Sunday, February 18, 2007

Estonica: Negative

Congratulations, ladies and gentlemen. We have arrived. With but a few short weeks left till the election, the Centrist Party has launched a negative campaign against the Reform Party.

As I've mentioned, Reform is the MBA party. They are behind the income tax reduction - down a percent every year until it's 20% - and one of their more tangible slogans so far has been that of Tax Free Friday. They propose to reduce tax to 18%, illustrating it with a somewhat silly TV ad about the manor lord coming to collect from peasants every day, except Friday when they all dance around and celebrate together. It's a very auto-ironical ad, which is why I was surprised to see a Keskerakond ad today, which showed people being denied various basic services - police, healthcare etc. - on Fridays. The packshot said that Reform's plan would reduce the budget, and reduce your salary. Cue the Keskerakond green, with the slogan of "Richer Country, Better Salary".

Now, the obvious issue is that Reform obviously knows about the economy and how to manage it; and even with ever-decreasing income tax, the national budget has swelled by some 130 million Euro per year in proficit. (By law, the Estonian budget has to be balanced. Any more money than they expected gets allocated as an auxiliary budget.) There may be a difference between 18% and 20%, but it was 23% last year and 26% a few years ago; and we've somehow managed to muddle through on even such a pittance. Whereas the Centrists advocate a progressive income tax system, which would raise taxes for upper-middle class and above, and... lower taxes for anyone else.

Now, if we can get away with lowering taxes for everyone - and there's every reason to believe we can - why should we increase taxes for people who work hard and do well for themselves? Estonia is way too young to have entrenched oligarchy. The part-owner of my IPO-ed company, an unassuming programmer person who happened to be in the right place at the right time, is worth billions at 29. (To be fair, he is apparently a really good programmer.)

But an even more interesting observation is the utter moral bankruptcy of Team Savisaar, which have been ravaged by a defeat in the presidential elections, failed to make enough of a mark in the Pronksmess, and are facing yet another lesser-evil coalition of Reform, IRL and Greens come March. I have to concede that Edgar's boys must have enormous balls to come out with this ad, but is this really what the biggest single player in Estonian politics has been reduced to?

Watch this space.


Giustino said...

I've been watching ETV, Kanal 2, Kanal 3, and I've so far been unswayed by the political advertising.

One thing I've noticed is that Eestimaa Rahvaliit is dumping money into TV advertising behind their poster boy, Rein Randvere, at the last minute.

The poll numbers tell me they must be pretty desperate.

antyx said...

Pretty much. Their high point was inevitably a result of Rüütel's presidency - despite no official affiliation, Rüütel was as much a Rahvaliit candidate as Ilves was an SDE candidate - and they're scrambling to get past the entry barrier.

Have you watched the PM candidate debates? They're being run on TV3 on Thursday nights. I caught the tail end of one, and it seemed quite interesting - top dogs actually asking each other hard questions.

Tom Godber said...

Higher government income from tax could go to two things:

1) Follow the European model of providing more for those people who have been left behind by the reforms and cannot find a place for themselves in the new capitalist society, eg. to avoid old people having to scavenge from bins in -20C to survive which is very much a reality for a segment of the population in Tartu, let alone outside the cities.

2) Put the additional cash aside for a rainy day, like Norway. This will definitely come - a balanced budget and low tax is very easy when you enjoy 10% growth, you've just had a few years of property boom etc, but it will rapidly become harder to sustain as prices rise to the same level as Western Europe and the many jobs which leverage the low cost of skilled workers here move to the next place with lower wages and equally skilled people. The same forces which allowed Estonia to be competeitivein a global knowledge economy can rapidly strip away many of those jobs, and only time will tell if there's enough left to maintain a profitable economy (I hope there is).

You'll notice that in general the people who say everyone should enjoy the same low taxation tend to be the people who don't need the services that taxation would pay for (yet), not the people searching through bins...

antyx said...

1) They are provided for, to an extent - yes, the government could probably do more, but even complete welfare states have homeless people. Granted, the homeless person I met in Helsinki was probably one of the cleanest homeless people in the universe.

2) Norway has the geography to establish industries. Its mountains and rivers give it massive amounts of cheap, eco-friendly electricity that they can use to build up an aluminium-producing industry with no significant local bauxite deposits. I admire Norway's behaviour, but I don't think there are opportunities for a self-sustaining industry with merely high entry costs in Estonia. Our key factors are location and knowledge, so we do transit & tourism, and hi-tech. I also disagree with the notion that the hi-tech work will disappear once we begin to reach Old Europe levels of living standards and salaries: there are already cheaper places than Estonia to hire code monkeys, the difference is that we can actually do a good, creative job of it. It's not like there aren't any software shops left in the UK, France or Germany!

As long as the government maintains a favourable taxation structure, there will be foreign investment. One of Reform's slogans for this election was to make Estonia one of Europe's five wealthiest countries within 15 years. To do this, we need to follow the model of Switzerland rather than Denmark.


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