Ministry leaves just two days for state budget law amendment approval

The Stenbock House, seat of the Estonian government.
The Stenbock House, seat of the Estonian government. Source: Siim Lõvi /ERR

A draft amendment to the State Budget Act is being expedited by the Ministry of Finance which would significantly relax budgetary rules set by Estonia in respect of moving towards a balanced budget.

The amendment represents the legislative side of a policy change which emerged publicly late last week while the government was debating next year's state budget at a country retreat in Lääne-Viru County.

Only two working days have been set aside for the bill to be sent to stakeholders for coordination and approval, by no means the first time the executive has been accused recently of forcing legislation through.

At the same time, the state budget bill must be ready by month-end under the current rules – rules which have not changed – and there are after today eight working days left to the end of September.

Were the bill enter into law it would mean Estonia's budgetary regulations converging more with those of the EU, and would not, in the case of economic crisis, require the set-in-stone 0.5 percent of GDP per annum movement towards a balanced budget, in the case of a budget deficit as at present.

The bill would have the state budget be prepared to that the structural budget position of the government sector is at least at the level of the medium-term budget goal, or moves towards it.

Assuming that the medium-term budget goal is set at -1.0 percent of GDP, the amendment would allow for four years, i.e. 2024-2027, to plan budgets of a total deficit of €1.9 billion higher than under the current, domestic rules.

The Ministry of Finance sent the basic law on the state budget for its approval round on Tuesday.

Finance Minister Mart Võrklaev said on Monday that current law presents a rather ambitious challenge whereby if the state budget is running at a deficit, the structural position must be improved by half a percentage point per year, while if the budget is balanced, it must be improved further, into the black by the same percentage points as it had formerly been in the red.

Sticking to this requirement is no longer realistic, the minister said.

The bill's explanatory memorandum states that the stricter requirements which have been in force so far have proven to be too restrictive in budgetary planning, especially in the context of major economic crises and recovery from these crises.

The explanatory memorandum states that both EU law and international agreements enable a more flexible approach to state budget planning in harsher economic conditions. 

Or, put another way, the basic law on the state budget has set stricter rules on the Estonian government when preparing the state budget than has the EU.

Prime Minister Kaja Kallas (Reform) said Monday that: "The idea with the basic law was to tie it to European criteria. In fact, we have set ourselves stricter requirements than are to be found in the European regulations. But we simply cannot meet these. So, we will do as Europe does, and we will not try to outpace that."

The bill if it were to become law would replace the minimum rate of structural annual adjustment of 0.5 percent of GDP with the rules of the EU's Stability and Growth Pact (SGP), which take into account the economic situation more flexibly.

This would make fiscal policy become based on a multi-year perspective; the annual budgetary position would then be formulated via a medium-term benchmark which must then be met annually, or at least moved towards, in accordance with the SGP's rules.

An agreement laid down between the European Commission and the European Council sets out more specific details on implementing the pact's rules, including in terms of annual budgetary adjustment.

The new minimum threshold would be either 0 percent, 0.25 percent, o.5 percent or 0.75 percent, depending on the economic situation; parameters of economic crisis are also defined, where no adjustment would be required.

Hitherto, the aim has always been to move towards a balanced budget by 0.5 percent of GDP per annum.

As reported by ERR news, this would translate to about €200 million for 2024.


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Editor: Andrew Whyte, Aleksander Krjukov

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