Finance minister: We must move towards introducing a security tax | News

On Monday, Gen. Martin Herem said spending could rise from the current 3.2 percent to 5 percent of GDP for several years to buy €1.5 billion worth of ammunition. This would allow Estonia to destroy Russian infrastructure in the event of an attack, and push any battles away from Estonian soil. Ministry of Defense Permanent Secretary Kusti Salm said €1.5 billon is the minimum amount needed.

ERR asked politicians from all parties what they thought of Herem’s proposal.

Võrklaev told ERR tax changes would be needed to allocate 5 percent of GDP to defense. It is not possible with Estonia’s current system.

“Looking at the state of our state budget and the expenses we spend on national defense, broad-based security – internal security, Estonian-language education, the social sector – we need additional tax revenues. For this, it is reasonable and necessary to make a broad-based security tax. Of course, this tax base cannot be taken from anything other than existing or similar tax collection instruments. We do not plan to do this by 2025 because the economy is still recovering from 2026 onwards, I don’t think we can do it any other way,” the minister said.

The size of the tax would also need to be determined, he said, and highlighted the government’s new and unpopular car tax as an example.

“If we are talking about bringing in an extra €200 million or so in the budget, and we can see that society has accepted this with relative reluctance, then if we were now to say that we need to bring in €400 million on the basis of current calculations, and if we increase defense spending by a further 1.5 cents, we are talking about another €600 million. A billion in taxes would mean a five-fold car tax. This is what it would mean for society” Võrklaev said .

Läänemets: Herem’s proposal step in right direction

Minister of the Interior and Chairman of the Social Democratic Party (SDE) Lauri Läänemets said the party has not yet discussed raising defense spending to 5 percent.

“But I’ve been saying this to the coalition partners for the last six months: first of all, we need to get the national budget right. And then we have proposed this national defense tax. And secondly, we have said that now that GDP has fallen – 60 million next year – there will be a shortfall in money purely on the defense side, and that money will have to be found somewhere And I actually support that idea happens,” Läänemets said.

“I think Herem’s proposal is in the right direction. Whether exactly 5 percent or 4 percent or 4.5 percent and over what period of time is still open for discussion. And of course, as minister of the interior, I would say that one part of it has to be the protection of the population, because we have to protect people on the front line as well as in the rear,” he added.

ERR also asked Läänemets where the money would come from.

“The situation in Estonia is that 10 percent of Estonians own 60 percent of the assets. I think it is only fair to take it from where it is,” the minister replied.

Läänemets has publicly called for Estonia’s flat tax to be scrapped and replaced with a progressive income tax system. A recent poll shows 60 percent of respondents backed his idea.

Tsahkna: Defense capability is not only an Estonian issue

Chairman of Eesti 200 and Minister of Foreign Affairs Margus Tsahkna said joint decisions made by the European Union could help increase the country’s defense capability.

He highlighted defense bonds which are currently being discussed.

“This would mean issuing €100 billion of defense bonds at the EU level. And this is where we can invest even 10 percent, but alone, nominally, we are not able to defend this Europe. This is a shared responsibility of the Member States of the European Union, borne in particular by border countries like ours. This is something that the next Commission must do immediately. It would be a great relief for Estonia and the other countries in the region,” Tsahkna said.

Another suggestion is using Russia’s frozen assets. “This is giving aid to Ukraine, but it would also relieve a lot of the burden on the EU Member States,” he added.

Thirdly, Estonia must balance its budget as it is about to breach the EU’s deficit rules.

“What we are pushing for in Europe at the moment is to take defense investment out of the equation. The Estonian state does not have a problem today with liquidity, in other words, with the fact that we are not solvent, but we are simply out of balance today because of the budget situation, and we are going through a procedure. And now we’re pushing this issue in Europe that defense investment, not defense spending as a whole, but investment is being taken out of the equilibrium because we ‘re in a security crisis and we need to invest,” the minister said.

“If we put these three together, we would be able to significantly increase our capacity to invest in our own defenses without placing an additional burden on our society,” said Tsahkna.

ER asked Tsahkna what Estonia is doing to find the additional €1.5 billion.

“After all, we have taken a big step, we have increased defense spending from 2 percent to 3.2 percent. That is one step. The next step is to implement these proposals. But if society is willing to pay more, why not increase the percentage of defense spending still further? But just as a former defense minister, I say clearly that this will not solve the problem once and for all,” Tsahkna replied.

