Kallas on continued salary support: State cannot do private sector's part

Reform Party chair Kaja Kallas
Reform Party chair Kaja Kallas Source: Siim Lõvi /ERR

Chairman of the opposition Reform Party Kaja Kallas tells ERR in an interview that she does not see the benefit in extending salary support instruments. She believes enterprise should be supported using targeted measures, such as Minister of Finance Martin Helme's (EKRE) tourism vouchers idea.

What should be the significance of the finance ministry's recent economic forecast in terms of next year's state budget?

The message should be that if they forecast growth to return, the state should not borrow and live beyond its means on this scale. If, on the one hand, they are trying to say that we need to borrow and make expenses because of the crisis, the forecast suggests there is no such deep crisis and that growth will return at 4 percent next year. In other words, hiking the loan burden by this much does not serve Estonia's long-term interests. We should not live beyond our means and expenses should match revenue.

Which parts of the state budget should be treated as priorities?

Priorities should definitely include infrastructure investments. I mean transport infrastructure and also broadband solutions. If people all over Estonia are forced to work or study from home, they cannot do so without a proper internet connection. We should definitely invest in IT and e-services to keep the e-state going.

Healthcare needs additional financing, as do more pressing issues in the social system and regarding support services.

Maintaining national defense spending is also vital, as well as research and development. All of it helps take Estonia forward. These are the investments we should pursue and that are eligible in terms of that loan.

In other words, we should find targeted investments in those fields that could be made using loan money?

Yes. Projects that need developing; things that have been postponed but could be done using loan money. Let's say you borrow to build a house. You can live in it and make monthly loan payments instead of building it brick by brick [over a long period of time].

However, we should not use loan money to finance current expenses.

We have seen more than a few European countries get stuck in such a vortex by making expensive election promises and using loan money to pay for them. Instead of telling the people that such a state or such expenses are beyond our capacity, they have just borrowed more, while the taxpayer is left with the debt at the end of the day.

If today, the public sector loan burden is €1,800 per every single resident, the government will hike it to €8,000 by 2024. That is a pretty stark reality.

What is your general opinion of the loan burden spike?

I believe we are being sent contradictory messages. On the one hand, the government is trying to tell us that we need to borrow because we are in a crisis. Now, the finance ministry's forecast says there is no crisis and that we will see solid growth next year. If they say that growth will come to 4 percent next year, there is no need to borrow this much. While if they want to say we're in a crisis, it is something the forecast should reflect. All of it raises a plethora of questions.

You have more than a few economic experts in your party. What is the Reform Party's two cents on the economic situation? Can you also see the crisis giving way to normal life again or should forecasts and business decisions count on a protracted recession?

We can proceed only based on Bank of Estonia and finance ministry data. Experts there have been thorough in their efforts. We have no reason to question the forecast at this time.

However, as put by the Bank of Estonia, even if the economy will return to growth, with the situation nowhere near as bad as what we feared in spring, there is still no need to live beyond our station. The state should improve its fiscal position, meaning simply that expenditure should not outweigh revenue. /…/ It's simple budgeting.

What measures should be used to support sectors that have been and will continue to be hit hardest, especially tourism? Minister of Social Affairs Tanel Kiik (Center) has said that he finds it insensible to retain blanket salary benefits and would like to see more targeted salary support measures. That tourism companies' desire to retain salary support until next spring is not expedient from the government's point of view.

First of all, this entire discussion demonstrates how state support makes no one happy. Those who receive support say it's not enough, while those who are not paid benefits say that those who are haven't earned it.

It is important to realize that the state's wallet holds tax money, while the latter primarily comes from value added by entrepreneurs, whether in the form of labor taxes or income tax. This revenue disappears if businesses are struggling. Paying out that very money creates injustice.

Our proposal in terms of the supplementary budget was to make more support available to the tourism sector because they were hit first and the hardest in this crisis, while it continues for them as tourism has not bounced back. However, simply picking up their tabs is not the solution either. It could be tied to certain steps on their part.

Perhaps one solution would be to have some kind of tourism vouchers, like what Lithuania did. So the money could be used in a way that would allow companies to remain active. That said, it is clear the state will not be able to compensate companies for lost revenue as support comes from the taxpayer's pocket that, contrary to popular belief, is not bottomless.

The tourism vouchers idea has also been proposed by Minister of Finance Martin Helme (EKRE).

Yes, I believe such solutions are more innovative than simply paying people and possibly creating a situation where they are locked down and are not looking for new ways of doing things. We could come up with other solutions for bringing entrepreneurs out of this vicious circle of support.

Thinking back in history, it was precisely the situation in the United Kingdom before Margaret Thatcher came to power that tourism bureaus and hair salons were owned by the state. That is not a place where we should ever be. Enterprise needs to be the estate of the private sector.

The state must offer support through infrastructure and services, but it cannot go into private business and do the private sector's work for it. That would definitely put us on the wrong path.

The economic forecast has also raised the issue of pensions. The pension index will be negative for next year. While pension cuts are prohibited by law, they will not automatically advance either, whereas the coalition has already suggested it is considering an extraordinary hike. Where does the Reform Party stand on this rather sensitive issue?

It would not be right to use loan money to hike pensions. It would constitute tricking pensioners as those loans would have to be repaid by their children.

If the government can find the necessary resources elsewhere, could pensions rise?

Pension hikes can come from indexation and the entire pension system needs to be sustainable in the long term. The best pension policy is a smart economic policy. If the finance ministry's forecast is correct, pensions will rise.

However, I believe that if the government really wants to do something here, it should start by exempting average pension from income tax. It makes no sense to hike pensions in the conditions of a crooked system where every hike increases the number of pensioners who must pay 20 percent in income tax.

How should the state strike a balance between keeping the economy going and the virus in check in what are constantly changing circumstances?

It is clear that we would not survive another lockdown like the one in spring, meaning that measures need to be targeted. Looking at the [coronavirus] infection rate, it has indeed grown.

That said, we cannot see severe cases growing by as much. Perhaps that will come later. However, targeted restrictions are the way to go. But there is a lot of uncertainty, numbers are allowed to grow without much action.

What bothers me is different treatment of people. That we don't have rules and decisions are made largely by feel. If a hippie camp of 40 people is told to disband over coronavirus concerns, while the president is allowed to host 1,200 people in the Kadriorg Palace Rose Garden, I find it is hypocritical and sends mixed signals.

What is permitted and what isn't? How the coronavirus could spread at certain events and not others? How are these decisions made?

Do you support the European Commission's proposal of hiking the travel restrictions case rate to 50 or how high should it be for Estonia?

The important thing is for the EU to be united. We need a common system for traveling in Europe, not countries each having their own system. I hope European countries can quickly agree here and we should definitely be present for the debate.

The case rate is one criterion, but looking at the figures in Estonia, we haven't really behaved accordingly it. It has become quite high now.


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Editor: Marcus Turovski

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