€60 million state budget cuts to be reviewed next month

State budget strategy 2022-2025 document.
State budget strategy 2022-2025 document. Source: ERR

Better-than-expected economic performance, and with it higher tax revenues, have raised questions whether spring's proposed cuts of €60 million to the state budget will go ahead unchanged. However, more will be known following the economic forecast published in September, and ahead of the state budget for 2022 itself, which must be finalized at the end of that month.

The issue also relates to political differences between the two coalition partners – Reform with its tendency towards austerity, compared with Center's lower enthusiasm for wielding the rapier of budget cuts.

Recent data says that this year's tax take has been higher than expected, and that the economic picture is better than earlier forecast.

This may alter the situation regarding the €60 million cuts forecast in spring.

Additionally, the regulations require the state budget to be agreed at cabinet level at the end of September, but a draft state budget also has to be drawn up in spring, alongside the state budget strategy for the next few years

The economy has grown more than earlier forecast and has exhibited plenty of signs of recovery from the coronavirus pandemic.

At the same time, while economic growth might be viewed in positive terms, if the economy grows beyond its potential level, expenditure growth needs to be kept under control, and a budget surplus needs to be established, the finance ministry argues. 

Finance minister Keit-Pentus Rosimannus (Reform) is on maternity leave, and her party-mate and full-time justice minister, Maris Lauri, is deputizing for her.

Finance ministry spokesperson Märt Belkin told ERR that: "The budget structural position takes account not only of the difference between costs and benefits, but also the economy's cyclical state."

Belkin said that: "In its spring economic forecast, the Ministry of Finance estimated that the gap in GDP would be negative both this year and next, in other words the economy would be below its potential." 

"If the actual economic situation is significantly better than forecast, it is possible that the GDP gap will also close faster than expected and therefore higher-than-expected tax revenues may not necessarily imply an improvement in the structural position," he went on. 

Estonia has also told the IMF its structural deficit position will improve next year.

The ministry's summer economic forecast is due to be presented to the government on September 9, ERR reports, two days after budget talks at cabinet level begin.

The state budget for 2022 as noted is drafted in the autumn, for debating and voting at the Riigikogu, and, as with most years, is likely to pass at the Riigikogu in mid-December.

One politician noted that the news of a better-performing economy need not mean that the cuts proposed earlier in the year will be abandoned, though this was the hope, he said.

Center MP and Riigikogu finance committee chair Erki Savisaar said that: "There is always hope. The Center Party has always been of the opinion that cuts should not be made with a ruler, but wisely."

"The ball is in the government's court, and the Riigikogu will discuss it after it reaches our table," Savisaar went on. 

One of the most unpopular of the initial cut proposals involved the Estonian Defense Forces' military banned, which was at one time facing the axe.

Other potential or actually realized cuts in the military sphere included a proposal to disband the defense forces' chaplaincy service, and the already-implemented switch from ceremonial dress uniform, to DPM-style fatigues, for the guard outside Kadriorg.


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Editor: Andrew Whyte

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