They must be holier than we.
The Brussels Journal calls the tax revolution that began in Estonia “walking on water,” but it’s really just doing what your Grandma told you as she thwacked your noggin: “use your common sense, child.”
Here’s what happened: The Estonian Prime Minister in 1992 (who governed for three years and then came back in 1999 until 2002) was Mart Laar. Mr. Laar was not a poliltician. His area of study was Europe’s 19th century national movements. Not being an economist, and figuring he’d better learn something quick, he sat down and read Free to Choose by Milton Friedman. Seeing all these ideas about the benefits of privitization, the abolition of tariffs, the economic advantages of a flat tax was a real eye-opener for Mr. Laar. He also thought that these were reforms already in place in the West.
|It seemed common sense to me and, as I thought it had already been done everywhere, I simply introduced it in Estonia, despite warnings from Estonian economists that it could not be done. They said it was as impossible as walking on water. We did it: we just walked on the water because we did not know that it was impossible.”|
So in 1994, Estonia introduced the flat tax with a rate of 26%. What did they have to lose, after all? When Laar took over, Estonia’s inflation rate was over a thousand per cent. The economic growth rate was neagative thirty per cent, and the employment rate was thirty per cent and rising. The government owned just about everything, and virtually all Estonian trade was with Russia.
So how do things look now? We should be so lucky:
|Today, inflation is 2.5%, economic growth is between 6 and 7%, unemployment is low, the government budget is balanced and there is a high level of investment. Moreover, Estonia is leading the world in the field of e-government.|
And Estonia is not the only country with a flat tax and a thriving economy. The Brussels Journal lists Lithuania and Latvia, Russia, Serbia, Ukraine, Slovakia, Georgia and Romania as having implemented versions of the flat tax. They say Iraq is consdering such a move.
Meanwhile, Mart Laar has returned to writing history, this time about the anti-communist partisan fighters in the forests of Estonia. “They saved the soul of my country.” That may well be true, but Mr. Laar saved its bacon. And all it took was common sense.