The state should consider the introduction of a reduced social tax rate as an incentive either under the existing system of no corporate income tax, in its place, or as an option available to businesses, President Kersti Kaljulaid said.
Kaljulaid said that in the past 30 years Estonia’s tax system had aimed at attracting capital investors. But the idea to “invite the money of other countries here, let them set up plants here so that our people could go to work” seems to be obsolete now, the president said.
“We need to offer more in the new sectors of the economy, in IT, support the development of these sectors,” Kaljulaid added.
The president also pointed out that Estonia was now among the countries where the average wage was EUR 1,300 or higher, and the median wage a four-digit figure in euros.
This puts the current system in question, where capital investment is supported above all else – namely wherever there is talk about a service economy, companies that take high risks, but whose initial investment is not necessarily great, Kaljulaid said.
But this kind of business requires a quality workforce, which in turn costs more.
“Imagine a company where wages make up over 70% of the operating costs. Perhaps we could have an incentive there instead?” Kaljulaid asked.
The idea that there is money coming in with which factories are built, and that Estonia is the sort of labor force for industries fitting into this model, that way of thinking needs to be reversed, Kaljulaid said.
The president sees Estonia approaching a point similar to that of Finland and Sweden in the early 1990s.
“We have to start looking for ways to design and think things here in Estonia, but manufacture them in another region. Fortunately there are regions with cheaper labor even within the EU,” Kaljulaid said.
She added that she saw political consensus to keep the Estonian labor market the way it had been in recent years – open to European Union citizens, ICT specialists, employees of start-ups, and the like.
“If there is consensus, and the people won’t allow industrial investments that would lead to the pollution of the environment, there is no other way than to put the emphasis on education and future technologies,” she added, hinting at the recently led debate surrounding a potential billion-euro investment in a new pulp mill in Tartu County that faced fierce popular and later also political opposition. (ERR/Business World Magazine)
