Tiit Riisalo (Eesti 200), Estonia's minister of economic affairs and IT, tells Vikerraadio in an interview that companies should be allowed to operate with as little intervention as possible and that ambitious, motivated and passionate entrepreneurs are a resource in themselves.
You became Estonia's economic affairs minister rather suddenly, down to some of your fellow party members learning of it from the news. Do you know why you were made minister?
The proposal was made, and it would have been irresponsible of me to decline. Of course, the roots go deeper – I have been indirectly involved in politics since the Soviet days.
The first political action to bear results took place right here, next to the radio building in 1984 when we put on a production of the play "Tare-tareke" at the Tallinn 21st High School. The play had clear political undertones, and I met [later Estonian PM] Mart Laar while we were setting it up. He was studying history at the University of Tartu at the time.
My close circle has maintained that [political] relationship ever since. I was a rather active member of the heritage conservation movement in the 1980s and I was involved in organizing the first free elections, while I decided not to go into active politics at the time and instead went to work after graduating from university.
I returned to politics in late 2006, following an invitation from Mart Laar, after Isamaa and Res Publica were merged. The party needed to prepare for elections, needed someone who knew politics, politicians and a thing or two about policymaking. It was meant as a temporary stint at first, while I ended up spending some time as IRL's secretary general.
Therefore, my relationship with politics goes back, and it is no secret that many Eesti 200 members used to belong to Isamaa or IRL. That is the network that landed me there.
Were you invited by the party chairman or was there some other process?
I simply received a call and was asked whether it is something I'd consider. That is where they had gotten at coalition talks, and to be honest I had not taken a deep interest in the internal logic or prior discussions of it all. The proposal was made and I decided to accept.
Have you defined for yourself the activities or plans you aim to pursue?
Naturally, I have an idea of what I want to promote. However, I tend to be conservative when it comes to making promises – I don't want to promise things that cannot be made happen. But I do have a vision.
It is simplest to explain by looking at the areas covered by the portfolio or the ministry. While this comes in no particular order, I am the IT or digital affairs minister, and Estonia clearly has an ambition there. Eesti 200 has also had a vision since its inception, that of the personal state concept.
The phenomenon is more complex, but if we tried to explain it, we could say that technological development is cyclical, just like many other things. Back when we started building up the digital state, with the most fundamental decisions made by Mart Laar's second government, when the base architecture was created – we decided to have the X-Road, a universal data exchange layer; strong singular identity in the ID-card, which has now developed into Smart-ID and Mobile-ID and will likely be developed further.
That is where the base architecture was laid down, which was unique and cutting edge at the time. But the real achievement was convincing people to adopt the new platform, new more convenient services, which have come a long way since then, as has the technology. We are ready once more to keep up with technological advancement, take the Estonian digital state to the next level, which could be far more convenient, user-friendly and simpler than before.
It concerns services we offer both citizens and companies. The ministry is in two roles here – we are the trailblazer for all of Estonia, while we also offer a range of services specifically for businesses.
We have a relatively convenient business environment to which we have become accustomed, while we still need to search for various services in different places, even though the state has enough data to make this unnecessary.
I would like for us to get to a point where we have a single entry point – that if as an entrepreneur you need to get in touch with your state, you would no longer need to figure out where it happens. That there would be a single entry point and everything else would branch out from there. And as much as possible of it could be pre-filled to reduce administrative workload, which makes for a separate struggle we could discuss at length.
The other important heading in business environment and economic development, and that ties in to the previous topic, is artificial intelligence. Our number one challenge in terms of the business environment are the roughly 400 forms or 95,000 data fields [that companies need to fill in], and looking at the current dynamic in the EU, we have no reason to believe this will let up any time soon.
We can always ask whether all these additional regulations are really needed –sometimes they are and sometimes they aren't – but we are trying to make it as simple as possible for companies. Make it so they only have to enter the same data once.
But companies also communicate with one another, and there are a number of reports that come from businesses themselves and not public data. The Baltics and Nordics are pioneering a movement called real-time economy where we are trying to support projects that simplify real-time exchange of data between companies. It will become increasingly important as we move into the future. Let us look if only at environmental reports meant to show that products or services really are environmentally friendly, carbon neutral, rely on green energy etc.