“The problem of defense capabilities is not only an Estonian issue, it needs a fundamental change, and that is that the European Union is prioritizing defense capabilities. These proposals are on the table and I predict that they will be supported,” he added.

Võrklaev: Defense bonds mean a loan

Minister of Finance Mart Võrklaev said Tsahkna’s vision means a significant increase in debt for Estonia.

“This issue of European defense bonds is of course important. It is an important measure to get the defense industry up and running quickly and to get ammunition. But, in the end, this defense bond is exactly the same debt that will have to be repaid sooner or later by the state, and the tax revenue of the states will continue to come from the taxpayer. In that sense, you cannot be fooled by it,” he said.

The minister said exceptions are only made for temporary investments and the increase in defense spending is not temporary.

“After all, the whole point of budgetary rules is to ensure that the state can cover its own expenditure. And if we go over the deficit, also regarding defense expenditure, we will borrow anyway, the interest rates on the loans will be high and this will again eat into our capacity to do other things. In terms of the budgetary situation and the tax burden, this is not the way out,” Võrklaev said.

He said Russia’s frozen assets should also be used to help Ukraine rebuild and defend the country, but Estonia’s defense capacity still needs to be increased with money from Estonia’s own economy, taxes and debt burden.

Reinsalu: National defense loan must be taken

Opposition party Isamaa Chairman Urmas Reinsalu said the government has not sufficiently considered Herem’s advice. He said Estonia does not have enough ammunition to meet NATO standards.

“Isamaa is convinced that this must be delivered. It is a one-off cost and to do this we must be prepared to take out a defense loan, which, according to the European Union’s budgetary rules, does not have to be included in the European Union’s current debt ratio,” Reinsalu said.

He does not think new taxes are needed.

“Resilience is important for us, and it is important in a way that meets minimum capabilities according to NATO standards. And today this is lacking. What has been done is a step in the right direction, but it is not enough,” he said .

Põlluaas: Herem should have noticed this earlier

EKRE vice-chairman Henn Põlluaas said the party would support taking out a loan. He said Herem has not paid enough attention to increasing defense capabilities, and now large-scale emergency expenditures have to be made.

“We have to find the money somewhere. Today’s proposal to increase defense spending to 5 percent on a temporary basis is perfectly adequate. But it would not have been necessary if Chief of Defense Staff Herem had paid attention to these things earlier,” the MP said.

“The right thing would be to take out a defense loan, because we don’t have time to wait. And we should have done it earlier. Back when all these interest rates were low,” he added.

Belobrovtsev: Emphasis must be placed on the economy

Vadim Belobrovtsev, a member of the Center Party faction, said he could not imagine where €1.5 billion could come from. The economy needs to be kept in focus.

“We all understand that the security situation is difficult, that Russia is a constant threat, but we also have to think about how the country is going to survive. We cannot keep putting all the money into defense, because you can keep putting money into defense indefinitely. But we have to make sure that we have a country to defend. And secondly, in addition to acquiring weapons and ammunition, it is also important to have a sense of defense,” said Belobrovtsev.

“When our country is put in a situation where basic things are not available and the services that the country provides are not of high quality, people start to think, why do I have to defend this country?” he said.

“Above all, we need to think about how we get out of this economic hole and revive the economy,” Belobrovtsev said.

He suggested Reform abandon its election pledge to remove the minimum tax threshold and added a bank tax could be considered,

Saks: Security expenditure must be viewed as a whole

Rainer Saks, a security expert who recently joined Parempoolsed, said the cost of security must be looked at as a whole, not just ammunition.

“I think that 5 percent is a very large contribution and it is very difficult to estimate what the next expenditure would be to maintain that level,” he said.

Saks said the government should decide on the optimal amount to spend in the current situation.

Estonia has more time, he said. “I don’t think anybody wants to take any risks here, but it seems to me that this talk of three or four years from now, that I don’t think it’s going to happen quite so soon,” said Saks.

“In fact, the more important thing is to look at the fact that we are not only fighting with ammunition for HIMARS or some kind of artillery, but we also need to look at whether we have enough air defenses, how we share the quantities with our allies and what the specific defense plans are. Just talking in the abstract about one of these amounts is not really appropriate,” the expert said.

If the cost mentioned by Herem is unavoidable, Saks said other state costs must be reduced.

“There is no other prescription. It’s a matter of taste whether to talk about tax increases, but I think that in Estonia there are plenty of expenditures that can theoretically be cut,” he said.

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