The Estonian Finance Ministry predicts that the planned lowering of the personal income tax rate and increase in tax-exempt income will cause

The Estonian Finance Ministry predicts that the planned lowering of the personal income tax rate and increase in tax-exempt income will cause annual income tax revenues to decline by 1.35-3.97 billion kroons (EUR 86.26-253.67 mln) in the 2004-2007 period. The coalition agreement of Res Publica, the Reform Party and the People's Union for the 2003-2007 period stipulates that revenue intake after lowering of the income tax rate should not affect the income of local self-governments. Although the planned tax reform will reduce the state's annual revenue from the personal income tax by four billion kroons (EUR 256 mln) by 2007, the Estonian Finance Ministry doesn't see this as a gap, because no area will be directly threatened. Although strong domestic demand has supported the relatively rapid growth of the Estonian economy, the present level of the current account shortfall is very high and indicates increased vulnerability of the economy, the Finance Ministry finds. "We expect the current account gap to narrow in the second half of the year provided the anticipated recovery of economies of our principal trade partners gives a boost to our export growth," the ministry's analyst Erki Lohmuste said in a comment on the record current account deficit in the first quarter.