In terms of economic development, we are in charge of the part of fiscal policy called enterprise support. The other side of fiscal policy – taxation – is the purview of the Ministry of Finance, but the Ministry of Economic Affairs and Communications has to make sure the effect of tax changes is minimized. There are other priorities.
Our main tool is the Enterprise Estonia and KredEx joint agency (EISA) that channels business support to promising fields but also those where overcoming bottlenecks could create new confidence to invest.
One of our goals is to achieve 110 percent of the EU average in processing industry and general productivity by 2035. It is quite a challenge, while I believe it to be a categorical imperative – if we cannot achieve that, there will not be enough value added to tax. And if we don't have enough things we can tax, citizens can no longer rely on services ranging from national security to social benefits. It is all connected.
The ministry is in charge of a third aspect – interesting and dynamic work. The nature of working is changing, talking about platform work and other such forms for which the coronavirus crisis acted as a catalyst. On the other hand, companies will need workers with a different kind of education in the future. The state can be very much on board in making these changes happen.
And a new labor coverage program has recently landed in the government where we are trying to render the system more flexible, give the Unemployment Insurance Fund use of our resources to train people to find gainful employment in the new economy.
A thorough look at the Ministry of Economic Affairs and Communications' activities indeed, but before we come back to that, I would get the topical matters out of the way. One is Eesti 200's support rating, which has been plummeting. Based on your lengthy involvement in politics, do you see ways to reverse the trend by next elections at the latest?
It takes work. Talking about the campaign phase, it is more difficult than ever to campaign in today's extremely dynamic media environment and 24/7 news cycle. But the methods need to be found, the party needs to be made visible and its achievements need to be communicated.
That said, it is a deep conviction of mine that you need a product before you can sell something. While Eesti 200 has some organizational history, this is the first time the party is a member of the governing coalition, and things never go as smoothly as one would like to hope at first.
But I would not be deterred. I believe that Eesti 200 ministers and MPs are effective and learning as they go, and if we can prove ourselves useful, we are bound to improve our rating.
Don't you think you have the same problem Isamaa have in terms of how to stand apart from EKRE, only regarding the Reform Party?
Everyone has those problems. It is a widely known fact, if not generally acknowledged, that parties' biggest competitors are not their ideological opposites but rather those with whom they share values.
This element of competition exists, of course, while I rather see it as a driving force, speaking as an Estonian citizen. Eesti 200 has already completed its mission of bringing new people to politics. This refreshment, everything being less than smooth and streamlined at first is important in a way.
Relying once more on your extensive political experience, the wider problem of what to do with organizations such as the Liberal Citizen Foundation (SALK) and Foundation for the Protection of the Family and Tradition (SAPTK) has cropped up after the previous elections in terms of their activities possibly amounting to illicit donations to parties. SALK also supported your party or at least cooperated with Eesti 200. What is your view? Should they be banned or regulated?
In general terms, the less we ban, the better. There are some things that need to be banned, which pose a threat to people's lives, while things pertaining to social life should work with as few disturbances, orders and bans as possible.
It is sensitive in politics because it culminates in elections where parties land seats, form coalitions and it all ends up affecting everyone's lives. It should be transparent and clear. Perhaps we could regulate it that way or rely on self-regulation.
I do not believe in such action, and I believe Eesti 200 and the other parties would have done just fine without SALK's so-called support.
As a political science graduate of the University of Tartu's sociology department and having kept up with the field, also having practical experience with elections campaigns, I can say that piling up data adds little value.
The main thing in campaigns is how to effectively take your message to that part of voters that cares.
Or taking in donations and finding sponsors?
It matters of course, but the whole matter has been blown out of proportion and does not merit all that attention – a mammoth article in Eesti Ekspress.
On the other hand, it opens the door to companies creating their own ideological foundations used to funnel cash to political parties and pursue campaigns through other means.
Yes, it is quite widespread in the democratic world, and not just in the United States. Tens of billions make the rounds at elections. Such foundations also exist in otherwise peaceful countries, like Finland and Sweden, helping to carry out studies to give ideological views a factual footing and also lending a hand with campaigns. But the Nordic tradition is to be very open about it.
Personally, I don't see a problem with this – the more people who are involved in politics in one war or another, trying to influence its course, the better.
