Raul Eamets, chief economist at Bigbank, says the economic forecast published by the Bank of Estonia on Tuesday numerically shows that the economic policy decisions made by the government will reduce the economic well-being of residents of Estonia in the coming years.
“The tax changes mean higher price increases, higher unemployment, lower economic growth and a fall in real wages in 2026,” Eamets said in a press release.
He said the projections by the central bank confirmed the same trends that forecasters have highlighted earlier.
“There is a bit more optimism about economic development this year, but a bit more pessimism about next year’s developments. While the central bank forecasts a 0.4 percent economic decline for this year, the Finance Ministry forecast a 1 percent decline. For next year, the central bank forecasts 1.9 percent economic growth, while the Finance Ministry’s forecast was 2.1 percent,” he said.
Eamets noted that there is a significant difference in inflation forecasts — the ministry’s estimate for next year’s inflation is 5 percent, while the central bank’s was 3.9 percent. Allegedly, this difference arises from the assessment of the impact of the vehicle tax. This is a new tax, and we don’t really know exactly how to assess the impact of this tax, the economist said.
“It is also true that the overall impact of tax changes on price increases is difficult to predict because it is highly likely that prices will be raised by more than the VAT increase. To what extent this will happen, or how much of the tax increase will be passed on to prices, cannot be measured with a simple formula. The reason is straightforward: in addition to the so-called mechanical price growth, the opportunity to adjust prices is always used when a legal window to do so is given,” he explained
Although the central bank stressed that there are limits to price rises in the retail sector, as more and more purchases will be made at foreign online stores, Eamets said that not all goods, let alone services, can be bought online.
“The central bank estimates that taxes will account for almost half of our price increases this year and next,” he added.
Source: BNS
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