Mart Laar: Estonia's Tax Increases Lead Down the Wrong Path

Former Prime Minister and historian Mart Laar compares the current Estonian economic policy debate to the crisis situation of autumn 1992, when Isamaa came to power facing a budget deficit and a stalled economy. Laar warns that tax increases are not a solution, pointing to Estonia's own historical experience.

Mart Laar writes that the current Estonian situation resembles the state the country found itself in during autumn 1992, when Isamaa came to power. At that time, the budget was plagued by a deep hole, there was not enough money even to heat Toompea Castle, and the economy could not get back on its feet.

History sends a clear signal

According to the former Prime Minister, Estonia has much to learn from its own experience, and that experience does not support the path of tax increases. Laar emphasises that in the early 1990s, Estonia deliberately chose a different direction: low taxes, liberal economic policy, and budget balance through structural reforms, not by increasing the tax burden.

In his view, the current Estonian political debates around tax increases are dangerous because they ignore what the country's own history teaches. Tax increases may temporarily plug the budget hole, but in the longer term they damage economic growth, entrepreneurship, and people's purchasing power.

Time to wake from rosy dreams

Laar uses the phrase "waking from rosy dreams", referring to the fact that some politicians seem to believe that tax increases will solve Estonia's budget problems painlessly. As a historian, he warns that such an approach is an illusion that reality will inevitably shatter.

In the former Prime Minister's view, the answer to Estonia's current challenges is similar to what worked three decades ago: budget discipline, maintaining the economy's competitiveness, and reforms that promote growth rather than hinder it.