The problem in Estonia perhaps is that because everything is so small, it is relatively easy or it doesn't require a lot of resources to influence things. It just needs to be all the more transparent.
I see absolutely nothing wrong with businessmen publicly sponsoring politics, speaking their mind, or if other groups in society do that.
At the same time, we can see in Estonian politics campaign messages that definitely aren't based on facts. If only talking about the last elections, promises of billions in additional spending in a situation where it is obvious we cannot afford it.
I do not condone the practice, while it's also little use criticizing it – if you see that something is wrong, you need to roll up your sleeves and do it better. I did not have a hand in the recent campaign, while I do not consider this practice right or necessary.
The coalition was off to a bumpy start, mainly due to poor communication. It is true that little was said during the campaign of the need to balance the state budget. It was convenient not to as the focus was somewhat on national defense.
And when people then said that they did not lie but simply left things unsaid, while that was the case objectively, it is a matter of how it is interpreted. The voter interpreted it as something that should have been talked about, and I agree.
Will you talk about it next time?
Hindsight is 20/20 but it is my recommendation to try and be honest and sincere in one's communication.
Before we get to the subject matter of taxes, I would take care of another political matter. You served as director of the Office of the President for a long time. What is your view of the scandal now involving the government and the presidential office? Does it seem like the Reform Party is getting even with the Office of the President for political meddling or is it the opposite – that the presidential administration did try to do something that merits a criminal punishment?
Tell you the truth, I do not know enough about the case to factually comment. Indeed, I served as head of office for President Kersti Kaljulaid for five years. We somehow got through those things. There were times when the government and Kadriorg saw eye to eye, while opinions were quite diametrically opposite at other moments. But we handled it, found common ground.
The matter of funding has been there all along. But budgeting is not very difficult [for the Office of the President] as it is not a large organization – you have fixed costs, such as electricity, gas and janitorial, while these are more or less predictable. We did see a spike [in utility costs] recently, while I hope that is behind us now.
Then there are the institutional staples of various events, also outside Estonia. According to the constitution, the president represents the Estonian state, while it must all fit inside the budget.
Of course, there were additional ideas that cost more but seemed like they could help Estonia's aspirations. For example, the campaign to be a temporary member of the UN Security Council, the Three Seas Initiative presidency or celebrating Estonia's centenary more extensively than usual. We wrote down our vision of how to do those things and took them to relevant ministries. We sorted it out with the Ministry of Finance with their blessings. I cannot recall periods during those five years where we did not manage to do something.
What would you have done as head of office had you received signals from members of the government that there have been attempts at blackmail or to buy the promulgation of laws by making more resources available [to the presidential office]?
I really would not like to comment. I do not know the circumstances, haven't spoken to the people involved. I would just try to do my job, it is quite enough. I would leave resolving this matter to those involved.
Let us talk about taxes. The hit this summer is the incoming car tax. Toomas Uibo, member of the Riigikogu Economic Affairs Committee and your fellow Eesti 200 member, said that the tax should not have an annual component. What is your feedback for the Finance Ministry?
We have not provided our feedback yet. It is a natural process that has merited extraordinary attention probably because personal vehicles enjoy a special status in Estonia. There are reasons for that and societies have their peculiarities – some revere cows or pigs, while we still see cars as status symbols. Whereas I would not want to wax ironic at the expense of people who really need a car on a daily basis.
I live in Tallinn, not far from the city center, and what has been done there has motivated me to refrain from using a car. I'm also a cyclist, and I have been using my bike more this year. I'm not sure this is the right policy with which to achieve the result, we'll have to see, but we could have truly safe bicycle paths. /.../
As concerns the car tax, we are at the beginning of the process. We talked to the Social Democrats, and they also have their proposals and vision. That is how it should work that we'll go from legislative intent that provides the framework for what we want to achieve to feedback for an optimal solution.
Eesti 200 will make its own set of proposals, while as someone who sports a greener worldview, personally, I would rather like to see the tax geared toward changing people's behavior.
It is no secret that every tax serves the purpose of filling the state's coffers so the money can be put to effective use. It is a matter of striking a balance. It is to be hoped that debates will arrive at something which is not ideal but can really motivate people to choose environmentally friendlier modes of transport.
