TALLINN — The wallets of Tallinn residents may be thinned by new taxes the city council is proposing to cover declining tax revenues.

Tallinn’s municipal government Tuesday proposed establishing a sales tax and boat tax in next year’s budget to increase the cash-strapped city’s income. Tax revenue is down due to a large percentage of jobless people and salary reductions of those still employed, both results of the economic crisis.

If passed the sales tax, which would take effect on July 1, and the boat tax would increase the city’s income by 1 percent and will bring in 160 million krooni (€10.2 million). Toomas Vitsut, chairman of the city council and member of the Center Party, says the city has already done all the possible cuts and revised the budget.

“We’ve cuts all fields by 10 to 15 percent except in the social area and the funds we pay for kindergarten. The national government’s opportunities for organizing its finances are largely greater than ours, and we have to use the chances we’ve got,” Vitsut told Baltic Reports.

Vitsut asserts that excise taxes have more effect on prices than the one percent sales tax would.

The proposal has its precedents. Tallinn Technical University Professor Sulev Mäeltsemees told  Baltic Reports that there are 15 municipalities where a sales tax was established in the 90s. Mäeltsemees points out that the national government reduced the income tax, which is the biggest income for counties and towns without shale quarries, by 0.5 percent this year. So the city has to fill the gap from somewhere, and one option is applying new taxes. Municipalities are allowed to apply eight taxes, and three has been established in Tallinn. Those are advertising, road and street closing taxes and parking fees.

Conservative opposition

The proposal is opposed by conservatives on the city council. Indrek Raudne, city council member of the Union of Pro Patria and Res Publica Party, insists that the city is living over its means and should review all its governing costs to become sustainable.

“Tallinn must go through all its costs and consider how to function more effectively, and it also has to cancel all the actions that city residents have no use for, such as funding the Tallinn television channel, producing borough newspapers, or building massive municipal buildings,“ Raudne told Baltic Reports.

Even when the economy was blooming the city’s budget was not in surplus and costs were covered by loans. Raudne lamented that even though the budget was drawn to seven billion krooni, city’s real income will stay at about 6.35 billion krooni (€405 million).

Estonia’s Taxpayers Union says the municipal government should look to public employee wage reductions instead of tax hikes to solve their budget woes.

“Local governments should review their salaries as the private sector has already done and new taxes should be the last solution,” Gaily Kuusik, an attorney for the Taxpayers Union told Baltic Reports.

However, since the Center Party and Social Democrats have the majority of council seats it’s likely the tax proposal will pass.