The market liberal reform party and Estonia 200 and the social democrats have reached an agreement on ministerial positions and the government program. The new government will both raise taxes and cut spending.
18:07•Updated 19:11
TALLINN Prime minister Kaja Kallasen led by the reform party won the parliamentary elections held at the beginning of March with an overwhelming 31.2 percent support.
So it gave up the way of the previous two governments to divide the ministerial positions equally among the government partners.
The Reform Party will get seven seats in the new government, Estonia 200 and the Social Democrats three each.
The Reform Party kept the positions of Minister of Finance, Minister of Justice, Minister of Defense, Minister of Social Affairs and Minister of Culture. The completely new climate minister also comes from the ranks of the Reform Party.
Estonia 200 is a newcomer to both the government and the Riigikogu of the Estonian Parliament. In the last election, its vote share fell below the five percent vote threshold. Now it got 14 seats in the 101-seat Riigikogu and the positions of Minister of Foreign Affairs, Minister of Education and Minister of Economic Affairs.
The future foreign minister Margus Tsakhna however, has had time to gather experience in the work of a minister. In 2015-2017, he was the chairman of IRL, the predecessor of the Fatherland Party, and served as both Minister of Social Affairs and Minister of Defense.
The chairman of the Social Democrats will continue as interior minister Lauri Läänemets. In addition, the party gets the positions of Minister of Health and Minister of Regions and Rural Affairs.
Chairman of the Estonia 200 party Lauri Hussar is not going to the government, but is becoming the speaker of the parliament.
Five of the thirteen ministers of the future government, or just over a third, are women.
Heavy tax increases, income taxation for middle income earners will be reduced
The most visible issue of the government program are the tax increases. Among other things, the increasing defense spending must be financed, Kaja Kallas justified the increases at the press conference.
Value added tax and income tax will be increased by two percentage points. In addition, a vehicle tax is planned for Estonia, which has not been collected before.
The tourism industry, on the other hand, is losing its reduced tax base, which portends an increase in hotel prices in 2025.
The program shows the handprint of both the market liberal government parties and the social democrats.
While many taxes are being increased, the completely tax-free income share of 700 euros in income taxation will also be extended to middle income earners. That is, their taxation becomes lighter.
On the other hand, the right to tax deduction for mortgage interest and tax deductions based on minor children will be removed.
The new government promises to cut government spending with a heavy hand. According to the government program, the state budget will be completely rebuilt from scratch.
In foreign and security policy, the new government continues along the lines of the previous government of Kaja Kallas, i.e. very pro-EU and NATO and supportive of Ukraine.
The government starting in the next few weeks is the first completely value-liberal government in Estonia’s history. For example, a gender-neutral marriage law has been agreed upon in government negotiations.
Correction on April 8 at 7:10 p.m.: Tax increases from percent to percentage points.