Estonia is one of the three Baltic states that suffered a severe recession and is now rebounding in recovery. Like Ireland they are a small nation (population 1.33m), like Ireland they have a chip on their shoulder from a big formerly occupying neighbor. Like Ireland they saw their future with Europe and joined the Euro. Like Ireland they had a property boom and a property crash. Like Ireland they implemented harsh austerity and unemployment rose to 19%. The following graph shows the hideous fall and unlike Ireland their rebound in GDP.
In Estonia’s favor they are a very open economy with rich neighbors and unlike Ireland they are very IT friendly. All interaction with the state is via the net and very easy. Unlike Ireland they had no banking bailout, and as for the property boom and crash that they had ended up with; it was a lot of foreign rather than domestic fingers burnt (disclaimer: including my own). The also have a very simple flat tax rate of 20%. Capital gains, corporate, income, vat etc its all 20%. corporations can claim a 0% rate on profits reinvested in Estonia. The country is now rebounding with gusto.
All property there is valued on price per square meter and you can break it down by area and property type. The following website is their version of a property price database and is worth a perusal:
Below is an example of the price per square meter of flats in the capital Tallinn (the names below Tallinn on the right are the respective districts of the small capital):
Estonia could deal with the crisis because they still competitive and weren’t shackled by debt (6% of GDP), while there was nowhere for us to turn once we were committed to taking on the losses of the banking sector (debt rose from 25% of GDP in 2008 to in excess of 100% now).
Unfortunately, because of scale, those two bar graphs don’t show the real extent of our problems.
Estonia really is the way countries should be run.
Flat rate of income tax of 22%.
Corporation tax of 0% until you take it out of the company (then at 22%)
Corporation tax of 0% until you take it out of the country (then at 22%)
In other words, companies can make money tax free, but the moment money is distributed for personal consumption it is subject to the universal 22%.
Gains = income, so no matter where income comes from (capital gains, dividends etc) the same rate applies - 22%.
The greatest thing about simple tax codes is that you eliminate loopholes.
Also of note has been the fact that many of the large banks in Estonia are not Estonian.
So the government was not called upon to bail anyone out (not that they would have anyway !).
We have, we have had cuts and new taxes amounting to about 15% of GNP.
The reality that government spending hasn’t decreased that much and taxes haven’t increased by much is simply a symptom of the dire state of the underlying economy.
I think a flat rate tax provides a big incentive to earn more.
The only discriminatory thing would be that the very poorly paid are probably worse off as a bigger portion of their income will be spent on VAT. Targeted VAT free items would eliminate this disadvantage.
But all this is a littel off topic, I wanted to hilight the Estonians House Price Database any one had a look? Comments?
Estonia cut hard while Ireland increased taxes & cut capital spending. The only spending that can grow your economy.
Labour and Fine Gael followed the path as FF & The Greens.
The choice in 2008 was to put it all on the long finger and have a drawn out but smoother recession or to hit the brakes immediately fix it and move on with life. A much sharper correction but a hell of alot quicker.
Just look at Japan. Thats our path minus the super industry Japan has.
i dont think all those tax consultants, lawyers and accountants would be too happy with a flat tax. no chance of it happening this side of the Apocalypse
Sorry I was being facetious and I know what your saying.
But would you agree that the kind of politicians that enact a transparent tax policy such as that of Estonia are less likely to purposely pass laws which provide loopholes ?
