Estonia’s three-party coalition government has reached agreement on tax changes, Prime Minister Kristen Michal announced, ERR reports. He said that the government would raise the corporate profit tax, personal income tax, and VAT to finance increased spending on defence. The government will raise the VAT rate by 2 percentage points as of 1 July 2025 and introduce additional 2% taxes on corporate profits and personal income in 2026. The corporate tax will be payable every quarter. Michal promised no new taxes until 2027.
At the same time, the government plans to cut public sector spending by around EUR 1bn over three years. All ministries and their subordinate organisations and state-owned companies will have to save 10% over three years, including 5% in 2025, 3% in 2026, and 2% in 2027. The cuts will not apply to pensions, internal security, police, defence, and teachers, however. The goal is to reduce the budget deficit to 3% of GDP in 2025. The government will present the draft budget to the parliament, the Riigikogu, on 26 September 2024.