New Center Party chair: Economy needs life support instead of austerity

The new head of the opposition Center Party, Mayor of Tallinn Mihhail Kõlvart finds that the government should concentrate on laying the groundwork for growth during state budget deliberations, while signals from Vihula Manor suggest the opposite.

Kõlvart said via a press release that the crisis Estonia is rapidly heading into has several reasons, including the pandemic, gas shortages and Russia's war in Ukraine.

"But the crisis is not fundamentally singular – the economy cannot keep growing perpetually, its development is always cyclical and periods of growth are always followed by decline."

"In the downward phase, our main focus should be on finding ways to alleviate it and return to the next growth stage of the cycle as quickly as possible. Instead, the government's answer seems to amount to doing nothing and simply cutting back," Kõlvart said.

The Center leader said that during a time when demand, private investments and real income are in decline, states must invest in the economy to keep it afloat. "Tax hikes hit low income people the hardest. Enterprise support, especially for small and medium businesses, loan stimulation, investments in education and infrastructure and job retention – all of these measures known to economists as countercyclical regulation require state budget expenses to be ramped up instead of reduced."

Kõlvart added that while ways to cut back the public sector must be found, the government's extensive austerity plans in several fields will only deepen the recession, saying that a government that cares would consider using reserves or borrowing in the conditions of limited public revenue.

"Loans need to be repaid, of course, but the more effective the state in supporting the economy, the stronger its companies will be in the next phase of the cycle, and increased tax revenue will make it possible to service loans without setbacks. That is why more developed EU states are not afraid of borrowing, and Estonia should be more active here. Our public sector loan burden is the lowest in the Union. While it is something to be proud of during times of growth, balancing the budget through austerity in a recession is extremely shortsighted," Kõlvart said.

He also remarked that he was troubled looking at state budget talks in Vihula, which he described as members of the government turning what should have been a deliberation on strategic future decisions into an accounting seminar.


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Editor: Aleksander Krjukov, Marcus Turovski

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