Kallas said that the poor state of public finances was known before the March elections, adding that the situation has changed again since then.

"The forecast has become more pessimistic since last time," the incoming PM said.

She added that the Reform Party hoped the economy would recover when putting together its elections program, which would have done away with the need to hike taxes.

"But our expenses have grown. If you look at the security expenses needed to take defense spending to 3 percent of GDP, they are a necessity because of the security situation, as opposed to something we desperately want to do."

Host Johannes Tralla pointed out that the Reform Party did not mention tax hikes before elections when asked how it plans to pay for spending.

"It was not our plan. We hoped to cover it in other ways," Kallas replied.

She remarked that Reform did ask the voter for a mandate to take defense spending to 3 percent of GDP.

"Was anyone under the impression this would be free? No. That was the mandate we sought. The other thing we got a mandate for is abolishing the "tax hump" (Estonia's gradual income tax exemption system – ed.), which effectively prescribes a higher tax rate for people making €1,200-2,100, is unjust and punishes salary advance," she said.

When Tralla suggested Reform decided not to talk about potential tax hikes in its campaign, Kallas said, "That's because it is unpopular. It simply is unpopular."

Tralla then suggested that Reform would not have taken such a comfortable victory at elections [had it been open about tax changes], which prompted Kallas to say that this would have seen other parties take on even bigger expenses.

Kallas also said that the 2019 government (of the Center Party, EKRE and Isamaa) could also have widened the tax base or cut costs.

"They did neither and hiked spending instead. We are trying to be honest in admitting that this is the situation today, that we cannot continue living beyond our means."

The incoming PM said it is likely Reform will have to pay the price for this at upcoming elections, while she hopes that future generations will understand why they did it – because we want Estonian independence to continue in the same way it has."

Kallas said that the income tax hike (from 20 percent to 22 percent – ed.) goes beyond paying for Reform's promise of returning to a flat basic exemption. Hiking VAT by 2 percentage points is required to pay for the welfare state and national security, she also said, adding that the turnover will be generated in Estonia.

Planned tax changes also include abolishing accommodation providers' 9-percent reduced VAT rate. Kallas said that it is not fair when hotels, which offer a luxury service, get a reduced rate while the rest of society cuts back. "It is not a mandatory expense. It's not the same as medicines," she said.

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