Chairman of the Social Democratic Party (SDE) Indrek Saar tells ERR in an interview that the state budget should prioritize support for digital and green technologies and investments that could help Estonia repay loans down the line. Saar is skeptical of the finance ministry's economic forecast.
Which fields should the state budget prioritize and how to use loan money in a way that would benefit Estonia in the long run?
First of all, we should have clarity in terms of the finance ministry's forecast. The press has found that Martin Helme doesn't always tell the whole truth and instead tends to distort facts. I hope that the messages he is communicating today are adequate, but we need to wait for the forecasts of independent institutions to know for sure. Looking at the forecast, it says that growth next year will basically cover this year's deficit, while if we then look at how much the government plans to borrow and over what time, there seems to be a logical error here. I would like to get to the bottom of this error before we start spending the money. However, it is entirely clear that the first priority in such a crisis is for the weakest members of society not to be caught in the gears. We need to ensure the subsistence of young job seekers, the elderly and people with special needs.
Talking about investments, we need to face the fact that the economy is changing rapidly in the modern world. Every such crisis alters the structure of the economy. Therefore, investments must land in fields that could really pull new growth in the near and far future. Investing in technologies or sectors that are inevitably half-way out the door is not sensible. The crisis needs to be capitalized on to carry out a rapid and fair digital and green turn as quickly as possible.
Do you perceive the government as investing in declining sectors and planning the state budget irrationally?
We saw it in the initial phase of the crisis when investments were made into fossil fuel technologies.
You mean the oil mill?
Precisely. However, also concerning support for specific companies, we can ask whether investing taxpayer money in new shopping centers is sustainable and sensible in what is a changing world. Rather, it seems like playing the lottery when we see that tourism is changing as are consumer habits.
Where should we invest?
The digital turn, green technologies. These are fields that are bound to grow and offer growth potential in the near future. Estonia could capitalize on the growth of these new technologies because if we invest there, we will be able to offer the world what it will need.
How could that manifest in the state budget?
Various major projects can be analyzed in terms of their sustainability. Another thing are the criteria adopted for livening up the economy. The problem of illegible criteria that we had toward the start of the crisis. Investments need to support and be aimed at digital and green turns.
Where could the state invest in the context of next year's budget to meet these criteria?
We have a series of renewable energy initiatives that could be supported. Talking about a digital turn, it is clear the state cannot do it alone. It requires criteria based on which the private sector could come up with initiatives. We need to be clear about our priorities.
Still, how would it manifest in the state budget?
Either in concrete support measures through Enterprise Estonia or KredEx or major investments aimed at larger renewable energy developments.
New support, new solutions that should be unveiled before the state budget is put together and communicated to the public and businesses?
Of course. How else could it happen?
What is your opinion of the situation in tourism and more specifically salary support? Minister of Social Affairs Tanel Kiik (Center) has said that simply paying people who work in the tourism sector is not sensible. How do you see it?
The first thing to consider is how to ensure the subsistence of people whose jobs will disappear, which is where the state will have to do everything in its power. The other side of it is that tourism is clearly changing. We saw considerably fewer foreign tourists this summer. It is very likely that not all tourism will recover even once the healthcare crisis ends for good. This means we need more analysis in terms of how to stop the state from impeding natural changes in economic structure or reversing them by paying for everything only to discover a few years later that we have fallen hopelessly behind.
Therefore, you pretty much agree with the social minister?
I agree with the principle, while I would still like to see the government propose specific solutions. As long as these solutions and support measures only concern a few select businessmen and criteria remain illegible, it is not something I can support. But we'll see what they will come up with. The tourism sector has been hit so hard that it definitely needs help. The question is how to do it in a sustainable fashion. But it is clear the state cannot become a tourism operator.
Minister of Finance Martin Helme (EKRE) has proposed the tourism vouchers idea as one possible solution. What is your opinion of that approach and the concrete idea?
It is one possibility. But we would need to be clear on it being a temporary and focused measure. Because otherwise we will have what I just described. If the state takes control over what kind of tourism people want over a longer period of time, it will upend all economic logic. It needs to matter to the private sector and the entire field needs to adjust to the situation without the state distorting the market over a long period.
The recent Ministry of Finance economic forecast sees the economic and coronavirus situation in a rather optimistic light. Do the Social Democrats have their own vision or analysis of the situation? How do you see the coronavirus crisis and economic situation developing in the coming months and years? Should we prepare for a protracted recession or a return to normalcy?
As I said earlier, based on what we've seen from the finance minister, we have no reason to blindly trust what he says. He is also a practitioner of forceful political management.
The forecast was put together by foreign ministry officials, analysts…
… based on political guidelines from the finance ministry. It includes an important controversy that I pointed out previously. If the forecast is for a modest recession and a quick recovery, why borrow so much for so long? That is the question I would like answered. We definitely need to wait for what independent institutions have to say, especially the Bank of Estonia.
The finance minister will tell you that interest rates are so low that it would be foolish not to borrow.
Even if interest rates are very low, loans need to be repaid eventually. /…/ While we could postpone it until it becomes the problem of future generations, I do not regard that as responsible behavior. We should try to repay our loans as quickly as possible. Of course, that does not mean it should be achieved at the cost of people's subsistence. /…/ We need to liven up the economy in a crisis, also using loan money, offer people a soft landing so to speak, but we must never forget the money is borrowed and needs to be repaid sooner or later.
Still, what about SDE's vision and analysis of the situation? How do the Social Democrats see the situation developing over the coming years? What should the state do here?
The state must make sure its people can cope with the crisis. And, on the other hand, invest in fields with potential so that the borrowed money that is invested would yield sufficient returns for repaying those loans.
What about the crisis? Do you believe the virus will stay with us for longer? What is your forecast for how the economy will develop over the coming months and years? Will the economy recover or should we brace for a longer recession?
You seem to want me to make predictions using a crystal ball so to speak, which is something no one can accurately do today. The healthcare situation in the near future depends on a lot of things. We do not know when we will have a vaccine. We do not know how quickly the virus is evolving or devolving. We can see the number of cases growing, but we do not know where it might end up. It is clear we must be cautious as a society and do our best not to help the virus spread. We must also be ready for the crisis to change the economy in the coming years.
The Social Democrats would rather adopt a more cautious, skeptical approach as concerns the ministry's forecast?
We would need another expert analysis to compare it to. Usually, you take several forecasts, compare them and see which one makes more sense. However, caution is in order as we do not know how seriously the virus will affect our lives in the near future.
Editor: Marcus Turovski