The time is ripe for the Estonian state budget to go into the red in order to keep the economy running, says finance minister Martin Helme (EKRE), in the wake of the coronavirus pandemic and its economic effects. Specific measures aimed at supporting companies in difficulty are to be unveiled by the government in the coming days, he added.
"Now is the time to go into the minus of the budget to keep the economy running. That is the logic which makes up the cornerstone of the current [emergency] package," Helme said at a press conference Tuesday.
Helme said at the conference, attending by banking sector leaders as well, that given that in previous years during strong economic growth, talk had been of how the country needs to build up reserves for any crisis period, it is now clear to all that these reserves should be drawn on to stimulate the economy.
Prime Minister Jüri Ratas (Center) said meanwhile that the coalition was developing solutions to aid Estonian firms and bolster the economy, to make future recovery as swift as possible.
Ratas promised the concrete measures would be announced mid-week or the second half of the week.
"The key for the state is to prevent a wave of corporate bankruptcies and to preserve people's jobs and wages. In my opinion, state support must be provided, so that companies can agree on periods of grace. We are ready to take steps via the state to provide a guarantee for loans as well as to support potential new loans," Ratas said.
The prime minister added that the government is planning measures in cooperation with credit organization Kredex, the unemployment fund (Töötukassa), the Tax and Customs Board (MTA) and other state agencies.
The Prime Minister also said that the state plans to take additional steps to temporarily provide compensation to people on sick leave, from the first day of illness.
Helme added that the MTA has received guidelines to develop solutions to keep companies in tax arrears out of the abyss. Banks have also talked about giving companies in distress a more lenient and longer loan period where needed.
According to the finance minister, the government's forthcoming package should help not only to meet existing obligations, but also aid companies that been effective so far but are now in difficulty, including by injecting additional money into them.
"There are a lot of different methods, but the role of the state here will be very active, working with the banks, through the Rural Development Foundation (Maaelu Arendamise SA) and Kredex," he said.
"We've been thinking about injecting extra money into businesses and helping companies with lost income meet their obligations to employees."
Helme added that there are various support measures available via the unemployment fund, because wages are the main outgoing for many businesses.
The goal is to distribute the severity of the economic shock more evenly, since letting some sectors go bankrupt will trigger a domino effect that will also be passed on to the real estate and banking cectors, making the situation even worse, he said.
"This is the logic with which we put together the economic recovery package, plus a number of additional proposals to breathe life into the economy," Helme said.
Bond issues would take month to month-and-a-half to set up
The 20th day businesses can submit their VAT returns to the tax office is coming soon, Helme noted. Helme said that all of this has to be done of course, but many companies have already given feedback that they are not really able to pay these taxes, meaning the MTA has developed guidelines on how to handle tax arrears, how long they can be delayed and what interest rate.
Helme noted the EU is also planning various support measures for Member States, but the details of these are not yet in place.
On the issue of government bonds, the Minister of Finance said that preparations had been made.
Bonds of up to 12 months can be issued very quickly, but longer-term bonds worth €1.8-1.9 billion euros are already subject to the approval of the Riigikogu.
"It takes a month to a month and a half to prepare for these bond sales so they are as successful as possible. All the preparation is under way and my plan is to set up short-term bonds first, to create a buffer for us as markets are very unpredictable, and then within days we have to look at when the measures proposed by the European Central Bank or the European Commission will come into operation, and whether we can use them to our advantage," he said.
As thing stand, Helme does not see any problem in getting a loan from the market at the moment, but the issue is to get it as cheaply as possible, and to consider for how long, be it for three, five or ten years, and the source of these loans. Once these things have been negotiated, a decision can also be made, he said.
Central Bank: Suspension of second pillar payments not a good plan
Madis Müller, Governor of the Bank of Estonia, who was also at the press conference, said that while he agrees with the Minister of Finance that in the current situation, state budget constraints must be viewed differently than in normal situations, and corporate bankruptcies and a rapid decline in people's income must be avoided, The suggestion of Isamaa leader Helir-Valdor Seeder to suspend payments to the so-called second pillar of pension, which Martin Helme also considers reasonable, is not a well-targeted and immediate measure.
The second pillar refers to employee contributions, which are being made optional under government's reforms in the area where they had previously been mandatory for most wage earners.
In the Bank of Estonia's view, the country's general support measures should be well-targeted, as immediate as possible and, of course, temporary.
"It has been said that the state should not make cuts in today's situation, but this (i.e. stopping second pillar contributions-ed.) would be a cut at the cost of future retirees."
"It seems that now is not the best time to stop investing for the long term. We do not consider this proposal to be the best way to meet these conditions," said Müller.
Martin Helme noted that second-pillar payments constituted large sums in effect going out of the state budget, but as at today there has been no decision to suspend them.
"There is simply the example of what was done ten years ago when the country had to manage its own cash flow."
"At that time this opportunity [of making the second pillar mandatory] was used and our approach is that we will keep all the options we need on the table with as open a mind as possible. If you ask if we are going to stop right away, there is no decision as of today," he said.
Editor: Andrew Whyte