Government endorses 2022-2025 state budget strategy

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A cabinet meeting in progress at the Stenbock House. Source: Stenbocki maja Flickr

The government has approved the state budget strategy for 2022-2025, after the two coalition parties, Reform and Center, reached agreement during negotiations this week.

Minister of Finance Keit Pentus-Rosimannus (Reform) said a week ago to the day that the state budget strategy's main aim for the four years is to support important reforms.

To that end, it has set aside €1.8 billion for the green transition and €340 million towards digital  transition, BNS reports.

In the period 2023 to 2025, government sector investments are set to rise to a record level, to at least €2 billion each year, Pentus-Rosimannus said.

The finance minister also said Wednesday that government ministries would have to cut expenditures by 5 percent, which will make a total saving of €60 million.

Prime minister: With crisis comes opportunity

Prime Minister Kaja Kallas said of the strategy that: "Each crisis offers an opportunity to also make major reforms, for which there is otherwise no impetus."

Among other things, she said, this means charting the activities of the state apparatus and cutting those functions that are duplicated.  

"The government envisages large-scale cost-saving in the areas of administration of all ministries and in constitutional institutions. From 2022 onwards, the cost-saving will amount to up to €61 million a year," Kallas said, quoting a slightly higher figure than the finance minister had said earlier. 

The previous administration had written into the previous state budget strategy nearly a billion euros' worth of what Kallas called empty cuts, which the current government had to take account of in the new strategy, the prime minister said.

The cost-saving measures will reduce fiscal deficit in each of the years covered by the strategy, the government says.

The structural balance in 2022 will improve by 2 percentage points, to 3.4 percent of gross domestic product (GDP), and also in subsequent years the structural deficit will decrease by at least the ratio of 0.5 percent of GDP per year as required under fiscal rules.

According to the state budget strategy, the structural deficit will contract faster than envisaged in the finance ministry's economic forecast. 

Kallas stressed at a press conference Thursday that fiscal balance is not a goal in its own right.

"State finances being in order will increase the resilience of our economy to potential future crises. Our recent ability to borrow very large amounts of money on favorable terms arose from the good rating of our state finances, the foundation for which was laid by our state finances having been in order earlier," Kallas said. 

Defense spending to remain at 2 percent of GDP

The premier said that Estonia's defense spending will remain at 2 percent of GDP, the notional minimum required for NATO member states.

Investments in research, development and innovation must stand at 1 percent of GDP in the current strategy (previous attempts have been made to raise it to 2 percent – ed.) and the strategy calls for a 3 percent wage rise for first responders, police personnel and teachers.

The total sum earmarked for teachers' wages next year is approximately €400 million.

Internal security workers stand to get an addition of €7 million to their payroll, BNS reports, while that of cultural workers and higher category sports coaches who are paid by the state will get an additional €2 million all told, Minister of Public Administration Jaak Aab said via a press release.

Average state pension to reach €622 per month

From 2023, the average pension will become tax-exempt, i.e. the basic tax exemption for recipients of the old-age pension will equate to the average old-age pension, Kallas said.

In 2023, the average pension will reach an estimated €622 a month. The impact of the measure on the state budget will be €79 million in 2023, €97 million in 2024 and €114 million in 2025.  

Extraordinary pension hikes are also set continue. In 2023, the basic portion of pension and the national pension will be raised by €20 in total. 

The government is also due to allocate a total of €413 million for the development of public transport in the next four years, focusing mainly on the network of bus lines, but also to ensure continuous air and ferry connections between the mainland and the islands, and support rail traffic.

In order to make transport greener and meet the climate goals, the electrification of the railway will continue, with the eventual aim of enabling travel between Tallinn and Tartu by electric train by the end of 2024. 

The government is about to allocate some €45 million for the development of tourism in 2022-2025, in order for Estonia to be an attractive destination for foreign visitors. Some €8 million will be allocated during the same period for increasing the volume of foreign investments.  

The WorkinEstonia program, which aims at attracting foreign specialists, stands to get around €6.5 million, while the national e-Residency program will get €27.8 million over the same period.

Environmental goals include €22 million wooden natural history museum building

A total of €22 million has been earmarked for the construction of a new environment and nature building, which will be constructed from wood in an effort to contribute to the achievement of climate goals, as well as adding value to local raw materials, BNS says.

This building will serve as home to the Estonian Museum of Natural History and units and institutions belonging the Ministry of the Environment in Tallinn.

Investments in cultural objects that have evolved as symbols of the nation will continue. In total €53 million has been earmarked for a full overhaul of the building of the Estonian National Library, which it the future will serve as home also to the National Archives. 

The construction of the Kääriku sports center in South Estonia will be completed via an additional allocation of €1.56 million.

To reduce logging pressure on state forests, the government's expectations concerning dividends from the state forest commission the RMK will be cut back, starting from 2022. 

The government says its decision-making priorities were a rapid exit from the COVID-19 pandemic, supporting public mental and physical health, financial sustainability, education and innovation, the green economy, foreign political activity, national defense, and reducing regional inequalities.

Each year's state budget is usually agreed at governmental level in the preceding fall, and is presented for voting at the Riigikogu with a view to passing before year end.

Tallinn City Government, and other regional municipalities, also draws their own budget and budget strategy.

This article was updated to include comments from the prime minister and to provide details on the breakdown of the state budget strategy.

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Editor: Andrew Whyte

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