Mart Laar, former prime minister of Estonia, said the flat tax model was used by countries wanting to achieve speedy economic development, but the model was not without consequences and special requirements.

Speaking on October 3 at a conference in Sofia entitled Second Decade of Growth: Risks and Opportunities, organised by Bulgarian weekly Kapital and German daily Handelsblatt in co-operation with Bulgaria's Confederation of Employers and Industrialists, Laar said the Estonian model had been successfully used by Georgia to achieve economic reforms.

The Estonian model consisted of radical reforms, in all spheres at once, he said, meaning radical tax reform, accompanied by health care and education reforms. These radical reforms did not lead to shocks, Laar said, they would just lead to speedier development.

However, he said, the model does cause a certain amount of public discontent because of the speed of changes.

A requirement for the Estonian model to function was a country's ability to absorb European structural funds, something which could only be done by a government which was not corrupt. This requirement was, under current circumstances, a problem for Bulgaria, Laar said.

An important step in the radical reforms and the fight against corruption had been the establishment of e-government in Estonia. E-government had achieved higher transparency, holding public officials accountable for every penny spent while giving citizens access to the decision making process. People could read proposed bills online and have a public debate about them, before the bill would go to parliament to be voted into law. This process resulted in fewer mistakes being made in new legislation.

Estonia's new problem had been its success. With its economy growing so fast, the need had arisen for new reforms. Where salaries before the reforms were at 50 per cent of European average salaries, they currently were at 70 per cent and cheap labour could no longer be found in the country.

The new structural reforms Estonia needed were of the kind suited to a country with high living standards, Laar said.

For Bulgaria, the introduction of a flat tax would be a challenge, but effects would be visible from the second year on and would always be tangible.

Another major challenge for Bulgaria was the current brain drain, Laar said, and Bulgaria would have to do everything possible to ensure a reversal of the process.