Ministry: Unexpected economic growth rates do not mean budget cuts canceled
Better than forecast economic growth does not mean that state budget cuts proposed earlier in the year will be mitigated, the finance ministry says. Part of the issue is maintaining structural balance.
Sven Kirsipuu, undersecretary of fiscal policy at the finance ministry said that: "Many economic indicators have already surpassed their 2019 levels. There are some differences here. Unemployment might be a little higher, but wage growth has been very rapid. Many sectors are doing better than ever."
While a clearer picture will emerge in the autumn economic forecast, a major overhaul of cuts planned earlier in the year is not expected.
Finance minister Keit Pentus-Rosimannus (Reform) and justice minister Maris Lauri (Reform), who is deputizing for Pentus-Rosimannus while the latter is on maternity leave, have both said that an escape from cuts is unlikely, despite the growth.
Cuts of around €60 million have been earmarked, but will be subject to review next month.
Sven Kirsipuu noted that structural balance is the most important facet of the budget, and that this means spending will actually be less, not more.
He said: "To put it simply, when the economy is doing better, when growth is faster, then it is viable to spend less to ensure growth does not overheat the economy."
The finance ministry is set to present a forecast September 7 which will provide the basis for the state budget.
Figures release Tuesday revealed a record 12.9 percent GDP growth on year to the second quarter this year, which had prompted talk of reducing the planned cuts.
At the same time, since GDP rises, those spending components
"If we continue to aim to keep R&D spending at 1 percent of GDP, for example, that means extra money. The same question arises with defense spending," he added.
Sven Kirsipuu also noted that expenditures will rise faster than forecast, in line with the economic growth, with wage and pension growth, as well as social benefits such as parental benefits likely to grow more quickly than earlier thought.
These trends are likely to continue into the next year, he said.
The economic growth itself is in part due to the poor second quarter a year ago, which was the time the coronavirus pandemic first arrived.
The state budget draft for 2022 has to be ready by the end of September for debating and voting at the Riigikogu, with a view to passing before the year end.
The proposed cuts were a part of the state budget strategy document for 2022-2025, released in May.
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Editor: Andrew Whyte