Minister: State budget can go into the red during a crisis

Minister of Health and Labor Tanel Kiik (Center).
Minister of Health and Labor Tanel Kiik (Center). Source: Priit Mürk/ERR

While the state budget could run at a loss for a few years, during a crisis period and in order to shoulder an increase in family benefits whose bill passed at the Riigikogu this week, this was not a longer-term good strategy, health minister Tanel Kiik (Center) says.

Kiik told ERR Friday that: "In my opinion, this is not a significant problem if the state budget is temporarily in deficit during a crisis period," adding that: "For 2022 and 2023, it has to be taken into account that public expenditures will be higher than fixed revenues. Beyond that, i.e. from 2024 onward, sufficient coverage sources must be found for many different areas. In the long run, of course, revenues and expenditures must be balanced."

Kiik noted that the changes to taxation, which must, he said, be agreed sooner or later, can take effect from 2024 as soon as possible. Estonia has long held a flat tax rate, but this has come under pressure in more recent years.

Speaking at the regular government press conference Thursday, Kiik said he: "Would introduce a graduated income tax, review the corporate income tax, review the tax base for paying health insurance tax, the sources of income from which it is taken, and introduce a maintenance insurance tax on long-term care."

The current rise in family benefits which passed earlier in the week at the Rigiikogu cannot, however, be covered by tax increases, Kiik said, adding later the country's long-term revenue basis must be established.

As to the alternative sources Kiik noted that the state budget does not explicitly say funding comes from this or that source, adding that social tax, VAT receipts, excise and other types of taxation were also available, in addition to income tax.

Center's Riigikogu chief whip and Kiik's party-mate Jaanus Karilaid told ERR late on in the week that tax revenues would be the likely suitable source to cover the family benefits increase – introduced via a bill which he himself tabled at the Riigikogu – and said that tax revenue figures were currently healthy, and better than forecast.

Opposition Conservative People's Party of Estonia (EKRE) leader Martin Helme concurred, and said that tax revenues will remain high in the coming years, mainly as the result of inflation. The latter will still also have a deleterious effect on the state budget's fixed costs, Helme added. Overspend on the state budget run into the tens of millions, Helme added, and said this included the amounts intended for the maintenance of several NGOs - implying that costs cut here are one possible source of funding the benefits rise.

Prime Minister Kaja Kallas (Reform) had said at the Thursday press conference that covering the increase in family benefits from tax revenues was not realistic. Since part of the benefits hike will be returned to state coffers via taxation, moreover, Kallas said, the increase will cost a little over €200 million, and not the €300 million which both Center and opposition parties had put the figure at.

Divisions on the nature and timing of the tabling of the amendments to the Family Benefits Act led to a brief government row late last week, with Kallas telling Center's leadership to "man up" and issue a vote of confidence in her; in the event, the supplementary budget being processed at the same time and issued in response to the current security situation and energy situation was tied to a vote of confidence in the Reform-Center coalition. The bill passed its second reading (of three – the third is generally a formality).

The state budget is debated through the fall, with a view to passing at the Riigikogu as virtually the last piece of business of the year.

The Riigikogu follows a three-weeks-on-three-weeks-off pattern through most of the year, broken up by the long summer vacation, which starts this year on Thursday, June 16; parliament does not return until mid-September, meaning legislation is being passed ahead of that and attempts to filibuster headed off by, for instance, tying the voting on a bill to a vote of confidence in the cabinet, as happened this week.

Other legislation to have passed its second reading this week includes a bill which would greatly cut excise duty on special types of diesel.

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Editor: Andrew Whyte

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