Finance minister: New growth does not mean cutbacks unnecessary

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Minister of Finance Keit Pentus-Rosimannus. Source: Priit Mürk/ERR

Minister of Finance Keit Pentus-Rosimannus (Reform Party) said that faster than expected growth in Q1 does not mean cuts aren't needed.

The Estonian GDP grew by 5.4 percent in the first quarter.

"The growth figure is definitely good news in the context of this year. Confirmation that Estonia's recovery from the crisis is faster than feared," Pentus-Rosimannus told ERR.

"As concerns the long-term view, a situation where tax revenue still falls short of what we spend in the conditions of rapid economic growth, the only thing that can save us is keeping expenses in check," she said.

Pentus-Rosimannus explained that the need to cut costs stems not from the healthcare crisis but rather expenses made during years of rapid growth. "This problem will not go away by itself. We need to go over our spending despite good news in terms of tax receipt and growth."

The minister said that expenses tied to population aging are also growing, while the number of taxpayers is falling.

"Hiking state spending in the conditions of economic growth basically equals putting out a fire using gasoline. Talking about investments, the result is adding to overheating, which we need to avoid in the state budget plans for the coming years. Overheating is the other extreme where we do not want to land upon exiting the crisis," the finance minister reasoned.

She said that caution is needed and was exercised when the fiscal strategy was first put together. "Rapid growth is forecast to endure in the coming years, and the automatic and natural reaction by a state is to critically go over additional expenses."

"We will bring our expenses back into accordance with our revenue. It is utterly unavoidable in the near future," she said.

"These problems that are more long-term, tied to recovering from deficit accumulated over years, population aging, number of taxpayers falling – they require a longer-term and confident approach and mean the state will have to get its spending in check and keep it there," Pentus-Rosimannus said.

Helme: A budget growing out of hand is not remedied by cutting a band

Chairman of the opposition Conservative People's Party (EKRE), Former Minister of Finance Martin Helme said that the first quarter's rapid growth serves as acknowledgment of the previous government's fiscal policy.

"The fact we have strong growth today is at least partially tied to the previous government's fiscal policy that livened up the economy and cushioned the blow. The same budget regarding which the government today is saying that we have piled up massive debt. In truth, what we did was right, which we can see today," Helme said.

If tax receipt is back on the pre-coronavirus level, fiscal deficit concerns aren't half as serious," Helme said. "This whole narrative of tax hikes or major cutbacks, there is no reason for such excitement," he added.

"Fighting heroic battles for an ill-considered cut of €60 million comes across as prominently foolish policy as it has no point. My logic has been that tax receipt and fiscal balance are good when growth is strong and the economy is doing well," Helme said.

The former finance minister said that while one can always find saving in the budget, it should be done intelligently.

"I do not understand whence this narrative that we find ourselves in a blind alley from which there is no escape," he said.

"If one feels the state budget is growing out of hand, you do not fix it by going after the armed forces band. Instead, you look at major public services that cost a colossal amount of money, such as free public transport and higher education.

Helme said there is an attempt to construct a grand narrative of how the budget is out of sorts and that hiking taxes is the only way out. "All this talk of the budget being perpetually and irreversibly in deficit. It works to lay the backdrop for new taxes or tax hikes," he said.

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Editor: Marcus Turovski

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