Aivar Kokk: The economy cannot be sacrificed on the altar of public health

Aivar Kokk
Aivar Kokk Source: Private collection

The spread of the coronavirus and the emergency situation in effect are testing our people's health and solidarity. It is an unprecedented stress test for our society. Just as a crisis situation reveals the true nature of people, it will demonstrate the Estonian economy's true capacity for managing and recovering from crises, Aivar Kokk writes.

The economy is not a marginal fringe topic in the crisis today, and all possible solutions must concentrate on the fate of the Estonian economy. Even if we manage to stop the coronavirus from spreading, the toll that success could take on human lives might prove much greater in the long term.

We remember how quickly unemployment went up in the previous economic crisis and left a lot of families with the choice of whether to pay for water and heating, make loan payments or buy dinner. If we sacrifice the Estonian economy on the altar of public health, the living standard of thousands of people will be the long-term consequence.

Based on this fact, we are working on a supplementary state budget support package and economic measures to help Estonian people and companies adjust to a short-term recession.

The aim of this package is simple – to retain as many jobs as possible and give companies enough temporary support to survive the crisis period. To avoid jobs disappearing, the state will compensate most of the salary of people working in sectors hit hardest by the crisis.

To ensure work continues in Estonian companies, the latter are offered temporary tax breaks, additional surety and extraordinary turnover capital loans through KredEx. This planned package of measures must be approved by the Riigikogu as soon as possible as we are already learning of layoffs.

State support must be as short as possible and as long as necessary

Unlike in the previous economic crisis, the government has decided to avoid cutting state budgets in the short term. That is why we will be financing crisis measures using reserves and loans. At the same time, such an approach is not sustainable in the long run.

No one knows how long the chaos caused by the coronavirus crisis in European and Estonian economy will endure. The Bank of Estonia estimates that a short crisis will result in a 6 percent recession, while the crisis lasting into fall would mean a contraction of 14 percent. This means that we must be prepared for a long-winded crisis and cannot afford to throw money around lightly.

State measures need to be closely monitored and care taken on a case-by-case basis to make sure every euro ends up where it is most useful. Every benefit puts additional strain on the taxpayer and it is not possible to live beyond one's means for long. The governing principle behind decisions is that state support needs to be as short as possible and as long as necessary.

Should the crisis last longer than anticipated, public sector expenses need to be reviewed. The same controversy manifests in all economic crises.

Private sector workers who create tax revenue for the state are always more vulnerable than their public sector counterparts in a crisis, with the latter usually retaining their job and income. The public sector must never forget to demonstrate solidarity in times like these. Falling tax revenue must translate into reduced expenses. That is why public costs will have to be critically revised after the initial support measures package is implemented.

This hides another controversy. While we need to cut running costs in the long run, we must also continue spending. People and private companies postpone planned investments in a crisis. This will in turn result in unemployment and falling turnover in sectors such as construction. The state must compensate for demand lost in this situation.

I see as one possible solution moving up state investments into an earlier period. Whether we're talking about support for local governments for road construction and other infrastructure investments or apartment building renovation investments. This latest crisis has also demonstrated how important it is to have high-quality broadband to make sure companies and agencies can continue working.

A good lesson must not be wasted, which is why we need to urgently boost so-called last mile investments. This would ensure Estonian homes have high-speed internet (at least 30 megabits per second) in the near future.

An excise duty cut would help companies and individuals recover from the crisis

The best way to help our companies recover from the crisis is to cut their costs. The aforementioned possibility of delaying taxes and salary support help postpone costs but do not lower them. That is why an excise duties cut is also on the table.

While it would mean less money for the state budget, lowering the duty on electricity, gas and diesel fuel would help companies and individuals cut costs to a notable degree. Especially as concerns major enterprises that pay most of the taxes in Estonia. By slashing the duties for a period of two years, we can help companies find the resources they need to exit the crisis faster.

The aforementioned and at times controversial steps are not an exact science. The key to their success lies in timing. Timely implementation of economic measures and fiscal planning requires an uncanny balance and constant dialogue between experts, entrepreneurs, workers and politicians. Only good cooperation can make sure the effects of the coronavirus crisis are short-term and render the Estonian economy capable of bouncing back quickly.


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Editor: Marcus Turovski

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