In an appearance on Vikerraadio's "Uudis+" on Wednesday, Minister of the Interior and Social Democratic Party (SDE) chair Lauri Läänemets said that there are several aspects of the 2024 state budget agreed upon by Estonia's ruling Reform-Eesti 200-SDE government coalition this week that the Social Democrats are unhappy about, but acknowledged that at the end of the day, compromises had to be made.
The government coalition agreed on next year's budget and the budget strategy through 2027. Let's start with next year's state budget — there won't be a single new tax hike. At the same time, it was necessary to find €15 million in cover for the teachers' salary increase, €27 million for the transition to Estonian-language education, some €20 million for the bus transport subsidy. And much more besides. This implies cuts. What are the bigger or more significant cuts that the government decided on for next year?
There are various things in each ministry's area of administration. What I can talk about is what's in the Social Democrats' area of administration. At the Interior Ministry, the biggest savings is in the fact that we're not increasing operating costs. Everything has gotten more expensive, by the amount of €16 million. That means that [this additional amount] will not be provided, and we have to manage with our existing means.
Add to that smaller things and smarter solutions, like if police didn't have to constantly escort so many defendants all the time — driving to court and driving back and spending all day at court — then we could reduce that. Then actually handing sobering center services in Tallinn over to the City of Tallinn, because by nature it isn't actually a security or safety issue, but rather a social problem. That someone has social problems and they must be helped.
Also, the police currently maintain a very large fleet of cars. Not the cars that the police themselves drive, but cars that have been confiscated or taken away somewhere. Or they're some sort of evidence, and then we have to hang onto them and preserve them and occasionally even maintain them. That could be handled by enforcement agents and everyone else, for example. Police don't have to guard cars in a parking lot.
So the idea would be to sell off impounded vehicles, and if it's agreed later that they have to be returned after all, then they'll give them money, not the vehicle.
Precisely. Exactly the same logic.
In the Social Affairs Ministry's case, it can't be said that there are any major savings to be had there, because the minister of health has the Estonian Health Insurance Fund (EHIF), and that will actually be very short on money soon. The government won't be taking [anything] from there. And as for the Ministry of Rural Affairs, i.e. now the Ministry of Regional Affairs, I believe that the biggest savings there will be that they're giving up that ministry building and will be moving into the Superministry building. That will give us tens and tens of millions of euros.
ERR: Did the Ministry of the Interior get any additional funding as well for anything next year?
Yes. The most important thing is police training. Right now, more police officials are going into retirement or simply resigning than we can manage to train. In other words, we're increasing police training. And in order to be able to do so, a new auditorium space and new dormitories need to be built at the Estonian Academy of Security Sciences. That one was a real effort.
How much money will that take?
Police training is more than €5 million a year, and the [academy] dorms €44 million in total.
At the same time, the very people studying there, meaning rescuers, police officers, have to bear in mind that their wages won't be increasing next year. What is the interior minister's message to them?
The message is that we didn't freeze wages, as the minister of finance had wanted. But when the minister of the interior had to make a choice and can't have it all at once, then considering the fact that we're making cuts everywhere, the cuts that would have been made in this area of administration and which would have meant rescuer and police officer layoffs, won't be happening.
True, the previous Center Party-Reform Party government had included cuts in the state budget strategy that I managed to scrap, which means that 50 police officials won't have to be laid off. But unfortunately in the case of the Rescue Board, one brigade will still have to be closed down. That could not be prevented in all of this.
Any idea yet which brigade?
That we now have to discuss together with the Rescue Board. The financial situation finally just became clear yesterday. I managed to stave off more than half of the prior cut as well, and nix new cuts. Preserve the possibility that we can raise wages in the years 2025 and 2026.
Perhaps one of the most crucial agreed upon cuts involves the year 2025 and the income tax break [basic exemption] for pensioners. The average old-age pension is currently tax free, with tax-free income for those of pensionable age of €704 [a month] this year, €776 next year. But from there onward, it stops, so to speak. Meaning that if the average pension rises above €800, then the tax-exempt portion will still remain €776. For how long?
The other half of that calculation hasn't been done. We're not happy about it. I think there's quite a lot of things in this budget that we're not happy about. At the end of the day, you have to make these compromises at the table. Personally, I would have of course canceled the tax hump changes. Then we wouldn't have to make so many of these future tax changes, and I think that would have been very reasonable. Unfortunately, it wasn't possible to convince our partners of this.
Personally, I'm very angry with this style of governance, where it's constantly being promised that we're going to commit to some sort of new expenditures but then we cut taxes. All of this is happening right now. As soon as the [COVID-19] crisis hit and the state had to borrow a lot of money — but now there's no getting out of this for us anymore.
Isamaa managed to promise in yesterday's TV debate that they would lower taxes right now. I don't know how it would be possible to do anything at all then. Take rescuers' wages as an example. If rescuers' wages had been increased normally over the years, then there wouldn't have been any need for a bigger wage like that last year.
