Former finance minister: State budget hinders Riigikogu's work

Aivar Sõerd.
Aivar Sõerd. Source: Ken Mürk/ERR

Former Estonian Minister of Finance and current member of the Riigikogu's Finance Committee Aivar Sõerd (Reform) said that as next year's state budget once again uses an activity-based model, it is very difficult to identify exactly where the money will be spent. In his view, this will lead to additional resource costs for the Riigikogu.

Sõerd told ERR radio that he accepts the way the revenues are presented in the budget, however, the problems lie on the expenditure side. "The budget's expenditure is presented in terms of the programs and program activities, in other words, as broad categories of expenses," Sõerd said.

By way of example, Sõerd cited ERR's interview with Priit Sauk, director general of the Estonian Transport Administration, which contained a lot of information about next year's budget, which is not in the budget itself.

"The title already says that there is a blank space in the budget for asphalting gravel roads. There is no such line as the cost of paving gravel roads in the activity-based budget, because in the activity-based budget, results for the transport sector, come under the Ministry of Climate, and under that is the transport mobility program. That in turn is divided between rail, water and road transport. And so, the numbers that the head of the Transport Administration is dealing with have to be sought under the road transport infrastructure development and maintenance activity, which is in turn,, under the section on outcomes for transport. The total amount for that activity is €227 million. However, there are no figures for the head of the Transport Authority. The information, which sates the budget for paving over gravel roads for the next year is zero euros, cannot be found in the activity-based budget," said Sõerd.

"Yet there, in the interview, the head of the Transport Authority says that if this year there is €200 million for roads, then next year there will be €160 million. However, there is no such figure in the budget. We have €227 million. That includes money for road money, but also for some other measures. For example, the cost of creating a hydrogen charging infrastructure and the Pärnu bridge are included here," Sõerd added.

Sõerd admitted that it is very difficult to obtain information from the budget, which is actually of interest to Riigikogu MPs and the rest of the public. "This is something we can perhaps get better from the media than from the presentation of activity-based budget programs," Sõerd said.

Abstract cost pools

According to Sõerd, these programs are actually abstract cost pools with targets measured according to certain metrics.

"There is a metric by which the effectiveness of the use of money for roads can be measured, and that is the number of road fatalities. Another measure is the number of people, who are seriously injured on the roads. If, in 2022, the level recorded was 55 road fatalities, then the target is to reach under 42 fatalities [per year]by 2024. However, the problem is that it is really difficult to connect [the number] of road fatalities to the amount of money allocated [or not] to roads, as it also depends on a number of other factors," he said.

This is why, in Sõerd's view, the metrics outlined in the state budget are abstract and cannot be used as a way deciding the level of funding allocated for various sectors and programs. "It is not possible to make a connection there that has any practical value," he said.

According to Sõerd, the problem is not that MPs cannot understand the budget, but that the presentation of expenditure in an activity-based budget does not enable them to see exactly what the money will actually be spent on.

According to Sõerd, the main result is the creation of an additional resource costs for Riigikogu members in the course of their work, because they have to request data from separate ministries. Ultimately, that has an adverse impact on the workings of the parliament.

"We have a Constitution, and the Constitution sates that it is the responsibility of the Riigikogu to decide on the revenue and expenditure in the state budget. This task cannot be fulfilled if the budget is presented in a form that does not show how the money will actually be spent," Sõerd said.

Real life does not follow an activity-based budget

Sõerd went on to point out that cuts are also not to be found in the budget. "The Minister of the Interior is cutting management costs as well as the costs of surveillance services. But surveillance is not an activity-based budget category. It is just somewhere in the cost pool. These kinds of lines that ministers cut are not in the activity-based budget," Sõerd said.

"Or, let's take another example - the Ministry of Justice wants to cut prison heating costs, but there is no such line in the activity-based budget. There is a total expenditure of €76 million, and it is down as an activity named 'the organization and execution of sentences'. It includes the combined costs of Estonia's three prisons and does not distinguish between how much it costs to maintain one or the other. It also includes the salaries of the officials who develop punitive policy in the ministry. This is abstract. However, ministers are talking about saving on the heating costs in prisons," Sõerd said.

"The basis upon which ministers and agencies make these decisions about cost-cutting and other relates to a different budget than this activity-based one. The Riigikogu approves an activity-based budget, but the reality of life in the ministries and government agencies is based on a more conventional budget - a budget based on costs and resources," Sõerd said.

Budget should be based on Bank of Estonia's economic forecast

On social media, Sõerd wrote that next year's state budget will be based on the Ministry of Finance's summer economic forecast, according to which, real GDP growth is predicted to be 2.7 percent. Yesterday, however, Bank of Estonia published its economic forecast, which predicts real GDP growth to be 1.4 percent next year.

"The difference is noticeable. The forecast for tax revenues is based on GDP growth, and tax revenues are primarily influenced by nominal GDP growth. There is also a difference in the forecasts, with the Ministry of Finance forecasting nominal growth of 6.8 percent next year, while Eesti Pank forecasts 4.2 percent," Sõerd said.

According to Sõerd, Bank of Estonia's (Eesti Pank) forecast should be more accurate, mainly as it arrives later.

"We also know that Bank of Estonia's forecast takes into account the data published by Statistics Estonia for the second quarter of this year, while that data was not available at the time of the Ministry of Finance's forecast. Thus, forecasts for tax revenues and tax receipts in the state budget for the coming year may turn out to be worse than projected in the Ministry of Finance's summer economic forecast, on which the state budget is based," Sõerd added.

"While at the end of the summer, the forecasts of different institutions were still similar in terms of their expectations for economic growth for next year, now the situation has changed," he said.

Sõerd pushes back against party's rigid position

Sõerd said that the position of the Reform Party's current Riigikogu group is that the budget has to be activity-based. Asked what the justification for this position was, Sõerd replied that he did not know.

ERR asked Sõerd whether he had asked his colleagues in his party's Riigikogu group to provide a reason for this. "I have asked, but it has not brought me any closer to achieving clarity," Sõerd replied.

ERR also asked whether being in this position year after year had not led him to consider leaving the Reform Party. "No such thoughts have crossed my mind. I am engaged in substantive work in the Riigikogu," Sõerd answered.

Sõerd added that having been a member of the party's leadership, he has been able to have a say in party affairs.


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Editor: Micahel Cole

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