Estonia must function uniformly throughout the country, people must be happy to live in every place in Estonia and in every local government. According to the Income Tax Act and the Social Welfare Act and the Income Tax Act Amendment Act under discussion in the Riigikogu, 8.3 million euros from the budget of the wealthiest local governments will be redistributed to municipalities with a smaller revenue base in order to fight for the survival of life outside wealthy estates and large cities. Unfortunately, 8.3 million euros is not an amount that would help small ones become big or bring more people where there are none now.
In the form of the bill, it is not a technical change, but a fundamental change in the financing of local governments, which does not solve regional political and fiscal problems in a wider sense. Therefore, the Board of the Union of Estonian Townships and Cities believes that the preparation of such a bill would require a more comprehensive analysis, starting from the identification of the reasons for the difficulties of municipalities to the assessment of the possible long-term impact of its implementation.
The 12.06 percent personal income tax rate received by local governments must not be reduced to 11.89 percent, but must be increased to a minimum of 12.29 percent (to reach the pre-2009 level). Contrary to the government’s opinion, local governments already do not have the money to repair the crumbling road network, carry out maintenance reform, support small schools and early childhood education. These are only some of the most pressing areas for which there is not enough money in all Estonian municipalities.
The impact of the planned changes to the VAT Act on local governments has been neglected when drafting the bill. Estonia’s inflation indicator is still one of the highest in Europe, and in addition to that, the municipal budget is being pressured by the skyrocketing interest rate approved by the European Central Bank. All the mentioned circumstances increase operational costs, which in turn can affect the co-financing ability of municipalities when applying for external funds.
It should also be borne in mind that the closure and bankruptcy of companies due to the change in the economic environment has reduced and continues to reduce the revenue base of local governments and increases social costs, and today’s unstable economic environment has made the situation unpredictable for all local governments, regardless of their size and location.
With the bill in question, we do not solve the substantive problem that arises from the lack of a well-thought-out regional policy. We would like to point out that larger cities-municipalities, with a younger population and a larger income base, already have problems meeting the requirements arising from the law in securing kindergarten places for their population.
After the coalition negotiations, the new government promised to deal with the whole package of the revenue base of municipalities, including municipalities. Now, however, we were in a situation where the draft was sent for coordination, but there was no time for substantive discussion, and the draft itself was made half-heartedly and hastily. The Union of Estonian Towns and Municipalities (ELVL) believes that coordination in the way it is done now is not inclusion, and it is not possible to do a meaningful analysis in such a short time.
We are of the common opinion that the concrete plan is to redistribute poverty, not to solve the main problem – continuous marginalization. The amounts that all Estonian local governments, not only municipalities with a shrinking revenue base, need for a reasonable life are many times larger. The state must not deal with appearances, regional policy must ensure a uniform standard of living throughout the country. The amounts that are given to municipalities with a smaller revenue base merely cover the future price increase of services and goods that the municipality consumes – large and meaningful investments are not made with a few hundred thousand euros.
The withdrawal of 8.3 million euros from 14 local governments worsens the availability of services in larger municipalities, as these are regions where the number of people is constantly growing and new investments are constantly needed. Distributing the 8.3 million to the remaining 65 local governments does not significantly improve anything, as it is distributed in small parts among very many.
The solution can only be to improve the financing of all local governments and to increase the share of income tax received by local governments. Therefore, the Union of Estonian Cities and Municipalities strongly recommends not to adopt the pending draft as a law as planned and to develop a sustainable plan in cooperation with the Union based on the proposals made by the Union earlier.
Mihail Kõlvart
Chairman of the Board of the Union of Estonian Cities and Townships
Urmas Klaas
Deputy Chairman of the Board of ELVL
Mihkel Juhkami
Deputy Chairman of the Board of ELVL
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