessary to use the reserves. He said they had created special audits in the field of social tax to combat the problem.

"The problem is with VAT and excise tax. This could result from an economic decline where profits are lower, turnover is lower and imports are lower. With social tax there is not sufficient collection, but that is because of the reform."

The Prime Minister's spokesman reassured that pensions will be paid on time.

"The Finance Ministry has said the influence of the new social tax collection reform has been bigger than expected. It will not influence pensions and the problem is going away," the spokesman said.

"I think the nature of the problem is either that we are not getting enough money because of poor economic results or because this reform has delayed tax collections. We trust the finance minister who said it is because of the reform."

If tax collection did not improve in April the new government might have to accept the passage of a deficit budget, he added.

Mart Siimann's government was forced to trim 800 million kroons from its budget in November after it was rejected by Parliament for being over optimistic. The GDP growth estimate was lowered from 6 percent to 4 percent.

Heido Vitsur, economics adviser to Mart Siimann, said there could be three reasons for low tax collection: if imports and sales were lower than estimated, if inflation rates were not so high, and the reform in social tax collection.

"Pensions will not be paid late, the problem is not so severe. The reserves are lower but in March the Ministry of Social Affairs got enough to pay pensions. The first quarter is always the worst quarter of the year."