One of Eesti 200's messages is that we must not forget the goal of improving and empowering mobility in the process. The two are not directly linked, while we have an opportunity here to focus and introduce deadlines and a framework – once we lay down a car tax, we will get our answer in terms of how to improve mobility, what is being done and of the relevant investments.
There is only so much that can be done for mobility through public transport in a country like Estonia. It just isn't feasible – we don't have enough people or indeed money for it.
Yes, but I believe there is room for improvement. Having worked in the transport and tourism sector for a long time, I can tell you that we can always do better.
The taxpayer is already picking up the lion's share of the tab, train tickets for example.
That is how it is.
And yet, pretty much the only thing we know about the car tax is that it's supposed to yield €120 million, according to the coalition agreement, which is where we're headed. To what extent have you found it possible to alter or affect tax matters as laid out in the coalition agreement? Or is it rather a case of your coalition partners giving you a ready paper and expecting it to be done?
This and that. On the one hand, I'm someone who believes that results are achieved collectively. A singe political party is a collective, while the same can be said of the collective of the Government of the Republic.
I would zoom out here and say that as we've agreed the fiscal situation needs to be fixed, since this government rather believes you cannot borrow your way into wealth, this needs to be achieved somehow – you need to cut back, and if you don't want to dial back certain services, you need to find ways to expand the tax base. We won't go back on that.
Now for your question of whether we have proposed matters. We have. One such compromise that directly concerned the Ministry of Economic Affairs and Communications was the tourism tax. The initial plans were different there, and we had quite a lot of work and explaining to do. The sector is still not happy about it, while they're not despondent either. A relatively sensible compromise in the end. I can say without false modesty that Eesti 200 and yours truly played a role there
How do you see the state's role in the economy in general? Are you more of a Keynes or Hayek man – more state intervention or more free market and independent movement?
I believe in personal initiative – nothing happens without it. I do not want to flatter anyone but I feel a deep sense of respect toward real entrepreneurs. People with the motivation and passion to turn nothing into something.
And it's that simple really – if we want to build a successful country, having such people constitutes a resources in the conditions of democratic market economy. I do not think there's an alternative. We were treated to front row seats to efforts to build a society based on something other than entrepreneurial initiative a few decades back. But it didn't work, nor has it worked anywhere else. That is my answer to your question.
What I perceive as my professional mission, without going into detail at the ministry or the government, is to support those people, make sure their initiative endures. Because that is the source of development. Nothing else. Having enough smart people who want to contribute their energy and part of their lives to creating value added. That is what we can tax and use to make progress. It is a sincere conviction of mine.
There are enough people suggesting that since we have been in recession for five consecutive quarters, a country that can still borrow should, in such a situation, open the loan taps and use the money to kickstart or expedite the economy.
We are entering the world of economic beliefs here. Unfortunately, they are not an exact science as everything couldn't be simpler otherwise. We have enough computing power as Estonia has a stake in several supercomputers – we could just input the data and get back an ideal scenario. However, things are also based on certain convictions or understandings of what makes for an effective social order. As I have suggested before, I do not believe in them.
If we were to offer a rebuttal, it's that Estonia's particular experience has shown that we can manage ourselves through a balanced budget. Looking at macro forecasts coming from the Bank of Estonia and the Ministry of Finance, we are on the correct path. Getting inflation in check was the number one goal, and we have done it.
If we were to go down the road of putting the pedal to the metal and throwing everything at livening up the economy, we would be fueling the fire instead of suppressing inflation. Economic processes inevitably take time.
Having a desultory economic policy would be the worst option of all, and this cabinet has rather opted for a rational approach. And despite everything, the indicators suggest we are headed toward a healthy economy. Classic economic theory tells us that this would be around the 3-5 percent marker. Of course, we are talking about labor shortage, inflation and growth. We could be close to those figures by late 2024 and there in 2025.
Long years of practical experience tell us that this results in balanced economic development. One might think that faster economic growth is better, while that might not always be the case – the labor market might not be able to keep up etc. Things can depend on a lot of different nuances. I remain optimistic, and I believe we are headed in the right direction. Recent forecasts are encouraging.
You say that you tend to favor entrepreneurial freedom, bold business and a bold society where such things are encouraged. However, do you not also feel that public systems tend to define a set of problems, whether they exist in reality or only on paper, and set about solving them through new benefits, in other words, offering companies money to do particular things and then report on their progress. Is it not risky to make this kind of behavior habitual for our businesses?
