Justice chancellor: Capacity of state to take on loans should be clarified

Ülle Madise.
Ülle Madise. Source: Siim Lõvi /ERR

In her comments changes to the State Budget Act, Chancellor of Justice Ülle Madise says regulations on obligations the state holds, such as in taking loans, must be specified, while decisions on the state budget must be within the competence of the legislature, ie. the Riigikogu.

The justice chancellor is not referring to next year's state budget bill, currently being processes at the Riigikogu, but to the legislation dealing with the annual state budget overall.

Madise's analysis stated that: "Any large loan to be taken out on behalf of the state is a matter for the Riigikogu. Paragraph 65, point 10 of the Constitution stipulates that the Riigikogu must decide on any government proposal to take out state loans or to take on other financial obligations to the state."

The Chancellor of Justice also noted that the State Budget Act has taken into consideration differences of opinion regarding the interpretation of Section 60 of the Constitution, referring to assuming obligations to the state. 

"Section 70, subsection 2 of the State Budget Act, which allows the Ministry of Finance to assume debt obligations on behalf of the state, up to the maximum allowed balance of the state's debt obligations specified in section 69, subsection 2 of the same law, requires analysis," she continued.

The Chancellor of Justice highlighted that whereas this year's maximum permitted balance, following this section, stands at €7.184 billion, the 2023 state budget bill already plans to increase this amount to nearly €8.1 billion.

"The Riigikogu must ratify any decision on take out any large loan on behalf of the state. Paragraph 65, point 10 of the Constitution stipulates that the Riigikogu rules on any government proposal to take state loans and take on other financial obligations on to the state."

"The Riigikogu, which holds the duty of making strategic choices regarding the life of the state, must also decide whether and to what extent the state's expenses can be financed through loans," Madise went on.

"The Riigikogu should decide on any important conditions regarding a loan (ie. purpose, interest, loan period, repayments, collateral obligations) and also whether the loan is taken for, for example, security purposes, or for energy crisis mitigation measures," the chancellor went on.

Justice chancellor stresses need for state budget to be comprehensible

Madise also stressed that the State Budget Act must ensure a state budget's comprehensibility, in order to be able to obtain a clear overview of the use of state money, and also recalled that she had already drawn attention to this in a previous memo.

"Concessions cannot be made on this requirement. The activity-based budget must also be comprehensible; otherwise the Riigikogu cannot actually fulfill the task assigned to it by the Constitution of the Republic of Estonia."

"If the expenses presented in relation to the objectives are not comprehensible to MPs and the public, the preparation of an activity-based budget must be abandoned," Madise added.

The Chancellor of Justice also pointed out that any overview and estimation of all revenues and expenses of the state must be obtained from the state budget, and not from the explanatory letter attached to it.

"The Constitution does not allow for scenarios where the state's revenues and expenses are determined by a legislative explanatory memorandum This means the state budget's issues cannot be resolved by making an explanatory memorandum obligatory," she continued.

"The explanatory memorandum may only perform a helpful and explanatory function," Madise noted, dismissing a Ministry of Finance proposal to give that explanatory memorandum to any state budget bill more weight.

This is: "Not a reasonable solution, and as a result I recommend discarding this idea," the chancellor went on.

Madise states in her opinion that, even though developing changes to the law means that it is necessary to strike a balance between the Riigikogu's decision-making competence and a flexible use of the state budget, and also implies the future analysis of topics, the fact that concrete solutions have not been put forward renders it impossible to get a grip on whether solutions to issues connected with budgetary decision-making and budgetary transparency are being resolved, and how these are being resolved.

The Ministry of Finance recently submitted amendments to the State Budget Act, which has already been amended three times in the past decade.

Over a year ago, Auditor General Janar Holm called the state budget "incomprehensible" and, "at times, useless." adding that the ministry makes errors and performs its tasks in a sub-standard way, directly in its implementation of activity-based budgeting.

The 2023 state budget has passed its second Riigikogu reading and is set for its third reading in early December, with a view to passing before year-end.


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Editor: Andrew Whyte, Mait Ots

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