TCS Daily


The Politics of Garlic

By Meelis Kitsing - May 4, 2005 12:00 AM

The otherwise messy world of Estonian politics enjoyed some clarity this April. Every Estonian taxpayer must pay one percent more personal income tax in 2006 and two percent more in 2007. This overhaul of an already scheduled tax decrease seems to be the real cost of Siim Kallas's position as a vice president and member of the European Commission.

While putting the blame for the tax hike on the shoulders of one politician may seem like a bit of a stretch, the deal-making that secured Kallas's position as Estonia's EU commissioner was at least partly the trigger for this sorry development. Two years ago Estonia's governing coalition of Res Publica, Reform Party and People's Party agreed to reduce Estonia's flat personal income tax rate of 26 percent to 20 percent by 2007. Instead of reducing the rate at once, the law adopted in 2003 phased out the changes for three years. This year the tax rate was reduced from 26 to 24 percent, the 22 percent rate was scheduled to take effect next year, with the rate of 20 percent being reached the year after next.

Last year, Kallas joined the Commission, thereby giving up his chairmanship of the Reform Party, the champion of the tax reform. In order to secure domestic political support for his new EU position, he promised Res Publica, a populist center-right party, that his liberal Reform Party would merge with Res Publica. The promise turned out to be no more than a hot air balloon when the Reform Party's new chairman, Andrus Ansip, called off the merger. This led to blood-letting between Res Publica and Reform Party: The prime minister, Juhan Parts of Res Publica, sacked the foreign minister, Kristiina Ojuland of Reform Party, for mishandling classified documents. Subsequently, Reform Party joined forces with the opposition and Parliament passed a vote of no-confidence for Res Publica's justice minister, Ken-Marti Vaher, for supposedly using Soviet-style policy measures. The 28-year-old minister's fault lay in assigning concrete figures to the expected number of corrupt officials to be prosecuted in the various regions of the country.

No wonder such a bloodbath led to the collapse of the government. In April, the Reform Party joined the center-left Center Party and the People's Party to form the new government, nicknamed by the Estonian media as the Garlic Coalition. The media struggled to characterize the new coalition as it represented a wide-ranging political agenda, with the only apparent unifying factor being their leading politicians' preference for garlic - negotiations for the new coalition were held in the Garlic Restaurant in medieval old town of Tallinn.

While garlic delicacies may not suit everyone's palate, the personal ambitions of Reform Party politicians certainly seem to have been realized - the former chairman has a top EU job, the new chairman happens to be the prime minister and many other politicos maintain their positions in government. However, the cost of the pungent deal is the overhaul of the scheduled tax reform. Supposedly, the 20 percent personal income tax rate will be reached by reducing the current 24 percent rate by one percent annually for the next four years instead of by two percent over the next two years. To Reform Party's credit, even this compromise may seem a considerable achievement considering that its new coalition partner, the Center Party, is the only Estonian political party to campaign for a progressive income tax. However, seeing the deal as an achievement overlooks the fact that the new coalition is in no position to secure a flat tax rate of 20 percent by 2009 instead of its original target of 2007. New general elections will be held in 2007, which at best makes for an uncertain promise, and at worst, an empty one.

As usual in politics the prospect of upcoming elections led the new government to promise other goodies to the electorate. Pensions and financial support for families with children will increase. The coalition agreement refers to the necessity of taking measures to protect equal competitiveness of Estonian companies, and foresees the establishment of state venture capital fund.

Of course, the triumph of redistributionism in Estonian politics is not just the result of the changing character of the Reform Party and its determined trampling on the very principles it stood for under its previous leader. Cancellation of the merger was also caused by the sad state of its former partner, Res Publica. In the last general elections Res Publica was a fresh political party (though founded around a political association with the same name which was established in 1989) that promised "new politics." Aggressive marketing with highly inflated promises led to impulse-voting that delivered 27 out of 101 seats to Res Publica and made it the largest party in the Estonian Parliament.

But as expected, the oversell was soon revealed. With the recent calamities under its belt, Res Publica could very well have difficulties in passing even the five percent threshold of the vote needed for gaining any seats in the Parliament in the next general elections. Naturally, the loss of Res Publica's credibility in the eyes of the electorate would not deliver any benefits for potential partners. Most importantly, the Reform Party no longer needs a merger to thwart competition in the center right of the political spectrum. Even if the negative externalities of delighting in garlic were to start playing in, the prospect of Res Publica's revival as a major political party is dim.

Ironically, another agricultural commodity -- sugar -- may reduce the unifying power of garlic in the new coalition and reduce its popularity among the electorate. Namely, Estonia is expected to have to pay a penalty of approximately €65 million to the EU (the final amount is not officially confirmed yet) for over-accumulation of primarily sugar but also milk powder and other agricultural products at the time of accession one year ago. The penalty is no small amount money -- Estonia's annual contribution to the EU is about equal to the penalty. As a point of comparison, Estonia received approximately €150 million last year from the EU cohesion and structural funds.

The penalty stems from the fact that Estonian sugar prices used to reflect world prices in these products. Joining the EU agricultural regime led to considerable price hikes. The price of sugar, for instance, increased up to three times. No wonder firms and people horded sugar and other products. As the EU agricultural regime cannot be changed by one country alone, Estonia tried to reduce the amount of money it had to pay to the EU for over-accumulation.

However, Estonia's position was considerably weakened in April, when it was revealed that the Ministry of Agriculture had failed to disclose proper statistics regarding the amount of over-accumulated sugar. Sugar accumulation on the part of the largest confectionary producer, Kalev, had not been included in the data. The fact that the agriculture minister, Ester Tuiksoo, comes from the People's Party, which is sponsored by Kalev's owner Oliver Kruuda, makes it look worse than a simple miscalculation. And of course, in true political fashion, the minister blames the free market policies that its center-right parties such Reform Party and Res Publica used to follow prior to accession. It is doubtful that any political party will emerge as winner in this on-going blame-game.

As the political business cycle reaches its zenith, garlic and sugar can be seen as more than useful symbols; they offer some substantive political predictions. Everybody knows that while garlic enhances many a dish it should not be the only seasoning used for preparing the dish. Furthermore, too much garlic can easily make the dish not only too pungent but, well, stinky besides; the smell the next day is proportional to the amount of garlic consumed. As far as sugar is concerned, even schoolchildren know that too much sugar makes for bad eating habits and tooth decay. The combination of garlic and sugar may not be appealing to many.

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