The risk is there, while I also think the rate of interference is not lethal in Estonia. It is a complicated and vital question how to handle such intervention effectively, without ruining the market. I believe Estonia has not experienced major disruptions. Meeting colleagues in Brussels, I can see the formation of coalitions – the Nordics and Baltics make for one such group, if only based on our size and worldview.
The EU has a rather strict set of rules on where the public sector can and cannot intervene. We are developing our union based on the principles of market economy and rule of law. That is our foundation.
Peculiarities caused by Covid but also the war [in Ukraine], supply chain disruptions have created a situation where state intervention has been warranted, while we can already see it spiraling out of control and manufacturing unhealthy competition. Major countries and corporations are first to go along with such things, which is why we need to find allies – and we have – with whom to urge a return to common sense. We cannot liberate everything as we would be building an ineffectual system – overregulation and intervention where it is unnecessary. My honest answer is that it is something that needs attention every day and for which there is no silver bullet solution I'm afraid.
This brings us to the question to what extent we are heeded in Brussels. In the end, major countries need to deal with major domestic interests. We do not have many large companies looking for handouts.
That's true, but I would say we are heeded. And we would definitely be heeded less if we kept quiet. However, you could have over people who know a lot more about it – our ambassador in Brussels Aivo Orav or Matti Maasikas (EU ambassador to Ukraine – ed.).
We like to demonize Brussels, and there are certain nuances that I can also see in my work where you have the goal of reducing administrative burden and bureaucracy for companies by 25 percent, while you then get hit by a wave of new directives that only add to it. Whereas we cannot say the latter aren't needed either.
We have achieved quite a lot with the help of the EU, things we could not do by ourselves. For example, there was a consumer protection ministerial to remove around 50,000 products from the EU market, mainly from China and other third countries – things of poor quality or that posed a health risk. We could ask whether it is something we should do collectively, or whether we should let people make the mistake of buying them. Many fall victim to attractive prices only to receive a defective product which some throw away, while others want to be made whole but cannot get far alone. But we can achieve those things by working together.
Of course we need to protect our interests in the EU. There are myriad things where we see benefit, while regarding things that are not going your way, you need to find allies and make yourself heard.
We have benefited from membership in the union on all levels, both economically speaking and in terms of national defense. We could no longer imagine another way.
Certainly. But it also creates difficulties. For example, we cannot subsidize our own airline to fly out of Tallinn. Indrek Neivelt asked on social media a few days ago (the interview took place last week – ed.). why the Climate Ministry operates its own airline that is flying between Swedish cities. Do you believe Nordica should be shut down?
I had some contact with the field ten years ago. I would not go straight to shutting Nordica down, while if you asked me whether the Estonian taxpayer is benefiting from the company in its current form, I would rather say no.
My contact was with the airport and not aviation as such. An airport in what is something of a remote destination in EU context serves as a guarantor of transport links, and the approach there has been to avoid taking major risks or keeping all your eggs in one basket. A sensible balance of three-thirds has been maintained.
This sees a third of traffic reserved for economy airlines, a third for traditional airlines or flag carriers (which is what Estonian Air was for us) and a third for a strong local airline. But since we have lacked the latter for years now, maintaining that structure serves no purpose.
I am not up to speed on the details of the last ten years, but what we have seen in practical terms is hardly encouraging in terms of keeping Nordica.
Could it be the future of aviation in Estonia to tell the airport to minimize its profit, perhaps pour some taxpayer money in there and try to promote flying to and from Estonia that way?
The airport has done just fine and I see no need to send another company deep into the red, while the owner's expectations can and have been defined. I was a member of [the airport's] supervisory board during the previous so-called daring period. The demands put forth by the then domestic airline were colossal and its business plan seemed less than credible. We did not make the investments they were after, and it has proved a sensible, reasoned decision since.
In other words, the airport did not develop as rapidly as Estonian Air wanted it to develop?
The airport developed rapidly, while it did so without favoring a single company.
While we're on the subject of state companies – the Reform Party has been saying for years how Estonia's power lines and [TSO] Elektrilevi should be separated from [national energy giant] Eesti Energia. The TSO seems to have gone down the path of defining itself as a separate company since Eesti Energia got a new CEO. Do you believe Elektrilevi should be privatized, sold or listed?
