Minister of Finance: Cuts would hinder Estonia's economic recovery

Martin Helme
Martin Helme Source: Siim Lõvi /ERR

The Estonian economy is coping better than anticipated in the spring, Minister of Finance Martin Helme (EKRE) said on Monday, and the government is not planning cuts as it would slow down the country's economic recovery.

In the spring, at the height of the emergency situation, several forecasts predicted Estonia's GDP would fall by between 10 and 14 percent this year. But the Ministry of Finance is summer forecast expects -5.6 percent and real growth -5.5 percent this year.

The forecast is based on the assumption that no new movement restrictions will be imposed and that the coronavirus will be under control in a year's time.

Helme said Estonia has done better than expected. However, according to him, the current forecasts are not very accurate. "Predicting in April or March what will happen in 2021 was…some numbers were put on paper [but] it was practically impossible. What can be said, calmly, is that the debt burden is lower than the forecast made in the spring, tax revenues are better, unemployment is lower," he said at a press conference.

"This is how the recovery will go in 2021, 2022, 2023 - I think that today's forecast for the next four years must still be taken with a very large margin. It is actually very difficult for us to predict where it will actually be," Helme said.

He said making budget cuts is unlikely and unreasonable because they would slow down the economic recovery.

"It seems to me that cutting is an over-fetishized subject at the moment. If we look at the size of the actual budget deficit, we are talking about an order of the magnitude of over a billion in the coming years. If we think for a moment about what should be cut in order to save at least half a billion, it is obvious that training or mission expenses or NGO support do not add up to this figure," Helme said.

"The expenditure side of the state budget consists of two big chunks - it's pensions and health care. What is a little smaller is education and then there are local governments. I do not see, and I have not heard, that anyone has proposed to cut pensions, to start cutting health care. This is not the reality," he added.

Helme said these type of cuts would deepen the recession and remove the opportunity to exit the crisis faster. "Instead, we are still having a government discussion on what, and in what amount, to add to the economy in order to accelerate economic recovery and to improve Estonia's competitiveness," he said.

According to Helme, it is necessary to develop exports to support the economy. 

"Secondly, different research and feedback from the market show that we are hampered by the relatively high level of environmental and energy charges in the export sector compared to the Nordic countries," he said.

The Minister of Finance noted, that in the crisis, many workers in the service sector whose work has low added value will lose their jobs and these people should be directed to work with higher added value. 

Read more about the summer forecast here.

Last week, both Martin Helme and Prime Minister Jüri Ratas (Center) said they did not support the principle of a balanced budget next year.

Helme said if the wish was to balance the state budget next year, it would mean making cuts totaling of a little less than a billion euros.

Speaking on Vikerraadio's program "Uudis +" on Friday Ratas said the world is experiencing a health and financial crisis which will leave Estonia and Europe in deficit. He does not support the goal of trying to balance Estonia's budget next year.

"Now, in order to strike a balance... it [would] take away money from education, health care, internal security, a path I certainly do not support," said the prime minister.

Ratas said everything must be done to get out of the crisis so that unemployment does not increase and employment remains as high as possible. He stressed the state must definitely pay attention to stimulating the economy.


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Editor: Helen Wright

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