Estonia's state budget deficit this year to be smaller than forecast

Stacks of euro bills (photo is illustrative).
Stacks of euro bills (photo is illustrative). Source: Siim Lõvi/ERR

The state budget deficit will be smaller this year than the had earlier government forecast, data from the Ministry of Finance reveals. Budget revenues have been bolstered more than expected by the effects of wage-price inflation.

The better-than-forecast budget receipts are the result of rapid wage growth and price rises. This has especially been seen in the wallets of local governments, whose budget surplus had reached €113 million as at the end of May. 

The entire social security sector also enjoyed a large surplus, thanks to healthy social tax receipts. For instance, the surplus of the unemployment fund (Töötukassa) and the health insurance fund (Haigekassa) together came to €57 million. 

However, the central government's budget is not in as hale a state as that, and was in deficit to the tune of €557 million at the end of May, which was €162 million more than a year earlier. In May, however, the central government's deficit worsened by only nine million euros due to increased tax receipts

"Over the course of five months, tax receipts have been 10 percent higher than the year before, and this exceeds budget expectations as well as the expectations of the Ministry of Finance's spring forecast," Margus Täht, lead analyst at the Ministry of Finance's fiscal policy department, told ERR.

Margus Täht. Source: Siim Lõvi /ERR

"The economic environment has been in a slightly better state than expected, and this is also reflected in better tax receipts," Täht went on.

This means that despite the current substantial budget deficit of the central government, the predicted 4.3 percent state budget deficit will not materialize this year, Täht added. 

Täht however was unwilling to predict exactly how large the budget deficit will be for the entire year. "This is currently a difficult question, as we are preparing our summer economic forecast, and from there we will definitely review the budget position forecast too. As the trends demonstrate, whereas we expected a 4.3 percent deficit in the spring, it may turn out to be smaller than that in reality."

MP Aivar Sõerd (Reform), a member of the Riigikogu Finance Committee concurred with this forecast, but added that expenses will certainly increase in the second half of the year, meaning the situation will worsen.

Sõerd said: "Forecasts to a large extent change over time; you have to take that into account."

Aivar Sõerd (Reform). Source: Ken Mürk/ERR

As a result, Sõerd, a former finance minister, said he would not venture to predict whether Estonia will be able to fulfill one of the main Maastricht criteria, that nominal budget deficit should be lower than 3 percent of GDP per year

Martin Helme Conservative People's Party of Estonia (EKRE) chair, and another former finance minister, says he is skeptical about the budget receipts as stated; excise duties and VAT receipts are significantly down, but income tax has seen a better take, he says.

"The real reason for this ... is inflation, however, that is, the figures. The figures we are taking in are large, but the actual state of the economy is declining," Helme said.

Martin Helme (EKRE). Source: Ken Mürk/ERR

"We are seeing the largest contraction in industrial production in Europe; practically all sectors are declining. I continue to hold the view that by year end, our budgetary picture will be even worse. But this is the consequence of the economic policy of [prime minister] Kaja Kallas, who has been in office for two-and-a-half years now. The government's energy policy devoured people and their savings, and bankrupted our companies, while, third, it destroyed our export markets competitiveness;" he went on.

Margus Täht said that the balance of the budget for the second half of the year will also be affected by the implementation of planned investments; as of May, only 17 percent of these had been made, while several major defense procurements and other big investments are still to come.

Aivar Sõerd said there is no point in postponing investments in order to save money, especially in a situation where, to give one example, Estonia is investing less money into road construction than it had done in previous years. 

Inflation is running high, and investments may cost even more further down the line, as a result.

EU funding implementation, such as with the Just Transition Fund, can also create headaches of its own, Sõerd continued.

We should realize investments from EU funds much more aggressively, and not postpone them," the Reform MP said.


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Editor: Andrew Whyte, Mait Ots

Source: ERR Radio News, interviewer Indrek Kiisler

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