More for the Have-Nots: Estonian Leader Seeks Break With Legacy

(Bloomberg) -- Spend more on those with less and avoid the social fragmentation roiling the rest of Europe: That’s the Estonian prime minister’s final pitch heading into the last stretch of a tight election race.

Juri Ratas is preparing to accelerate a pivot away from low-tax policies the Baltic state has championed for most of the 27 years since the end of communism. At the same time, he vowed to continue work for a ”transparent and honest financial environment” following the 200 billion-euro ($226 billion) Danske Bank A/S money-laundering scandal that’s put his country under international scrutiny before the March parliamentary vote.

With Yellow Vest protesters denouncing French President Emmanuel Macron for kowtowing to the elite, and support for Brexit soaring in regions hit by years of U.K. government austerity, the 40-year-old father of four is advocating for a social-welfare model like that embraced by Estonia’s Scandinavian neighbors after he boosted tax benefits for low- and middle-income workers since taking power in 2016.

“The choice between forward or back to me means whether we build a cohesive society, one of solidarity,” Ratas, who’s managed to find wide support despite a Soviet-era divide between the Baltic state’s Estonian- and Russian-speaking populations, said in an interview in Tallinn on Friday. He denounced his rivals’ plans to undo his changes to the tax law as “benefiting the wealthiest.”

Population Growth

In an echo of the family-friendly policies pursued by the populist governments of Hungary and Poland, Ratas’s Center Party is vowing to speed up increases of pensions and handouts to parents to lure emigrants back home and prevent more from leaving. Those measures, along with robust wage growth, have helped the population of 1.3 million grow in three of the last four years, a rarity in a region depleted by low birth rates and people seeking better-paid jobs in richer EU states.

With the $30-billion economy hitting new peaks and unemployment near its lowest point since the global economic crisis, Ratas’s re-election bid has also been helped by other factors.

His non-confrontational style led him through a government crisis over a United Nations’ migration agreement last autumn. And early in his term, he debunked fears that his support from Russian speakers would prompt him to tilt the NATO member’s foreign policy toward Moscow and fall victim of internal feuds splintering his party.

Danske Scandal

Ratas said his government was taking the Danske scandal, Europe’s largest, “very seriously,” and he praised the performance of the country’s financial supervisor, which recently fell out with its Danish counterpart about each others’ roles. Last week, the European Banking Authority said it had taken note of the growing dispute over whether the Estonians or Danes were supposed to be monitoring Danske’s anti-money laundering defenses in Estonia.

“The picture internationally, where certain participants want to point the finger more at Estonia, isn’t right,” Ratas said. “It is a lesson about the need for better international cooperation, and on the other hand, that the surveillance and monitoring system must become stronger.”

The government “will proceed with an analysis” of the extent to which the laundering risks have affected Estonia, he said.

The Center Party is leading its main opposition rival, the Reform Party, according to an opinion poll published Monday. The latter is seeking a faster transition away from the parallel education systems in the Estonian and Russian languages -- a major issue in a country where more than a quarter of the population speaks Russian as its native tongue -- and income-tax changes. A backlash over alcohol-tariff hikes that have eroded budget income and tourism revenue has also helped the opposition.

“How cohesive Estonia’s 1.3 million people are is the foundation of a lot of issues,” Ratas said. “I don’t support any transition back to a tax system benefiting the wealthiest.”

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