Estonian interior minister: Lowering VAT on food would boost economy

TALLINN - Lauri Läänemets, Estonia's interior minister and leader of the Social Democratic Party (SDE), a junior member of the government coalition, said that lowering the value-added tax (VAT) on food to 9 percent would stimulate Estonia’s economy.

Läänemets expressed frustration with social media posts by Finance Minister Jürgen Ligi, who criticized the Social Democrats' proposal to find ways to reduce food prices. Läänemets suggested that Ligi should calculate whether and how reducing the VAT on food from 22 percent to 9 percent would support economic growth.

"Each year, this change would leave an additional 100 to 200 million euros in people's pockets. This money would not go into savings accounts but would be spent. Domestic consumption accounts for nearly half of Estonia's GDP. Reducing the VAT on food can be compared to road construction programs implemented to stimulate the economy. That money also boosts the economy, but compared to food, which affects nearly everyone, road construction funds enter the economy more slowly, passing through only a few companies," he said.

Läänemets emphasized that Estonia urgently needs such calculations, especially after last week's government briefing on the potential impacts of possible US tariffs.

"These tariffs could reduce our economic growth by 0.5 to 1 percent. If investors decide to pause investments until there is more clarity about Trump's plans regarding Ukraine and his stance on Eastern Europe, that could further slow our growth," he said. "As a result, our expected modest growth might shrink to just a fraction above zero," he added.