Experts at the Finance Ministry have concluded that energy price support measures such as the recently instituted universal electricity service, far from boosting inflation, exert a downwards pressure on prices, Finance Minister Keit Pentus-Rosimannus (Reform) says.
Opposition parties at the Riigikogu have criticized the 2023 state budget draft, unveiled Thursday, and the accompanying draft state budget strategy (known in Estonian as the RES), saying that energy compensation measures along with public sector salary increases will exacerbate an already dire situation regarding inflation.
However, the ministry's forecasts paint the opposite picture, Pentus-Rosimannus says.
Appearing on ETV politics show "Esimene stuudio" Thursday evening, the finance minister said: "Experts from the Ministry of Finance, following recommendation of the Fiscal Council, have reviewed the latest economic forecast to ascertain how decisions concerning wage growth and measures to mitigate the rise in energy prices affect inflation and economic growth."
"The outcome is that, above all, measures aimed at mitigating the rise in energy prices - the universal service of electricity, as well as subsidies which, from October 1, will automatically apply to all X in respect of electricity, gas and home heating - will together reduce inflation by 0.7 percent this year, though probably less next year, but these are inflation-reducing measures nonetheless," Pentus-Rosimannus went on.
Once the set price of the universal service of electricity is revealed, on Friday, an even more precise assessment should be made of how it will impact inflation, Pentus-Rosimannus noted, adding that a lower universal price would also mean a greater impact on the slowdown of inflation.
"As for who claim that the budget and energy subsidies somehow rise inflation, the effect is in fact the opposite," he added.
Inflation has also meant more tax revenue reaching the state budget, and, according to Pentus-Rosimannus, a political decision had to be made on whether to use this excess to balance the budget deficit, or to pass it on to those who are struggling with high prices, via salary increases and tax changes.
"In terms of budgetary policy, we needed to make this choice. If we see a rapid increase in tax receipts, then it would have been theoretically possible to state that we will retain all the surplus tax collected, in order to balance the budget deficit, but we will not return it to the people," the minister went on.
"I think that would have been an unhinged choice to have made. It would have been hard to justify. This was the choice we made: That if tax collection has increased, both in the form of wage growth and also in the form of changes to the tax system, then this money will remain in people's hands."," said the Minister of Finance.
Pentus-Rosimannus pointed the increase of the income tax-free threshold to €654 per month and the switch of the average retirement pension to an income tax-free status as the two most important tax changes that will come into force next year.
Pentus-Rosimannus also said that criticism that the government has begun to loosen its budget policy and is allowing the budget deficit to grow is not based in fact.
She said: "Both the nominal and structural deficits will fall significantly next year compared with what was foreseen in this year's spring plan. This was not an easy decision, as the government had a lengthy list of wishes, but I think the fact that we will retain a responsible and rather conservative budget policy, is reasonable and required, in the long run. In order for the budget's expenses and revenues to eventually reach balance, a certain line must basically be continued for several years to come."
August's reported inflation rate was just under 25 percent, the highest rate in the Eurozone.
Editor: Andrew Whyte, Marko Tooming
Source: Esimene stuudio, Andres Kuusk