Minister: Next year's state budget deficit will run at 2.8 percent of GDP

Finance Minister Mart Võrklaev a 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.
Finance Minister Mart Võrklaev a 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 2024 state budget will see a deficit of 2.8 percent of gross domestic product (GDP), Minister of Finance Mart Võrklaev (Reform) said Tuesday.

The government will also bring the national debt burden from its current level of 30 percent of GDP, to 23 percent, by 2027, Võrklaev says.

In simple terms, a budget deficit refers to outgoings (expenditure) exceeding income (revenue) over a set period of time. It is expressed as a percentage of overall GDP – the standard measure of the value added created through the production of goods and services in a given country over a given time period.

In other words Estonia's budget deficit will be 2.8 percent of its value added for 2024; as an EU member state in the eurozone, Estonia is in any case required to keep its budget deficit below 3 percent of GDP, which, it is argued, will promote economic stability and sustainable public finances.

Speaking to ETV news show "Aktuaalne kaamera" (AK) Tuesday, the minister said next year's budget deficit will stand at 2.8 percent of GDP.

"We will improve the nominal position from 3.5 percent, which is the forecast for this year, to 2.8 percent; ie. we will improve and start moving towards budget balance. This is our direction, though it will be a long and difficult road," Võrklaev told AK.

Estonia's debt burden stood at 33 percent of GDP in springtime, and is now 30 percent, the minister said, thanks to interim decisions the current Reform-Eesti 200-SDE government has made since entering office in April.

Government debt refers to the the gross debt of the general government sector which are made up of debt liabilities – financial claims that require payment of interest and/or principal, ie. loans, government bonds, and even government employee pension obligations.

Estonia's debt burden will continue to be reduced, the finance minister said.

Reaching a level of 23-24 percent of GDP will thus mean a slowing in the uptake of loans.

"This spells fewer loans for us, and so less interest [to pay,]" Võrklaev told AK.

This does not mean that the government sector will not continue to take on loans, however.

"Unfortunately, we have to continue borrowing, though as I have said, the debt burden will diminish significantly during this budget strategy period," Võrklaev said, referring to the four-year state budget strategy, known as the RES and prepared in tandem with the state budget for the following year itself.

"However, as of today, we have reached a situation where we are in fact taking a large proportion of borrowing to cover fixed costs; this trend must be halted. This is the direction we're moving towards," Võrklaev continued.

Bringing the loan burden to 23-24 percent of GDP by the end of the RES period, ie. 2027, from the current figure of 30 percent, according to the finance ministry's summer forecast, will be a "major step," Võrklaev said.

This will require making savings via cuts, decisions relating to a debate in society which is already "painful," Võrklaev said.

"On the other hand, we have to make taxation changes. But we have to do so in such a way that society will remain healthy within four years; perhaps if we stick together, but this will be quite difficult and painful," he continued.

This all at the same time when security considerations need to remain in view.

"Changes to taxation must in turn be made, as we also need to invest more in a broad-based security," he added.

Plans to make changes to the base domestic legislation which governs the state budget process in Estonia, as first referenced publicly by the government last week, is not a path of least resistance, he added.

"The goal remains to bring the state budget out of the red," he said.

Summing up, Võrklaev told AK that the government is moving towards budgetary balance; long a Reform Party watchword.

Prime Minister Kaja Kallas (Reform) on Tuesday announced that the state budget bill for 2024 was ready, following several days of intense discussions on the matter at cabinet level.

This bill must be presented to the Riigikogu by month-end, with a view to passing its three required readings by mid-December, when parliament breaks up for the Christmas/New Year recess.

The government has also said that it will relax the domestic regulations on budgetary discipline in order to achieve the reduced deficit. Estonia's own self-imposed rules are stricter than the EU's, in part due to the principle of maintaining a balanced state budget in the first place.

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Editor: Andrew Whyte, Merili Nael

Source: 'Aktuaalne kaamera.' interviewer Priit Kuusk.

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