Now you've put that very same rescuers' wage right back in the same boat, meaning that you aren't normally increasing [it] this year. Then we'll likely see another jump in wages in some election year again.
Yeah, well, it just isn't possible to do everything all at once. But what the Social Democrats did was ensure that these agreements will allow for this wage to be increased in the future. And we're doing it honestly, so that if you increase costs, then you'll also increase revenues, and rescuers' wages must go up.
The coalition is anticipating a slew of bigger tax cuts in the coming years. An expected €150 million in expected cuts is written into the 2025 line based on a so-called zero budget, or budget audit. This money is supposed to come from the Ministry of Social Affairs, the Ministry of the Interior and the Ministry of Education.
No, the Ministry of Social Affairs, the Ministry of Finance and then the Ministry of Economic Affairs.
All members of the government said before budget talks began that a zero budget cannot be written into the expectations of the state budget strategy. That there's no way of knowing or even imagining how much can be saved there; that perhaps additional money may be needed instead. You've also looked at these things and these people. Does it look in the budget audit like there's €150 million in savings across three ministries in 2025?
Yeah, it was heavily debated that that can't be pulled completely out of thin air, and it actually isn't pulled completely out of thin air. There's a very general but nonetheless a calculation behind it based on the logic that certain social benefits, such as the large family benefit, will definitely not be scrapped. But if you make them need-based, if they're very large as a budget line, so to speak, then indeed, those people who are very wealthy — and if the administration of this doesn't end up more costly — then perhaps it isn't necessary to pay this to those wealthy people.
But of course this requires thorough analysis. We're not making those decisions today. This budget goal exists, it should be possible to achieve, but it still has to be analysis-based.
So a personal state isn't everyone getting the services they need, but rather one where the state thinks someone doesn't actually need that support after all, so let's take it away from them?
Yes, this is a matter of social contract. If you look at the parental benefit, then I think we should review that one too. That someone with very low wages has a baby and is essentially paid the minimum, which is very hard to live off of with a child, and then we pay someone €5,000 a month if they stayed home with their kid.
Now I don't know if that €5,000 is reasonable. I believe it costs a lot less than that to raise a child. So maybe we could add more at the lower end and cut back at the higher end and maybe there'd be some savings to be had there as well.
But once that zero budget eventually reaches the Interior Ministry, then how do you see that outcome?
I don't think there's any way to get that kind of money from there. We've discussed that as well — that ministries differ.
Does that audit expectation apply not just to 2025 but to 2026 as well?
In this case, what is currently on the 2025 line is what we see. And as these are fixed costs, then it will run into the coming years with the same line.
But the audit of the remaining half of the state isn't written into such an expectation then?
It isn't, no. Then maybe you could say it's as though it were pulled out of thin air. Right now it's still a very real thing.
Let's talk revenues too. Initially you proposed raising more than €900 million off of banks with a separate tax, and now instead banks have promised to take additional dividends to Sweden, Denmark, and Estonia will then receive an additional €120 million in income tax on that. Bank of Estonia Governor Madis Müller asked what kind of solidarity that is when profits are distributed to [bank] owners before the tax hike.
The Social Democrats would have done that bank tax completely differently. I can't say we're very pleased. But, well, this was one of the arguments with our partners to take the longest time when drawing up this budget. And what I can say is that if the Social Democrats hadn't raised this issue, then we wouldn't be talking about even this €120 million.
Now we have to look at what the banks will do. They're actually reducing their equity. The money that's coming in now, this money is taxed when dividends are withdrawn, or it's paid as income tax if it's generated as a profit. But now that money that was sitting in Swedish banks and that wouldn't have been withdrawn has not reached the state budget next year, the year after that, or probably the year following that either.
The owner still would have wanted their money at some point.
Well, maybe in 20 or 50 years. It also could have been the case that this money is taken out, that their own equity is reduced. It's also important to look at what money they withdraw. Meaning yes, I agree with that criticism.
This is quite the monumental hoax. When the owner of a business withdraws their money, pays taxes on it as required by law and then says that they're making some kind of enormous solidary contribution to the state, then we can't say thank you, banks. There are countries where banks for example have reduced home loan interest rates or done something else similar in a mark of solidarity. But this is just normal business activity.
Yes, it really would be like that if they took this money out. When I think of the competition — but maybe Estonian banks don't have money sitting there like that. In Swedish banks, that money just sits there in banks.
Generally speaking, logic would suggest, yes, that that isn't additional revenue, but if they wouldn't have withdrawn it over the next 20 years either, and that money was earned, I don't even know when ten or twenty years ago, when it may not have even been taxed — in that sense it's still some sort of move that will add more money to the state budget, and is otherwise making banks do something they otherwise wouldn't have.
But of course what I actually would have wanted is the bank tax logic that we proposed. That would have been fair. But two right-wing parties and one left-wing party — it just wasn't possible to reach an agreement on this. Otherwise there wouldn't have been anything at all.
Editor: Aili Vahtla