"Poor does not begin to cover what the [Finance Ministry's] economic forecast has to say about state finances and the economy – nominal deficit will be €500 million for next year. And that is based on current calculations, while additional defense spending and some other things are on top of that. The situation is quite terrible and much worse than we knew going into talks," Kristina Kallas told ERR.

"We cannot keep riding this deficit, no matter how much we hike taxes. The government sector will have to be put in order again. That has been our starting position, and we have spent days looking at these expenses with our partners. Our first priority is to get spending in check, because it absolutely is not in check today," Kallas offered.

The Eesti 200 politician said that tax debates can only start once spending is under control and it is clear where costs can be cut.

She explained that collecting more money from the people would not solve the problem of the state hemorrhaging money in the conditions of unrealistic spending.

"We cannot go down the path of tax hikes until we have our spending in check. In the conditions of out-of-control expenses, tax hikes would not solve the problem.

"Estonia's current spending has grown by leaps and bounds in the last five years, with no way to pay for it. We have expenses not covered with revenue, while public debt is up and will likely grow by another 50 percent. It is happening at breakneck speed. Basically, we are reevaluating the last five years' decisions, which is proving to be a very painful process" Kristina Kallas said.

Võrklaev: Reforms, cuts and taxes all being considered

Mart Võrklaev who heads the Reform Party's negotiating team said that Estonia has gone through various crises in recent years and these have required extraordinary expenses, on top of hiking defense spending to 3 percent of GDP. All of it has put pressure on the state budget.

"We are discussing various reforms, ways to cut costs as well as generate revenue in order to pay for expenses and keep our budget viable. I cannot go into detail until we have an agreement. Were I to do that and reveal what the Reform Party believes is needed, we would probably never come to an agreement," the former Reform whip said.

Võrklaev added that the sides to the incoming coalition have asked the Finance Ministry for various calculations and effects, all of which include potential tax changes.

"We have been over everything, also thinking outside the box. We will be able to talk about it once we have an agreement. We kept at it until the wee hours yesterday (Tuesday – ed.). But everyone is determined to reach a compromise," Võrklaev assured.

Ossinovski: VAT hike has been on the agenda

Social Democratic Party (SDE) politician Jevgeni Ossinovski said on the "Esimene stuudio" talk show on Tuesday that the only way to save several hundred million euros in the state budget is by notably cutting public services and benefits.

"We must seek efficiency during financially difficult times. But hoping that €200 million can be found in a ministry's basement somewhere... Long-term reforms can render some processes more efficient, save money and improve service quality, and corresponding efforts must be made. But talking about the need to save several hundred million euros [in the short term], this can happen through cutting a public service or benefits. That is the only place it can come from," Ossinovski said.

The politician suggested the coalition agreement needs to be finished and signed in the next few days. He suggested that talks between the Reform Party, SDE and Eesti 200 have been constructive, while the difficult fiscal situation is causing some tension.

Ossinovski admitted that a VAT hike has been discussed during talks but did not go into detail. "These are standard proposals that one almost always hears during coalition talks. It is not the Social Democrats' favorite topic, while I believe the reality will be different this time."

--

Follow ERR News on Facebook and Twitter and never miss an update!