Government borrowing requirement for 2024 will be €1.16 billion

Prime Minister Kaja Kallas (left) together with Interior Minister Lauri Läänemets and Education Minister Kristina Kallas, at a cabinet meeting - this is immediately followed by the press conference.
Prime Minister Kaja Kallas (left) together with Interior Minister Lauri Läänemets and Education Minister Kristina Kallas, at a cabinet meeting - this is immediately followed by the press conference. Source: Government Office.

Government members were tight-lipped on the 2024 state budget, agreed in principle earlier this week, though they did reveal that next year's budget deficit will run at 2.8 percent of GDP – which translates to a borrowing requirement of €1.16 billion.

Prime Minister Kaja Kallas (Reform) said at Thursday's press conference that it had proven difficult to reach agreement on the budget, adding quite candidly that the state's finances are in a dire situation at present.

The prime minister said: "On reading the headlines in the media, one could get the impression that coming up with the state budget primarily involves a party and some merry-making. A bit of a tiff here, some food and drink there, one person gets offended, another goes home early, and the matter is done and dusted. In actuality, it is more comparable with using a steel brush in a sauna. It's not a nice thing in other words."

The government had repaired to the Vihula Spa and Country Club resort last Thursday and Friday, to hash out many of the 2024 budget's details, though agreement had not been reached by the end of that outing – that came this Tuesday.

The Prime Minister reiterated that there will be no new taxes, in addition to those already stated: Income tax, VAT and excise hikes next year, a car tax by 2025, plus a sugary drinks tax (Estonian: Limonaadimaks) and an unspecified "broad security tax" projected to take in €400 million, also due for the year after next.

The cabinet also finalized and approved its plan for cuts for next year. 

The table as published by the Ministry of Finance does not enter into details, ERR reports, but foresees cuts for the coming year totaling €41.4 million, plus additional revenues totaling €13.3 million. 

The concurrent state budget strategy, a four-year document known in the Estonian media as the RES, foresees cuts of €354.6 million, and additional revenues of €114.1 million, for the four years (ie. 2024-2027 inclusive).

The prime minister herself would not provide on Thursday more detail than to state that the structural deficit, i.e. the budget deficit as persistent over time and minus the economic cycle, stands at 1.2 percent of GDP. 

Later on in the press briefing, Minister of Education Kristina Kallas (Eesti 200) stated, whether as the fall guy or not, that the real budget deficit will be 2.8 percent of GDP, or €1.16 billion, based on the 2024 GDP estimate of €41.4 billion as published in the Ministry of Finance's summer economic forecast.

According to the current budgetary rules, the Estonian government is required to purposefully reduce the deficit when drawing up annual state budgets and actually achieve a surplus in the coming years.

However, from late last week the news percolated through that the decision has been made to abandon these rigorous regulations and substitute for them the more liberal EU regulations. 

The Prime Minister on Thursday justified this relaxation of the rules by saying that previous administrations did not accumulate reserves, which could have been used to weather the storm.

This in turn would have led to even more stringent budget cuts next year, Kallas said.

"Had we not changed these rules right now, we would have had to save significantly more next year, in order to diminish the budget deficit," the prime minister went on.

Kallas also said that the government plans to improve significantly tax collection methodologies. "We will make tax supervision more efficient in collecting both income tax and VAT, and we will also use the capabilities AI offers there. In this way we could get around €30-40 million in additional funds, into the budget," Kallas went on.

"In order to detect income tax fraud, we will introduce international databases, supplement the Income Tax Act to eliminate the double tax exemption which is applicable to companies in certain cases, and regulate the use of tax exemptions more precisely. We will improve sales tax receipts in much the same way," she added.

Kallas also pledged to start requesting from banks mass data on non-VAT taxpayers, and to make the use of e-invoices mandatory within Estonia.

Education Minister Kristina Kallas (no relation) meanwhile said that eliminating the so-called "tax hump," or bracket creep, as desired by the Reform Party, constituted a tax cut, yet taxes should not be reduced in a difficult budgetary situation such as this one, she said. 

Kristina Kallas compared somewhat laconically the dynamics of the national debt of Estonia and Greece, saying that in the latter country, too, politicians are constantly talking about extraordinary circumstances and the impossibility of acting in a different way.

One rule which has not changed is that the state budget bill for the ensuing year must be ready by the end of September. It then proceeds to the Riigikogu for three readings, including a vote at the 101-seat chamber. While the third reading is somewhat of a formality, substantive amendments can be made between the first and second readings. Most years the bill gets passed in mid-December, just before parliament breaks up for Christmas.


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Editor: Huko Aaspõllu, Andrew Whyte

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