Cabinet agrees on reducing general government expenditure

Sketch of the so-called Superministry, which, if built, will house four ministries and help the state save on administrative costs. (Courtesy of State Real Estate Ltd)
5/4/2015 4:52 PM
Category: Politics

The Government has reached an agreement on reducing general government expenditure as part of its continued discussions on budget strategy and covering sources for the next four years, but is yet to decide anything regarding the increase of fuel excise duty and the tax incentives of accommodation establishments. The discussions will continue this week, Cabinet's press office reports.

The budget strategy for the next four years reflects the Government’s objectives, which are maintaining Estonian military defense expenses on a level of at least 2 percent of the GDP, increasing child benefits, decreasing labour-related taxes and increasing the efficiency of state management.

The Government reviewed all options for reducing general government expenditure and agreed on reducing the number of general government employees by 1 percent from 2016. The decision builds on the coalition agreement, according to which the decreasing of the general government must be in accordance with the demographic situation, and the size of the working age population. Reducing the administrative costs of the general government by a few percent is also on the agenda.

The Government has set itself the objective of keeping the 2016 state budget balanced in nominal terms and achieving a structural surplus of 0.6 percent in 2016, 0.2 percent in 2017 and 2018, and 0.6 percent in 2019.

According to the press office, the Cabinet gave serious thought to cancelling the much-debated fuel excise duty increase in 2019, but is yet to reach an agreement. The final position will be formed when the possibility of increasing alcohol and tobacco excise duty by an additional 5 percent in 2016 will be clear. For this reason, the Ministry of Finance will meet with sector representatives in the near future.

No decision with regards to the abolition of value added tax incentives for accommodation establishments was made either. The proposal of the Estonian Chamber of Commerce and Industry was discussed, according to which the VAT rate of accommodation establishments could be gradually increased in smaller steps, but whether and to which extent the entrepreneurs’ proposal can be met will be established will need further discussions.

M. Oll

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