Ratas: State budget will run deficit rather than go down austerity route

The 2021 state budget will run a deficit and contain no major cuts, the government has announced after two days' discussion, ETV news show "Aktuaalne kaamera" (AK) reported Thursday evening. The talks have not yet led to anything concrete yet, however, though the state is projected to be running a deficit at least to 2024.

Following the meetings held at Sagadi manor in Lääne-Viru County, Prime Minister Jüri Ratas (Center) said that a balanced budget for 2021 would have required up to €2 billion in cuts to the health care and education sectors, as well as in defense and security.

"I think that the direction that has been chosen today - and we cannot say that only Estonia has chosen this; practically the whole world has chosen it, the EU has chosen it too - is to get the economy out of this very difficult crisis at the expense of credit. I think this is right," Ratas said.

Budget discussions traditionally take place at cabinet level through September, with a view to having a finalized budget bill at the end of the month. This is then debated and voted on at the Riigikogu, in time for its passing, amended or otherwise, before year end.

Bank of Estonia governor Madis Müller told AK that according to a Ministry of Finance forecast, the economy will decline by 5.5 per cent this year, then will start to grow next year, reaching pre-crisis levels by 2022. 

The state budget itself would still be in deficit in 2024, the ministry says, and the state's debt burden would to almost a third of GDP by that time.

Müller thinks balance should come earlier than that, however.

"If the forecast turns out to be accurate and the economy has recovered by 2022, then such additional expenditure would not be necessary, and the state could spend around as much as it takes in in the state budget in the form of tax and other revenues," he said.

Finance minister Martin Helme (EKRE) says that a mid-decade balance projection engenders smooth progress in the economy, adding it will take time to recover from the crisis sparked from the COVID-19 pandemic, and that public funds injected into the economy are necessary for this. Economic growth would reduce the public debt to GDP ration in any case, he said.

"If economic growth is even one percent higher, then in fact the same ten billion debt-to-GDP ratio will be significantly lower in a few years already. And for us, servicing this debt, repaying this debt is much easier," Helme said.

The cabinet is to continue discussing the state budget next Tuesday.


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Editor: Andrew Whyte

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