The most painful part of the government's narrative is the claim that lower food VAT would not reach the consumer, because there are studies that supposedly show this clearly. In reality, no analysis of food VAT and the market situation has ever been carried out in Estonia, writes Rainer Rohtla.
The government's demagoguery on the subject of high food prices makes one's blood boil; you cannot just sit back and watch it happen. Let us talk about food VAT once more.
Most European countries operate with a far lower VAT rate on food than Estonia does. It cannot be that they are all foolish. Prime Minister Kristen Michal, exceptionally by international standards, raised VAT on food so high that he now, with the help of PR people, claims the cause is that Estonia supposedly has too much retail floor space, which determines prices, and that retailers are greedy and shovelling in profits.
Retail in Estonia has historically been one of the lower-profitability sectors, earning only around two percent profit, depending on the year. Retail profits have been declining in recent years, just as Estonians' purchasing power has been declining toward poverty.
This is unbelievable demagoguery from the government. Not to mention that the petition seeking a reduction in food VAT is heading toward 100,000 signatures. The topic is too important to allow any kind of deception, especially before elections.
Coop's retail chain's profit fell by more than 40 percent compared with 2024, because we have absorbed much of the price increases coming from producers ourselves, since Estonians are doing it tough and customers are price-sensitive. A profit margin of 1.6 percent and a VAT increase of two percent at the same time! And yet we did our best again this year to pass on as little as possible of the VAT increase that took effect in July to the consumer. Media surveys also show this, confirming once again that Coop, as the only cooperative retail chain in Estonia, really is socially responsible.
The most painful part of the government's narrative is the claim that lower food VAT would not reach the consumer, because there are studies that supposedly show this clearly. Minister of Finance Jürgen Ligi and other government members rely on the assertion, based on studies, that a VAT cut would not change prices and that retailers would keep the profit for themselves.
A specific enquiry to the Ministry of Finance showed that not a single study covering Estonian food VAT and the market situation has ever been carried out, and the narrative being created is extremely cynical and untrue.
What do those in power claim when they insist that a VAT cut would not reach the final price? Where is the debate, where is the competent argument? Sadly, those claims are full of empty space, and mud is being slung at entrepreneurs without including them or asking them anything.
Most representatives of Estonia's larger retail chains have publicly confirmed that they will pass a VAT cut through to consumers in full via prices. How do we get to a point where the Minister of Finance, instead of blaming entrepreneurs and people, finds common ground with them? Together, we can do far more.
In June, retail sales at grocery stores fell by another four percent. Annualised, that comes to around 160 million euros. The food VAT increase was forecast to bring in around 80 million euros for the state budget, but because consumption is depressed, the state is already losing close to 40 million euros against the planned amount this year. This shows that tax hikes do not fill the state coffers to the extent expected; the effect is in fact the opposite.
Estonia has a heap of large food chains and a number of smaller players besides. The market economy and competition are working full force in Estonian retail, and even the most pessimistic analyst confirms that.
The Prime Minister says that we have food prices that are too high because so much has been invested in retail floor space. As far as food retailers go, I dare say that the chains analyse every cost under a magnifying glass. Prices are still shaped by the market economy, by demand and competition. Any tax change has an immediate effect.
Article on ERR, 5 August 2025
Rainer Rohtla: the government relies on a big lie when talking about food VAT.