Sides to the coalition admit fiscal constraints

Mart Võrklaev, Kristina Kallas and Lauri Läänemets.
Mart Võrklaev, Kristina Kallas and Lauri Läänemets. Source: ERR

The Reform Party, Eesti 200 and the Social Democratic Party (SDE) all admit that state finances are in very poor shape, which means both austerity and ways to find additional revenue need to be considered. The Ministry of Finance is set to publish its recent economic forecast on Thursday.

"We have not seen the final draft, while the ministry's indication is that the problem is quite serious," Mart Võrklaev said for the Reform Party on Tuesday. "There are myriad expenses, the budget is still in the red, and because the economic forecast has little in store that's encouraging, we are facing major challenges. We need to think about how to cut costs, carry out reforms and where to find additional sources of revenue, instead of piling on expenses," he added.

Eesti 200 deputy head Kristina Kallas told ERR that considerable fiscal deficit laid down by the outgoing government is a problem.

"Thinking back to when the [outgoing] coalition was being negotiated, members of the press repeatedly asked how the cabinet planned to pay for all of its promises, including old-age pension covering nursing home fees and hiking the basic exemption. They were told that there were no avenues for covering expenditure and that these questions would fall to the next government. And that is indeed what we're working on. There is no way to pay for these expenses," Kallas admitted. She said that next year's fiscal deficit is around €500 million, while the 2023 budget is also in the red.

"We cannot borrow any more as interest payments would grow to a point where they would be adding to the deficit. Public borrowing has been growing rapidly. Therefore, we have no choice but to find places where we can cut back. That is the situation today," the Eesti 200 politician said. "And the economic forecast is hardly encouraging – we are not looking at 10 percent growth in the near future," she added.

Mart Võklaev pointed to defense spending as a major item of expenditure. "Hiking Estonia's defense spending to 3 percent of GDP in under 18 months has been one major additional expense. It has left its mark, on top of earlier crisis expenses made by past governments, some of which have been on the mark, while some should not have been made considering the state of public finances," he said.

Social Democratic Party (SDE) leader Lauri Läänemets also admitted the complicated state of the budget. "It is not the best tool for rising to the challenges Estonia faces. How to make certain expensive wishes in the coalition agreement happen – depending on whether they make the cut at the end of the day – will be a challenge for the Estonian society."

Asked whether the talks are concentrating more on austerity or tax hikes, Läänemets pointed to what he said before the March general elections – that sums missing from the state budget cannot be found through cost-cutting alone and that other solutions are in order.

"What those solutions could be is difficult to say as we have been discussing possible courses of action for days. Nothing is set in stone yet. We are in the middle of difficult debates," the SDE leader offered.

Asked where the new government plans to dial back, Kristina Kallas said the sides are going through the entire budget. "We need to start cutting back somewhere. We cannot keep piling on and servicing such a deficit."

Inflation holds no alleviation

All three politicians said that hopes that inflation might help grow the budget are largely misguided.

"Inflation helped us with last year's budget, while this needs to be in quotes because people also had to pay more. Inflation has remained more or less – I could be wrong here – unchanged for six months. In other words, it will not bring additional revenue we could count on," Võrklaev said.

Kallas and Läänemets agreed, suggesting that the increase from inflation will hardly offset ballooning expenses. However, the SDE chairman remained hopeful that an agreement might be reached by April 10, which is when the new composition of the Riigikogu first convenes.


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Editor: Marcus Turovski

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