Revenge: government may freeze income tax transfers to City of Tallinn

29.12.2009, 16:42

Finance minister Jürgen Ligi says that if the City of Tallinn goes ahead with its plan to borrow 357 million kroons in 2010, the state may freeze income tax transfers to Tallinn.

Minister of economic affairs Juhan Parts  said at a government press conference today that the government may take strong measures such as freezing the income tax transfers to the City of Tallinn if the latter does not cut its borrowing plan.

"The laws have requirements including loan requirements. If they are not met, the government must have levers to sanction or motivate," said Parts in comment to the government's view on the city's borrowing spree.

By the Rural and Urban Municipality Budget Act, the loan burden of a local government cannot exceed 60% of its net income. However, if the City of Tallinn implements its borrowing plan in full volume, it would exceed the 60% limit.

Tallinn plans to borrow 357 million kroons in 2010 and pay back 233 million kroon. The net debt burden would be 124 million kroons.

Parts said that he hoped that the Social Democrats who are now on power in Tallinn City Council would help to solve the standoff. He added that it was regrettable that the relations between the government and Estonia's largest local government are so tense. "This is not normal if the state and Estonia's largest town cannot find agreement on long-term solutions," said Parts.