TALLINN - Estonia's government failed to agree on Tuesday on ways to find almost 6 billion kroons ($499.1 million) of measures to close a yawning budget gap while the finance minister was quoted as backing a tax hike.
The centre-right coalition government was to hold another meeting on the cuts on Thursday. The government won an election in 2007, at the height of the small nation's economic boom, with promises to cut the rate of income tax.
After the discussion, Finance Minister Ivari Padar was quoted by the website of the state broadcaster as saying that there had been a substantial discussion.
"Because it is about complicated and difficult decisions, it is not possible to make them so quickly," he said.
He had earlier said he backed a rise in income tax from the current rate of 21 percent. A recession is now forcing Estonia to find austerity steps as it tries to keep the budget deficit low enough to qualify for euro entry in 2011.
"There are various proposals to raise the rate of income tax to 26 percent," Finance Minister Ivari Padar, a Social Democrat, was by national broadcaster ERR as saying.
The other two parties in the coalition are centre-right.
Padar said he would propose measures at the government position that would improve the budget balance by 5.4 billion kroons ($449.2 million) this year and by 13 billion kroons ($1.08 billion) in 2010.
The Internet site of daily newspaper Eesti Paevaleht also said Padar would propose a progressive income tax rate, for the first time since Estonia quit the former Soviet Union in 1991.
It said he would propose a 30 percent rate on incomes higher than 40,000 kroons ($3,000) a month. The Finance Ministry declined to comment on the report.
The extraordinary measures are necessary to keep a lid on the deficit as the economy is set to contract as much as 12.3 percent in 2009, according to a central bank forecast.
The government has set January 1, 2011 as its target date to join the euro zone, but it has to keep the budget deficit below 3 percent of gross domestic product (GDP).
Reporting by David Mardiste