University of Tartu professor: Parties over-promising in election programs

The explanatory memorandum to this year's state budget.
The explanatory memorandum to this year's state budget. Source: ERR

Political parties in Estonia have been irresponsible in their pre-election spending pledges, ahead of polling day on March 5, one expert says.

University of Tartu Professor of International Business Urmas Varblane said that this happened even as parties ostensibly promise a balanced state budget elsewhere in their electoral manifestos.

The phenomenon is likely the result of appealing to the voter, he added.

"Looking at these [election] programs, in terms of the economy and budgetary policy, the competition is all about who can outbid the other parties with their election pledges," Varblane said.

This was not a positive thing, he added.

"What is sad is that, even when making these promises, they are surely aware of the fact that they can't implement them all, though you can still make pledges. I think that the term 'balanced budget' almost never appears there," he went on.

Varblane: Voters should view parties' electoral promises with a critical eye

"This was most clearly mentioned in the Parempoolsed's manifesto, but they were not such desperate promisers. In this light, voters need to think critically, and think about where the money might come from to carry out all these things," Varblane added.

Of what parties could have placed in their electoral programs, unveiled towards the end of January as they finalized and registered their electoral lists, Varblane said: "We might have expected an indication as to what the activities that bring economic growth are.

"If we are taking the view that we do not play around with taxation and do not want to raise or change levels of taxation, then all very well, but what are the directions which can really lead to an improvement in the operating environment for companies, a growth in their competitiveness, and overall economic growth?" he inquired.

The principle of balanced budgets, once an inalienable dogma in the management of the Estonian economy, has faced mounting pressure in recent years, following the pandemic, the changed security situation and the need to up defense spend, and soaring energy prices.

University of Tartu Professor Urmas Varblane Source: Lauri Varik/ERR

Varblane said the understanding of the principle of budget surplus when times are good, spending when they are bad, has become more blurred, putting the end of the era of "good years" as far back as 2015-2016.

In any case, budgets were not quite balanced even in the good years when they did come, Varblane added.

A good year would have seen growth of around 3-4 percent in the economy.

The move away from a rigorous budget balance also suggest Estonia wants to act more as those Western European economies, which have a higher level of income, a level Estonia is on its way towards reaching, he added.

Parties mention responsible fiscal policy in their manifestos, but also do not rule out borrowing, he went on.

Estonia faces same pressures as other Western nations

The issue is one which affects developed, industrial and Western European countries as a whole, he added, noting that reaching a welfare state of the level present 20 years ago is hard against the context of an aging population and the rise of emerging economies elsewhere in the world.

Applying the same logic now in Estonia was, however, "dangerous", and taking loans to cover current costs " should not be done under any circumstances."

Furthermore, the state ran out of time to satisfy many of the expenditures set for 2022, meaning they have been shifted to this year, Varblane said, which will see rising budget deficits in 2023 and next year.

"What happened in the autumn, when we saw how much it cost the Estonian state to take loans, was very alarming. I really hope that this will make us think a little more about how we can borrow money, and for what reasons," the professor added.

Parties put less stress in their electoral manifestos on balanced budgets, than in the past

By party, Reform, for whom balanced budgets had always been a watchword even more than many of the other parties, wants still to achieve this, but over the longer term, according to its manifesto, as reported by ERR.

This would lead to a balanced budget in four years, if exceptional economic growth were to be experienced during those four years.

This also applies to local government budgets, as well as those of the state.

Responsibility and the building up of reserves makes borrowing on favorable terms, when needed, more viable, the party says – and the use of both is only to smooth out the rise and fall of the economic cycle, or in times of crisis.

Structural changes to the tax system should also be made in order to avoid a rising tax burden, Reform states in its program.

The opposition Conservative People's Party of Estonia (EKRE) states that the prosperity of the people trumps a balanced budget, meaning in difficult times, a budget deficit is not an impossibility, the party's leader told ERR.

"Our entire budget and tax policy is based on the fact that the economy must grow, which means that we want to lower consumption taxes, environmental fees and VAT ," EKRE chair Martin Helme said.

The party would in theory take out loans for the building of full-length, four-lane highways between Tallinn and the other principal cities in Estonia, for energy plants, including any potential nuclear power plant, and in the interests of security.

Raised family allowances, lower fuel price excise duties and reduced VAT on medicines and foodstuffs are among the party's pre-election pledges.

The Center Party, also in opposition, states in its manifesto that it will take a firm and stable line in Estonian fiscal policy, with national debts to be kept stable and loans to be taking for "nationally important" investment objects, and for reviving the economy.

This would require a broad overhaul of the state budget, the party says.

Isamaa, one of the two smaller coalition parties, states in its pre-election program that the state's debt burden could in fact be raised in the interest of key investments, a competitive economy and national defense, while new levels or types of taxation, and tax increases, are off the table for the party.

Isamaa sets a goal of economic growth of over 3 percent per annum, and a ceiling on consumer price index of 2 percent per year, in the medium term.

The Social Democrats (SDE), also in the coalition, call for innovation in state governance and for changes in the Estonian taxation system, in their electoral program, and say that "the time of the 'thin state' is over."

Loan money is not a strong foundation for the survival of the Estonian state, its culture, environment, security and its language, the party argues, whereas a comprehensive and balanced new tax system is needed instead.

This system and governance as a whole should be based on a social contract and by using impartial economic analysis, the party adds in its manifesto.

At the same time, the party does not rule out borrowing on, for instance, infrastructure investments, if a long-term sustainable budget balance is guaranteed.

The newly-formed Parempoolsed says it stands against "money laundering and vote buying with debt". 

This would prompt an additional budget which would "weed out the populism that was written into the state budget ahead of the elections," the party goes on, referring to this year's state budget.

This would require public sector cuts and a slashing of bureaucracy, the party's board member, Tõnis Kons, said.

"We will stop borrowing to cover the state's fixed costs," the Parempoolsed manifesto goes on.

Pledges on these topics in the Eesti 200 and Estonian Greens' manifestos were not reported.


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Editor: Andrew Whyte, Aleksander Krjukov

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