Outgoing minster: Previous coalition fully aware of impeding budget deficit

Annely Akkermann on 'Otse uudistemajast', Wednesday, April 12, 2023.
Annely Akkermann on 'Otse uudistemajast', Wednesday, April 12, 2023. Source: Priit Mürk/ERR

Outgoing Minister of Finance Annely Akkermann (Reform) says that her party was fully aware of the likelihood of the state budget deficit in Estonia rising, when the party formed up a coalition in July last year – Akkermann was subsequently appointed to replace Keit Pentus-Rosimannus, who left to take up the position of Estonia's representative to the European Court of Auditors.

That expenditure was to be revisited was postponed to after the March 5 election, while the coalition, with Isamaa and the Social Democrats (SDE), was the only option on the table at the time, Akkermann says.

Eesti 200 did not have Riigikogu seats before the election; it now has 14 of them.

While the incoming Reform-Eesti 200-SDE coalition has pledged to up VAT and income tax by 2 percentage points, and to impose a car tax and also look at excise duty rises, little to no mention of this was made ahead of the March 5 election.

Only SDE and the Center Party, the latter now in opposition, spoke about tax hikes before the election; Prime Minister Kaja Kallas (Reform) recently stated that referend a on tax matters are forbidden under the Estonian Constitution, an explanation which even some Reformists have found to be less than compelling.

On the issue of the tax hike compensating for a pre-election pledge Reform did make, namely to eradicate the so-called "tax hump", also known as bracket creep, by putting in place an income tax-free threshold of €700 per month, Akkermann referred interviewer Anvar Samost to a more general Reform promise to put in place responsible public finances.

"Responsible equates to balanced [finances], and how this balance is achieved will actually be revealed during the course of the coalition negotiations," Akkermann said.

"Responsible still means moving towards a balanced budget. I have said this many times myself. I have also said that this cannot be done in the space of one year; moving towards balance means reducing revenues and expenses."

Akkermann had said last October that new taxation means were needed in order to boost revenues. She also expressed a hope of a debate on the matter being opened up ahead of the March 5 elections, adding she put this to the party too.

"I also have to conceded that when the previous coalition was formed, last July, the Riigikogu party group was convened; Kaja Kallas and Keit Pentus-Rosimannus sat down with them and stated that the situation this: We will be increasing the budget deficit," she went on.

"Before the elections, we didn't know what type of revenues will be used to cover, for example, the family benefits increase, the salary increase for teachers, policemen, rescuers, and take it or leave it. The party, everyone who belonged to the Riigikogu group at the time, took note of that," Akkermann added.

"The prime minister and the then minister of finance, uttered this sentence to the Riigikogu group, and everyone understood that even if the [July coalition] agreement was leaning very hard towards expenses, this administration must be continued, so the promise for responsible public finances was included in the Reform Party's election platform," she went on.

Akkermann said that a budget deficit met with acceptance, because the election was still half-a-year away at that point, while no other coalition lineup would have carried out the 2023 budget any differently. 

The state budget is drawn up at cabinet level by late September for debating and voting at the Riigikogu through the autumn, with a view to passing by year-end.

The Reform Party's previous coalition partner, the Center Party, promised to accept the increase in family allowances with the votes of Isamaa and EKRE, which were in opposition at the time. Therefore, the Reform Party had to accept Isamaa's wish to increase subsidies. 

"The Reform Party had to come to terms with the fact that the budget will tend toward expenses, but after the elections, they would then start looking for a balance from the revenue component, to meet the already made spending decisions," she went on.

According to Akkermann, the choice of budget deficit was made in full knowledge. "It was this coalition, these Riigikogu votes, and you have to get 51 votes for the budget [to pass]. There are no more options. If you get 51 votes for a budget that has a deficit of €1.2 billion, then this is a political decision."

The decision in favor of deficit was based on the increase in defense spending, the reception of Ukrainian war refugees, the ongoing costs of the Covid crisis, inflation and the rise in energy prices, Akkermann added.


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Editor: Andrew Whyte, Barbara Oja

Source: 'Otse uudistemajast'

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