I would refrain from deciding on behalf of other ministers.
A member of the cabinet could be entitled to an opinion.
I would analyze the situation and comment if and when it lands on the agenda. I believe that Elektrilevi has many important functions in ensuring energy security, while I have also heard it suggested it could benefit from being less centrally managed.
I would not suggest there are murky things going on at the TSO, while things also need to appear above board. Suspicions according to which Elektrilevi's parent company receives preferential treatment when connecting its projects to the grid, while others need to wait in line for their documentation to be processed /.../ – I could not tell you whether these are facts, while I do believe separation would lend clarity.
On the other hand, we could simply ask whether a state-owned natural monopoly should be in private hands instead.
I was rather referring to management – the companies could have separate management. Privatization makes for another matter and one I do not feel competent enough to comment on at this time.
But ideologically speaking. Natural monopolies?
I believe that the fewer companies are managed by the state, the better. At the same time, I have nothing against Port of Tallinn functioning as a landlord-type port, renting out port infrastructure to allow companies to offer services. I believe it is fine, even though we have examples of private competitors.
We might ask that in a situation where the owners of the Port of Sillamäe have assumed a risk – to invest, build and offer the same service – whether the state should be doing it in certain context. Perhaps it should if that is how things have turned out historically, but regarding things on the end consumer market or between companies, it is my deep conviction that the public sector does not make for a good owner.
Coming now to another topic that is sure to interest taxpayers – the government has promised austerity. Are you finding success regarding these plans to cut back?
We have made our proposals and I would refrain from additional comments. Not that they're a secret but we have decided to present the Finance Ministry with all of the proposals first for an aggregate picture. The ministry will then unveil the big picture in the second half of August, which is when we can comment on our part as necessary.
I remember this spring when head of Eesti 200's government delegation [Minister of Foreign Affairs] Margus Tsahkna promised severe austerity. Do you share his description of what will be proposed?
We need to tell two things apart here – what we are doing in the context of the 2024 budget, where we should make the planned cutbacks, while it is by no means a final solution. What Margus Tsahkna and Eesti 200 said in our campaign is the ongoing and accelerating zero budget process.
We would like to take the public sector apart as much as possible to take a look inside at the services we are offering. A seminar on state reform analyses took place this week (last week – ed.) and the honest answer today is that we don't really know what services the state is offering and whether all of it is needed or sustainable. But the government has a serious plan to find out.
The Ministry of Finance is currently working on the methodology, with coordinated input from the Ministry of Economic Affairs and Communication. We want to be among the pilots steering the process. We want to determine whether all of it is needed and leave aside that which isn't. Make sure there are no duplicated tasks and decide how to offer services using the digital state model as effectively as possible over the next decade or two. The project is dubbed the digital turn for the personal state.
I am dead serious about it and work is being done. I also said at the seminar that I do not know where it will end up in the government as we lack experience working together, while I rather remain optimistic. We will definitely do our part at the Ministry of Economic Affairs and Communications.
Coming back to the matter of budget cuts, it is a process where we should learn where we can really save money, as opposed to hurried and temporary solutions.
Is that to suggest that what we're seeing now is in fact hurried and temporary? That neither the Ministry of Economic Affairs and Communications nor other ministries plan to cut back in a meaningful way?
I did not mean to suggest that it is a joke or that we'll save a few million euros while we're waiting for the situation to calm down – that is not the case. We are talking about €100 million over four years in the context of the Economic Affairs Ministry. These efforts are serious.
But there are obvious things looking at ministries that do not require one to delve deep.
I hope the other half of it also succeeds. Because as put by Estonia's fiscal chief for the bureaucracy so to speak, undersecretary Sven Kirsipuu, there have been few such exercises in the world – taking the budget apart service by service and trying to find an optimal solution. But if it can be pulled off anywhere, it is here, because the relative importance of digital services in Estonia allows us to react.
It seems that the government is prepared to go ahead, and we'll see whether the stare reform, talk of which appeared almost a decade ago, will finally happen.
There are usually good reasons for things remaining undone for a long time.
Yes, and it is one possible realization. But if we hadn't carried out our currency reform as we did, had refrained from the effort of developing a digital state, we would not be where we are today.
Editor: Marcus Turovski