Estonian politician: country cannot grow prosperity through taxes or debt
Estonian politician Lauri Laats argues that Estonia can only achieve prosperity through sustainable economic growth, not by raising taxes or increasing borrowing, while warning about the rapidly rising national debt.
At a public finance debate held during the Opinion Festival in Paide, Estonian politician Lauri Laats argued that Estonia's economic challenges cannot be solved simply by raising taxes or cutting spending. Instead, he said, the country needs to find a path toward sustainable economic growth while halting the rapid rise in government debt.
Estonia's economy shrank by roughly 5.5 percent between the end of 2021 and the end of 2024. Growth resumed in 2025, but only reached about 0.5 percent, with around 2 percent or more forecast for this year. Laats stressed that what matters is not growth itself but its quality — whether it stems from exports, productivity and private investment, or merely from increased government spending and consumption.
Tax burden weighted toward consumption
According to Laats, Estonia's tax system relies heavily on consumption taxes, which make up about 39 percent of total tax revenue compared with an EU average of roughly 27 percent, while capital taxes account for only about 8.5 percent versus an EU average above 20 percent. In recent years VAT has risen from 20 to 24 percent, a motor vehicle tax has been introduced, and excise duties have increased. Laats noted his party has repeatedly proposed cutting VAT on staple foods, since higher consumption taxes disproportionately affect lower-income households.
As one possible remedy, he pointed to an additional tax on the banking sector, citing Latvia and Lithuania, where such taxes are already in place.
Debt rising faster than the economy
Estonia's general government debt grew from 8.6 percent of GDP in 2019 to 24.1 percent in 2025, and current forecasts suggest it could approach 40 percent by the end of the decade. Laats emphasized that the debt level itself remains low by European standards, but its pace of growth relative to weak economic growth is unsustainable.
He said defense spending, heading toward roughly 5 percent of GDP, should not be a target for cuts given the current security situation. Instead, he called for a review of the efficiency of the rest of the state budget and a clearer distinction between current spending and investment in infrastructure, energy security and research. Laats set a goal of reducing the budget deficit to around 1 percent by 2031, achieved through tax stability, less bureaucracy and stronger exports rather than new taxes.
