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Books on Estonia
REPUBLICAN REFERENCE
Area (sq.km)
45,227
Population
1,408,556
Principal
ethnic groups
Estonians 63.9%
Russians 29%
Ukrainians 2.7%
Capital
Tallinn
Currency
Kroon
President
Arnold Rüütel
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Update No: 286 - (28/10/04)
The government is unpopular
Estonian Prime Minister Juhan Parts is considered the most inexperienced and
arrogant party leader in the Baltic country, which joined the European Union
this year, a recent poll showed. The head of Estonia's centre-right coalition
government was described as "inexperienced" by 34 per cent of the
1,000 people questioned in the poll published in Estonian daily Postimees.
Another 27 per cent said Parts, head of the governing rightist Res Publica
party, is "arrogantly looking down on the people" and 44 per cent said
he "remains too far from ordinary people," according to the survey by
polling agency Turu-Uuringute.
"Two years in politics is too short a time to become acquainted with the
people," Parts told the newspaper in response to the results of the poll.
The head of Estonia's biggest opposition Centre Party, the mayor of Tallinn
Edgar Savisaar was considered a "competent leader" by 51 per cent of
respondents. But Savisaar who was facing a vote of no confidence as mayor of
Tallinn, was also characterised by 32 per cent of respondents as
"dictatorial".
Estonia's ruling centre-right parties were left empty-handed in the country's
first election to the European parliament in June as opposition parties took all
six seats. It is very likely to give way at the next election to a coalition of
more leftish parties.
The star of 'new Europe'
Estonia is in a different category from all the other recent entrants to the EU,
that is 'new Europe.' It is not the richest of them. That is Slovenia. But it is
in many ways the most successful in having introduced market reforms that have
brought great problems elsewhere, although Estonia has its share of social
problems too.
One has to go back to the immediate aftermath of independence in 1991 to find
out why. Leading his coalition to election victory in the autumn of 1992, the
'golden boy' of Estonian politics, the then 32-year-old Mart Laar, formed a
youthful government to push through many of the most difficult 'shock therapy'
reforms, guided by an extremely liberal economic outlook. It is an irony that
the Estonians now distrust their present prime minister for his 'inexperience'
when their most successful one since independence was inevitably very
inexperienced, as were his ministers, many of them in their twenties.
The initial reform had actually been undertaken by the preceding government, the
creation of the Estonian kroon in June 1992, with advice from the Bundesbank. It
was the first post-Soviet currency to be independent of the rouble and was soon
a success.
In the absence of a mantra on how to transform a command economy into a free
market economy, Laar then had to rely on some basic fundamental economic
thoughts, such as the idea that lower taxes will lead to higher economic growth
and eventually higher public revenues. This idea had been around for some time
-- many centuries and probably even millennia. But it was reinvigorated not
earlier than in the seventies, when the American economist Arthur Laffer,
sitting in a restaurant and explaining to a friend the mechanism behind it,
depicted a graph on a napkin, which later became world-famous as the Laffer
curve.
Though modest tax reductions became fashionable in its wake, the idea had never
been put into practice in a radical way. It was Estonia, benefiting from the
readiness of the population to adopt radical solutions, which set the ball
rolling with a flat-rate 26 per cent income tax. The philosophy behind the
flat-rate tax is simple. People that work more and earn more should not be
punished for it. Progressive taxes act as a disincentive. In Estonia, the
flat-rate tax fostered capital formation, lead to higher productivity levels,
higher wages, and job creation. Moreover, a flat income tax rate is easy to
collect and control. Today Estonia is even considering a further reduction in
tax rate, to 20%.
Moreover, Estonia abolished all import tariffs, it introduced a balanced budget
required by law, massive deregulation and so on. Estonia also abolished its
corporate tax on reinvested profits. These lessons have subsequently been
eagerly absorbed in other new member states. Now Poland, Hungary and Latvia have
all cut corporation tax to below 20%. Slovakia has introduced a 19% flat tax for
both corporate and personal income; whereas, in the founding member states it
often exceeds 30 per cent. In Germany the rate is almost 40 per cent, and in
Sweden it ranges between 30 per cent and 60 per cent.
In its economic policy design Estonia has followed Milton Friedman's ideas of
liberalism. As Mart Laar stated: 'Especially in a transition country, where the
economy has to move from a fully government-controlled system to a market based
one, it is very important to free the private initiative and give freedom of
action to create economic value. The government must not punish entrepreneurial
people; it has to encourage them, also through the tax system. The government
must ensure the fair play only.
This is all a far cry from the thinking which seems to prevail in an number of
countries of 'old Europe'. Proposals to harmonize taxes invoke images of tax
cartels with minimum tax levels, squeezing the taxpayer and killing incentives.
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BANKING
Hansabank to open Tallinn offices
Estonia's largest banking group Hansabank will soon open two new branch offices
in Tallinn, New Europe reported recently. On September 13th the bank opened a
branch office in Kristiine Shopping Centre, one of the most popular shopping
malls in Tallinn. The bank will also open a second branch office in Tondiraba
shopping centre in Lasnamae, a large residential district. Priit Potisepp, head
of Hansabank's office network division, said that location for new offices was
chosen to enable customers to use bank services in connection with visiting the
shopping centre.
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ENERGY
Tallin, Vilnius to strengthen regional energy policies
Estonia and Lithuania plan to strengthen their energy policies and pursue
regional cooperation, Estonian President, Arnold Ruutel, said on October 4th in
Vilnius, where he was on a three-day official visit, Deutsche Presse-Agentur (dpa)
reported.
"We want to examine the possibilities of receiving gas supplies from
Norway," he said. The former Soviet republics currently depend on Russia
for supplies.
"Alternatives are necessary," Ruutel said. Also, as with other
infrastructure projects, we are trying to include the Scandinavian countries as
well as Poland. Ruutel's visit is the first official state visit to Lithuania by
a foreign head of state since June 2003 when former Lithuanian President,
Rolandas Paksas, was impeached on charges of corruption. Ruutel met with
political leaders of Estonia and made a trip to the military airport Zokniai
where Baltic air space is patrolled by NATO planes.
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INFORMATION TECHNOLOGY
Abobase Systems wins tender
Estonian IT solutions developer Abobase Systems won the government tender to
develop infrastructure for joint telephone number portability, New Europe
reported.
Abobase Systems was one of the 11 bidders for the tender under which the winner
will develop a joint database for enabling portability of fixed-line and mobile
telephone numbers. Since three bidders were not qualified by the tender
committee, eight bidders competed for the project. Six bids were shortlisted.
Number portability must be available in Estonia for fixed-line and mobile phone
numbers by January 1st, 2005. Abobase Systems employs currently 70 people. The
company's sales revenue was 5.9m Euro and net profit 505,000 Euro in 2003.
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