Michal says Estonia is watching neighbours on fuel tax cuts

Estonian Prime Minister Kristen Michal said the government is closely monitoring fuel excise changes in neighbouring countries but stressed that the current price pressure stems from fuel supply problems linked to the crisis in the Strait of Hormuz. He took a more open stance on possible tax cuts than Finance Minister Jürgen Ligi, ERR reported.

Last week, organisations representing Estonia’s transport, logistics and fuel sectors urged the government to cut diesel excise immediately to the European Union minimum. They warned that a significant price gap with Latvia could send up to a third of Estonia’s diesel excise revenue abroad. Ligi has opposed a cut.

Michal said it was difficult to assess the effect of Latvia’s excise reduction while fuel prices in Latvia and Lithuania remained higher than in Estonia. If about half of Latvia’s tax cut is reflected in prices, he said, they could become similar to Estonia’s. He added that the government had already cancelled a planned excise increase.

Michal said changes to fuel prices would not alter the supply situation or developments in the Strait of Hormuz. He noted that Sweden’s right-wing government had cut excise and sought an exemption from the European Commission. The effects of fuel price increases across Europe could also be felt in public transport, gas prices and agriculture, he said. Any tax relief would have to be funded by cuts elsewhere, given the budget deficit and public debt.

Michal also addressed next year’s state budget, which provides less funding than expected for pay rises for teachers, rescue workers, police officers and cultural workers. He said the limits reflected the state’s financial capacity as it works to reduce the budget deficit.

The government had found funding to increase the wage bill by three percent across those four sectors, Michal said. How the money is distributed within each sector will be up to ministers and department heads.

He also pointed to large-scale public-sector job cuts, including at the Unemployment Insurance Fund and the Land and Spatial Planning Board. He said one fifth of the fund’s staff had been laid off and registered as jobseekers the following day, while the board had reduced its workforce by more than a fifth.