"Perhaps the worst thing is, that the recession in the fourth quarter of last year was four percent, according to the preliminary data. This shows that you can't count very much on economic growth when setting the budget," she added.

"Putting together next year's budget along with a four-year fiscal strategy, will not be easy. A lot of tough decisions will have to be taken over the next six months," Akkermann said.

According to Akkermann, the Estonian Ministry of Finance's spring economic forecast, which is due on April 6, will, along with the summer economic forecast, provide the basis for preparing the new state budget and four-year state budget strategy.

State budget deficit of 1.2 percent

Commenting on Estonia's state budget, Akkermann said, that while at the beginning of last year the deficit was projected to be 2.7 percent of gross domestic product (GDP), by the end of the year it was much smaller, at 1.2 percent of GDP.

On a positive note, Akkermann also highlighted, that the worst of the inflation may have passed. Prices rose by less than one percent between January and February, while energy costs have fallen sharply so far this year. At the end of 2022, corporate profits were at an all-time high, providing hope that companies will be able to weather the tough times and start growing again.

Akkermann remains tight-lipped on taxes and cuts

Akkermann was reluctant to go into detail when asked what cuts or tax reforms could be implemented to help balance the budget, as a result of the coalition talks, which have just begun.

However, she did point to the €50 million earmarked for free public transport as one possible area where cuts could be made. The funds could instead be used to finance road maintenance, as the amount currently set aside for roads in the four-year budget strategy is below the sustainability rate.

On tax increases, Akkermann said, that from next year, the increase in land taxes from will bring some relief to local government budgets.

"I also know, that from this summer the first wind farm fees will start to come in. They will be quite small, but if we look at the longer term and more of these wind farms and offshore wind farms are built, then, if Estonia's wind potential can be harnessed, the revenues will be in the hundreds of millions per year," she said.

According to Akkermann, the Estonian Tax and Customs Board, which falls under the administration of the Ministry of Finance, expects to collect more than €13 billion in taxes this year. The State Shared Service Center, along with other agencies, will bring in just over €1 billion in EU subsidies to Estonia.

Akkermann also admitted that allocating three percent of GDP to national defense in the state budget and the four-year budget strategy will be "a very difficult task indeed".

"However, we do all understand that the country needs defense. That was agreed in the cabinet and presented to the Riigikogu at the beginning of the year," she added.

Estonia's 2023 state budget will have total revenues of €15.6 billion and total expenditure of €16.8 billion. According to the budget adopted in December, the tax burden in 2023 will be 33.3 percent of GDP, and the structural deficit will remain at 2.6 percent.

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