Vihula budget talks fail to reach agreement

Day one of a two-day cabinet summit at the Vihula Manor Spa and Country Club, where the 2024 state budget and the four-year state budget strategy are being discussed.
Day one of a two-day cabinet summit at the Vihula Manor Spa and Country Club, where the 2024 state budget and the four-year state budget strategy are being discussed. Source: Jürgen Randma/Government Office

The government members continued their discussions of the state budget on Friday at Vihula Manor. At twelve o'clock midnight, no agreement had been reached, and the representatives of the three government parties, who had been negotiating up to that point, dispersed without having reached an agreement.

Government convened at the Vihula Manor on Thursday to discuss state budget savings and additional revenue.

On Friday evening, the debates continued in a smaller circle. The coalition parties were each represented by two members: from the Reform Party, Prime Minister Kaja Kallas and Minister of Finance Mart Võrklaev; from Eesti 200, Minister of Foreign Affairs Margus Tsahkna and Minister of Education Kristina Kallas; from the Social Democrats, the leader of the parliamentary group Jevgeni Ossinovski and Minister of the Interior Lauri Läänemets.

Läänemets left the talks at 11:45 p.m., while Ossinovski had left earlier.

Even though all participants were tired, Kaja Kallas (Reform) told ERR, the coalition partners could have made a last-ditch effort to reach an agreement.

"However, it was also true that he (Läänemets) was left alone by the other party member," Kallas commented Läänemets' departure.

Negotiators made significant strides to improve the fiscal situation in the future years, she added.

"But there is exhaustion, and there are certain things that are unacceptable to one and other things unacceptable to another. We have to make compromises," the prime minister said.

Kallas was reluctant to discuss specifics: "Until there is a complete agreement, we cannot confirm anything about the agreement's contents."

Kallas noted that there is no consensus regarding the Social Democrats' proposed special tax on bank profits. While Ossinovski had said earlier that opposition to the tax was waning, Kallas acknowledged that the Reform Party in particular was not in favor of it.

"We will continue to debate these topics, but there are many factors that affect the economy as a whole, and we should consider them all in concert," she said. "On the surface, it appears to be a very straightforward solution, but it is not."

Kristina Kallas did not confirm that Eesti 200 strongly supported taxing the high profits of banks. "I cannot confirm this. Every idea was on the agenda, everything was discussed, measured and analyzed, but there is no consensus," she said.

Läänemets said that there is a fundamental disagreement in the negotiations on the issue of bank and corporate taxes.

"On the one hand, there is the banking aspect, but the fundamental question is whether the entire burden of bailing out the state budget should be borne by ordinary Estonians, while businesses and those who earn excess profits should not be required to contribute. We are right now so fundamentally divided on this issue that we will have to discuss it again," he said.

"It was wise to pause the negotiations today [Friday night]; we should be resuming them next week. Our fundamental and ideological differences remain unresolved. It is difficult for SDE to agree that only people will contribute, given that improving the state of the public budget necessitates very difficult decisions and, likely in the future, some form of additional tax increase to which people will have to contribute again through a higher tax burden. In reality, corporations and institutions with excess profits should also contribute. Since these problems are not any closer to resolution, there is no purpose in exhausting one another further. I believe everyone ought to think about this," Läänemets said.

According to the prime minister, however, no decisions on corporate tax are forthcoming.

"We have to make structural adjustments to the economy so that we are no longer a country with cheap labor, which is not what we truly want. And we are not a nation with cheap raw materials. This means that our businesses must work wiser and use this time to invest in their operations and employees, to make structural changes, and to produce products with a higher added value. Therefore, the corporate tax in its classic form discourages this possibility and it is not really to anyone's benefit in a circumstance where we have a cooling economy," she explained.

Kaja Kallas said that the Reform Party has proposals for deep cuts. "We believe it is important for the state to demonstrate that it is cutting costs in a situation in which it must also increase its revenue base to cover existing expenditures. For instance, the national defense expenditures that we've all agreed are essential," she said, but did not specify the cuts package.

She added that the possibility of providing higher education with fewer additional funds than previously promised is also under consideration.

"We are certainly not going to take any money away from higher education. There's just a currently agreed increase for higher education that others don't have. The question is whether it's possible to go with a lower increase," Kallas said, but did not specify the amount.

According to Kallas, there are no current proposals to increase the social tax, and no additional income tax or VAT increases have been discussed.

The prime minister confirmed that there is an alternative as a major source of revenue, but again she was reluctant to say what it is.

"We have to discuss one alternative, which we cannot necessarily implement in 2024 and for which additional planning time is required. But again, I wouldn't go into that now because we don't have that agreement," she said.

According to Kallas, the coalition partners came near to reaching an agreement on the budget strategy for 2024 and 2025, and the budget positions for 2026 and 2027 have also been strengthened.

"We have mapped out the needs and what we can leave out, as well as where we can still do long-term reforms that require preparations. As a consequence, we've already saved on interest, so we don't need to borrow as much. We have saved over €100 million in interest savings alone," Kallas said.

Läänemets confirmed that there is a common vision in many aspects of the negotiations, but fundamental concerns remain. "I know that the Reform Party has a radically different vision than the social democrats on socio-economic issues, and that's where everyone has to compromise, not just the socialists," he said.

Kristina Kallas confirmed that a big step forward was made in covering the €200 million deficit in the state budget by 2027. "Today was, in my opinion, extremely difficult, but there are finally some solutions to this dilemma on the horizon. However, we still have a few unresolved ends," she said.

"We are fortunate to be in a position where we have plans and only need to agree on them. The task was so large, and the budget deficit is so big, that it will undoubtedly take longer than two days," she said.

Kallas hopes to resume talks with coalition partners as early as Saturday, while Läänemets thought this could be early next week.


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

Editor: Merili Nael, Kristina Kersa

Hea lugeja, näeme et kasutate vanemat brauseri versiooni või vähelevinud brauserit.

Parema ja terviklikuma kasutajakogemuse tagamiseks soovitame alla laadida uusim versioon mõnest meie toetatud brauserist: