Reform Party proposes tax cuts for parents who took parental leave

Estonia’s Reform Party has proposed cutting income tax for parents who stayed home with a child during the parental benefit period, saying the measure would help offset the long-term loss of earnings. ERR reported the proposal.

Under the plan, the current 22 percent tax rate would fall by four percentage points for each child: to 18 percent for one child, 14 percent for two, 10 percent for three, six percent for four and two percent for five. For parents with six or more children, the rate would be zero. A parent earning the average wage would keep about 700 euros more per year for each child.

The tax relief could be used until a child turns 21 and would apply up to the current parental benefit cap. If both parents received parental benefit, the relief would be divided between them according to how much parental leave each took.

The proposal also guarantees a working parent who stayed home with a child during the parental benefit period an annual tax saving of at least 500 euros per child, to ensure lower-paid parents benefit.

“When starting and raising a family, long-term security is a key issue. We want the decision to have a child not to bring a long-term financial loss, but instead a clear financial gain,” said Henri Arras, one of the proposal’s authors and head of the Reform Party’s Tallinn district.

Economic Affairs and Industry Minister Liina Vahtras said caring for a child should not limit a parent’s opportunities in the labour market. She said the effects of staying home on income and career more often fall on women, deepening the gender income gap.

The proposal did not specify where the money to fund the plan would come from.