Estonia: New measure to fight in-work poverty

Parliament approves an annual tax refund for low-wage earners as a new measure to fight in-work poverty.

On 15 June, the parliament approved an annual income tax refund to low-wage earners. The goal of the new benefit scheme, which was included in the new government's coalition agreement, is to fight in-work poverty. The initiative aims to encourage people to accept jobs or stay in work even when the remuneration is low. The amount of the income tax refund will depend on the amount earned, the number of months worked and the structure of the income. The refund will be highest at a gross salary of €480; after that, it will begin to decrease and will reach zero at a gross salary of €649. The maximum benefit cannot be larger than the actual income tax paid in the previous year. The benefit is a lump sum and paid once a year. 

The parliament also approved a decrease in the rate of social tax from its current level of 33% to 32.5% as of 2017 and to 32% from 2018. At the same time, the general basic exemption will be raised over four years from €154 per month at present to €205 by 2019. This will shift the tax burden from the labour force to consumption, as the government plans to raise the excise duty on tobacco, alcohol and fuel in the coming years. 

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