The Reform Party held a party council meeting over the weekend, setting a goal of winning 20 seats in parliament in next spring's Riigikogu elections. Host Arp Müller noted in his question that 20 seats would not be enough to win an election.
"You can get a strong team into parliament. I remember speaking with Siim Kallas a little while ago and his message was that even when times are difficult, populism is on the rise and the media often criticizes those in power rather indiscriminately, you still have to hold your head high and make sure there is a strong team in the next parliament. And a strong team means that our goal is to win 20 seats, which would give us a foundation to work from, remain a force in Estonian politics and defend what we believe in," Michal replied.
"Because the thing is, Social Democrats are not liberals, conservatives are neither Social Democrats nor liberals and liberals are neither Social Democrats nor conservatives. We are clearly a strong liberal party that stands for individual freedoms, economic freedoms and many other things and you can't get that anywhere else," he added.
'Scope for lowering income tax'
Asked whether the Reform Party plans to cut income tax during the next parliamentary term, Michal said there was scope to do so.
"We have already reduced the tax burden. Last year it was 36.2 percent and next year it will be 35.2 percent, so the tax burden is declining. We have cut income tax and we are cutting it this year. And I think it will be possible to do so in the next term as well, if we review how we do things. We will need to find ways to pay for it because my recommendation is to prioritize several things. First, defense spending must remain at 5 percent. Second, when it comes to the budget, we need to continue what we have been doing — reducing the deficit by half a percentage point a year. That will bring borrowing under control and should eventually start reducing it. At the same time, we can review public services or find other ways for the state to generate revenue, including through new technologies, whether by cutting costs or generating revenue from them. That would also create room to cut income tax," Michal said.
The prime minister declined to specify how large an income tax cut would realistically be possible.
"You'll have to wait a little longer and enjoy the suspense. It will take some time before the election platforms are unveiled, but perhaps I'll talk about it on the next show or the one after that," he said.
'Possibility to cancel next year's fuel excise hike'
Regarding a possible increase in fuel excise duty next May, Michal said it was important to consider developments in the global market more broadly.
"We don't know what fuel excise duties or fuel prices will be next spring. I've said this several times at government press conferences, but we're monitoring the situation quite regularly. At our last couple of Cabinet meetings, we've met with representatives of the Bank of Estonia, the Estonian Stockpiling Agency and the Ministry of Finance. Market participants, including Neste and Alexela, have also attended and shared their assessments of the situation. We're keeping a very close eye on the fuel market," Michal said.
"There are several factors we're monitoring. The first, and the state's main concern and responsibility, is ensuring that reserves are sufficient and security of supply is guaranteed. That means making sure there is enough fuel of every type, which is the responsibility of the Estonian Stockpiling Agency. Based on assurances from the agency's head, Ando Leppiman, I would say that our current reserves are sufficient to see us through," he noted.
"Why is this important? Because if we look at the current risks, the rise in fuel prices originated in the Strait of Hormuz, but now, according to market participants and experts, the bottleneck has shifted to refineries, which are unable to supply enough fuel to the market. We certainly need to ensure that any new disruptions do not lead to shortages of physical fuel supplies. Fortunately, at the moment, there appear to be no such shortages in any fuel category. The second thing we're monitoring is, of course, prices. When it comes to prices, we're looking at the potential risk of losing tax revenue to Latvia, for example. Latvia has repeatedly taken various measures concerning fuel and if we look at average pump prices, we're at virtually the same level. Generally, prices are higher in Latvia on one day, while occasionally it's the other way around and so on. We're fairly evenly matched. But if Latvia takes further steps next year, we'll certainly have to monitor the situation and make decisions about our own fuel excise duty rates accordingly. That's something we're assessing on an ongoing basis," Michal said.
Michal acknowledged that if the government planned to cancel next year's excise duty increase, it would have to take that into account when preparing the budget.
"But we certainly won't make that decision before next year because we don't currently know what fuel prices will be next year. How will the U.S. midterm elections turn out? What will happen next in the Strait of Hormuz? There is an enormous amount of uncertainty. What happens after that? Will fuel supplies recover? Will refineries be able to meet demand? Which direction will things go? We simply don't know yet. So we'll make our decisions accordingly. And I would remind you that this year when it became necessary and we in the government considered it appropriate to cancel the excise duty increases, we made that decision. We can do the same next year," Michal said.
Estonia's Rail Baltica cost sharing component could go up
Michal has previously said that delaying the Rail Baltica construction deadline would make the project cheaper for Estonia.
"When the infrastructure construction market isn't so overheated and overstretched, the cost per unit doesn't rise as much. If you inject a very large amount of money into a single market very quickly, each unit becomes more expensive. That's the first point. Second, from the Estonian state's financial perspective, if you can use more EU funding and other external financing for the project from the next budget period, which you otherwise wouldn't be able to use, you don't have to borrow money on behalf of taxpayers and pay interest on it later. So it's cheaper financially and cheaper in terms of construction costs — cheaper in both respects," Michal said.
However, Estonia's share of the project's costs could rise to 25 percent, with European Union funding covering the remaining 75 percent.
"Yes, the original plan, or the original approach, was an 85-15 split. The idea is that the European Union covers most of Rail Baltica's construction costs. I think the current split for Estonia is probably closer to 80-20, roughly speaking. And the European Commission's new proposal has been to reduce the EU co-financing rate to 75 percent. That would mean a ratio of about 75-25. That's what the debate is about," Michal said.
According to Michal, Estonia would still come out ahead even if it received less funding from the European Union.
"The benefit for us becomes clear when you compare it with completing construction by 2030. During the gap years in EU funding, we would have to contribute more of our own money. That would mean a substantial increase in Estonia's share of the costs, requiring us to borrow money and repay it with interest. On top of that, because we would be pouring so much money into the infrastructure construction market all at once, the cost per unit would also be higher. So spreading construction over a longer period means we can make greater use of EU funds, regardless of whether the co-financing rate is 75 or 80 percent at the time," Michal said.
"Even if it's 75 percent, that still brings money into Estonia's budget in any case," he added.
Passport functionality more important than color
Speaking about the Ministry of the Interior's plan to change the color of Estonian passports back to blue, Michal said he would discuss the matter with Taro on Thursday.
"That's a good question. We can certainly give it plenty of thought. There's a certain nostalgic appeal to blue and we've had blue passports before. But when you travel elsewhere in the world, border guards recognize the burgundy color as indicating an EU passport. In my view, what's far more important than either color is that, regardless of the color of the passport cover, it allows you to pass through all checkpoints electronically as quickly as possible. But to add a little good-natured discussion to the debate, why should it be blue? It might as well be blue, black and white, like the Estonian flag," Michal said.
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