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"How e-government can shape competitiveness", Ernst & Young T Magazine

© T Magazine


Interview by Dr. Paul Kielstra

Estonian President Toomas Hendrik Ilves talks to T Magazine about two key elements of his country’s competitiveness: the use of IT to create effective e-government infrastructure and the institution of a flat income tax.

T Magazine: In your experience, how does e-government affect the way that government functions?

President Ilves: The most fundamental benefit is transparency. We have been living with that for 15 years, but you forget how rare it is. I was at an UN General Assembly meeting, listening to various heads of state saying that they had put expenditure [data] online. But that is only the very beginning of e-government.

How does it affect the work of government officials? It has basically freed up a lot of civil servants. You don’t have people doing rote things that can be done by machines, which is important because our fundamental problem is our size.

In my work, I’m not a passive recipient of e-government. Outside of Northern Europe and the United States, people don’t necessarily understand at the level of head of state that e-government is about the way people operate, not the technology. People who do understand this are those currently in their 30s.

I’ve been using an Apple Computer since 1983. The government was paperless by 1999. It’s not a big deal. I have a Facebook page, but that is trite. Anyone can do that. E-government has nothing to do with people in government having computers. It means you do things completely differently. For example, our health records are all on line. You are defrocking the priesthood of the medical profession. The patient owns his own data in the marketplace.

It’s not just government, though, it’s more a matter of the attitude of society. For example, I’m shocked when I have to pay to use Wi-Fi. In Estonia, it’s just there. My daughter sees what her homework is on e-school. It is all very normal when you are living there.

For it to work, you must have a completely reliable ID system so that you can sign legal documents. The other thing you need is a decentralized data system, not just one big computer. You have access to everything as the citizen; police can access your police records; doctors can access your health records; but the tax authorities, say, cannot access your health records. You are the owner of the data. Another reason it works is that, basically people think it’s cool.

After nearly two decades of experience with the flat tax, what do you see as the benefits and drawbacks of such a system in practice?

The flat tax has been adopted by many countries. Some places it has worked, some it hasn’t. The real benefit is in compliance, which comes from having a very simple computer-based tax return. This is where we differ from all kinds of countries. Where there are complicated tax schemes, people don’t pay taxes.

There are not any major down sides. If you have a complex tax system and 37 million loopholes, so that you can make billions and still pay low taxes but the average guy pays whatever percent, then maybe the flat tax is more equitable than a progressive tax. An empirical study should be done. The problem is that many people like the idea of progressive taxes and soaking the rich, but it doesn’t really happen.

Estonia has a reputation for being one of the least corrupt countries in Eastern and Central Europe. How has your country been able to get a handle on this issue?

This is intimately related to e-government. It is the result of transparency. If you have e-tenders, for example, it is much harder to be corrupt. The only place where we have a corruption problem is at the level of local governance, where the national parliament can’t legislate transparency. How much transparency you have there is a local decision.

Preconceptions also need to change. The image has existed for 70 years about Eastern Europe, that its countries are poor, backward and corrupt. It’s time to get over it. Look at Estonia and look at some other European countries [and compare] the corruption levels, debt, and deficit spending.

Estonia adopted the Euro at the start of this year. Was this a case of bad timing or do the long-term benefits still outweigh the risks?

We’ll see what happens with the Euro zone, but for the short-term the benefit for us has been that it meant the re-establishment of investor confidence in Estonia. It is kind of like a Good Housekeeping Seal of Approval. [In particular,] it has eliminated the threat of devaluation, which was the biggest threat of all, a forced devaluation which would have wiped out people’s [savings].

What lessons does your country’s recent experience of adopting austerity measures hold for other states?

Do what you think is doable. One of the things we did have, which others might not, was the equivalent of 10% of GDP in our reserves. This is a big buffer and we didn’t have to go to the IMF. I don’t know how to tell people to save, other than to say “save”.

Also, the experience of life under the Soviet Union does make it easier. It is still in historical memory. Anyone over 25 in Estonia remembers the Soviet Union and how awful it was. Compared to that, [austerity] isn’t so bad.

Estonia recently dropped to 24th position from the 18th in the World Bank’s Doing Business Report. Was this fair?

They forgot to convert the currency. We have an open economy and are very dependent on exports. When reputable sources give stupid news, we suffer. You are about the 17th person who has asked me about that. The World Bank was completely irresponsible. Can you imagine if you did this in a company or a government?

* Editor’s note: World Bank miscalculations arose from not taking into account Estonia’s switch from the Kroon to the Euro, which led to an erroneous rise in the cost of construction permits. Estonia consequently dropped in the Report’s construction permits category from 37th last year to 89th this year. This was likely responsible for much of its overall drop.

Estonia and the Baltic region

* Estonia, located at the heart of the Baltic Sea region, has a modern market-based economy and one of the highest per capita income levels in Central Europe. With a population of 1.3 million, Estonia is the smallest of the Baltic states. The country joined the European Union in 2004. Today, it enjoys high levels of investment, financial freedom and property rights while the top income and corporate tax rates are relatively low, compared with other countries. Estonia managed to adhere to Maastricht’s strict deficit rules and joined the Eurozone on 1 January 2011. According to the Ernst & Young Eurozone Spring 2011 Forecast, Estonia will be the fastest-growing economy in the Eurozone over the next four years.


The year that Estonia’s government went paperless, en route to providing a range of e-government services to citizens.


According to the Index of Economic Freedom published by the Heritage Foundation in cooperation with Wall Street Journal, Estonia’s economy is rated as the 14th most free in 2011.

Original article here.
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