Estonian minister on coalition deal: Income tax hikes stifle the economy

TALLINN - Estonia's new minister of finance, Jürgen Ligi, acknowledged on the morning program of Kuku radio station on Monday that he doesn't like the income tax hike envisioned by the new coalition agreement.

"My bar would be higher, but I'm happy that the atmosphere is much better than it has been lately: some pretty unpleasant things were agreed upon that need to be done," Ligi said, commenting on the coalition deal.

"Not all of these are absolutely agreeable to me, including the way taxes are changed, which is not good for the economy. The issue is not with VAT, but with income tax of course, which stifles the economy. Interest groups can say what they want. It is bad. Our economy started to recover -- income tax directly hampers investments and projects. VAT meanwhile is rather neutral with regard to economic growth," he said.

While the tax issue is the biggest concern for Ligi, he is glad that pensions were not cut, because the situation of pensioners is poor. Ligi says that although there used to be talk about the austerity measures cutting into the indexation of pensions, one should not go and take away money from the weakest as a first thing.

Reflecting on his previous tenure as minister of finance from 2007 to 2014, Ligi noted that the government faced much tougher challenges during the economic crisis back then.

"The culture has changed so much that a task many times smaller is now much harder to accomplish, and only half of it gets done. Instead of a cut of 9 percent of GDP we will be doing 2.5 percent in the first year, and that will not bring us to balance, but will align us with the budgetary rules," he added.