Thursday, March 27, 2008

Land Tax Considered Hilarious

Feel like Estonian politics has gotten boring again? That's about to change.

We're almost a year away from the Europarliament elections and a year and a half away from local ones, but it's starting up already.

I said last year that Savisaar was probably damaged beyond repair by his actions in the wake of the April riots; Reform and Isamaa would never let him live it down. It's a bit too early for them to drag out their biggest buckets of filth, but it is becoming increasingly clear that the government will do KERA no favours at all.

Alex has mentioned that property tax in Estonia is essentially zero. It's not really property tax; the property is taxed at the moment of purchase. This is land tax, something that is collected by the local council for administration purposes. (Most of the local council's budget comes from income tax, which is why the council is pretty much the only entity that gives two shits about the population register.) Alex pays 756 kroons a year on his farmland in Põltsamaa. I pay a proportional share of some tiny percentage of the assessed value of the land under my apartment building (the market value of the apartments is irrelevant), and it comes out to 22 kroons per year. Two dollars. I'm sure the postage, bank costs and administration overhead for the council are more than that sum.

There is a certain leeway in the land tax assessment for local councils. Each council can establish the size of the tax, between 0.1% and 2.5% of the assessed value. The rate in Tartu is 1%, and has been such since 2002; there is also compensation for pensioners who own plots up to 1000m2 (which is a decent chunk of land for a private residence).

The rate in Tallinn used to be 0.6%... but as of this year, it has grown to 1.5%. Retirees on a fixed income, who are now faced with a massive tax bill, are naturally livid, and the press is jumping on the story. This is where the Centrists' complete control of the Tallinn municipal government is coming to bite them in the ass, because there is no way for them to shift the blame. If Tartu (historically a Reform stronghold) and other towns can get by without raising land tax, it would be disingenuous for Savisaar to claim rising costs.

Predictably, the coalition parties are not rushing to the Centrists' aid. Harri Paabo, the chairman of the Tartu Homeowners Union, dismisses the issue as one irrelevant in the second largest city, and doesn't bother being too subtle about it: "The land tax is not a heavy burden on Tartu homeowners because we don't have Edgar Savisaar for a mayor."

The national homeowners union and its international counterpart have responded by suggesting a waiver on land tax for homeowners to begin with. The point of land tax is that land is a finite resource, and should not be hogged. If you buy land and don't do anything useful with it - such as farming, construction or other development - it becomes too expensive. Under this logic, there is certainly a valid point to be made that homeowners are not misusing land; they are doing the best thing they can with it, given local zoning regulations and the good of society in general.

A homeowners tax waiver would have to be passed as a national law. The Finance Ministry (controlled by the Social Democrats, who ought to be protecting the interests of the pensioners) is stalling, saying they haven't really considered it - this was never an issue until the 2008 tax notifications started arriving in the last few weeks. The press then turned to the Prime Minister.

Ansip, in his typical style when annoyed by what he feels is a stupid question, was unsubtle to the point of being politically incorrect: It's your own fault, dumbass. The population of Tallinn elected Edgar Savisaar's party to the municipal government, and now it is reaping the benefits. Sure, the government could interfere and block the massive tax hike, but this is going to reflect poorly on Savisaar alone, and there's no way in Hell that the Reform or IRL are going near this mess. Even the prospect of getting to say "we made sure the land tax wouldn't rise" come election time is not appealing enough. No, the coalition wants people to get hit where it hurts - in the wallet - and to hate Savisaar for it.

From the safety of Tartu, this is going to be entertaining.

Bonus story: the domain names and have apparently been squatted by one Virgo Kruve, a Centrist party member who publishes the Pärnu municipal newsletter (Pärnu's mayor is KERA), the town's KERA propaganda sheet, and also owns the, .net, .org and .info domains (all of those lead to the party's official website). The Isamaa domains however are more naughty: one was redirecting to an anal porn website (and not the relatively innocuous landing page either, but to a full compliment of genitalia) and the other was a mock advertisement for a Tallinn brothel that got shut down a couple of years ago - though not before Isamaa's Jüri Mõis got caught there and had to resign from the position of Tallinn mayor.

When quizzed by Eesti Ekspress, Virgo Kruve commented that the redirects were social commentary on the state of Estonia under Isamaa leadership.

Like I say, entertaining.


AndresS said...

Why the sudden increase? Where has all of Tallinn's money gone?

antyx said...

Bloody good question. It's not communal services, or road repairs...

Maybe they're trying to stash some cash for the new train line and the massive Ülemiste junction project. Or, you know, to buy out more posh Old Town apartments with municipal funds and hand them over to loyal party members.

Anonymous said...

Land tax is a relic! We might as well also have a watered-down version of ius primae noctis where politicians are allowed to fondle people's brides or something.

Alex said...

Alex pays 756 kroons a year on his farmland in Põltsamaa.

Close, it's in Põlvamaa. :-) Mostly forest and a small field.

antyx said...

Alex: same difference.

Anonymouse: It's 22 kroons. Per year. I really couldn't give a flying fuck.

AndresS said...

From what I gather from your article Tallinn also charges income tax (something Toronto can't do much to many peoples chagrin). If that is the case why not raise income taxes a bit which would effect pensioners less and maybe go over a bit better with KERAs base? Or do they not have any control over that?

Again, I think the real issue here is why is the big increase necessary?

antyx said...

Income tax is national, local councils have no control over its rate - they just get part of the tax revenue.

You're right, it is the big question, I just don't really have a good answer.

Alex said...

Alex: same difference.

I suppose those that never venture far from Tartu or Tallinn may get that impression.

Estonia in World Media (Rus) said...

I can't agree with the idea that your flat's market value is irrelevant. The tax is levied according to the land value, which is periodically reviewed and is based on the prices of property transactions in the previous period. So your appartement's value is relevant, though it will affect the tax once sold and with a delay, perhaps significant delay. Of course, one appartement's price isn't going to affect the tax significantly, but the general idea is clear.

Kristopher said...

Both are "genuine and good".

If I were looking for farmland, old-growth forest and river dells, I would probably head to Põlvamaa.

You guys may be into this land tax issue, but I am lobbying for administrative reform -- the creation of two additional counties, Märja County and Põltsa County.


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