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Weak Estonian economy may result in diminished tax take in near future

The State Budget Bill 2024.
The State Budget Bill 2024. Source: Priit Mürk/ERR

The Estonian government sector deficit has more than tripled over the past year, ERR reports, while the government itself is fighting the battle of alleviating the situation via tax hikes at a time when tax receipts – due to the slowdown in the economy – are falling.

Whereas for the first eight months of last year, the Estonian government sector's budgetary position was in the red, to the tune of €105 million, this year the deficit has worsened, to €369 million, to the same point in time. As of the end of August, Estonian government sector expenses exceeded revenues by €474 million, yet the largest outgoings are still to come, in the final months of the year.

The slowed-down growth of tax receipts and increased expenses are behind this, so tax hikes could go some way to improve the budgetary situation in the coming years.

Margus Täht, fiscal policy analyst at the Ministry of Finance, said: "The growth in expenses has certainly been more rapid than the growth in income. On the one hand, social benefits are really a factor. Here, for example, part of the rise in pensions relates to indexation, as last year, there had been high inflation and social tax receipts were good, meaning the pension index was higher."

"On the other hand, the beginning of the year was also an extraordinary pension increase, which has increased pension costs. And as far as social benefits are concerned, family benefits are significantly higher this year than last year," Täht went on.

Since Estonian businesses are generally not doing well, exports are falling, nearly 7,000 jobs have been lost in the construction sector and in industry in the space of a year, the tax base may be hit even more in future.

Reform MP and Riigikogu Finance Committee Aivar Sõerd said: "Revenues forecast for next year, also the basis for the [2024] state budget that to get its first Riigikogu reading tomorrow (ie. today, Wednesday – ed.), is under a fair bit of pressure. There is nothing rosy about the economy as it is right now. If we look at the growth of the wage fund by sector – education, health care, the public sector, these are all areas financed from the state budget. Industry is in a poor state."

Mait Palts, head of lobby group the Estonian Chamber of Commerce and Industry (kaubandus- ja tööstuskoda), called for the state to pay more attention to business and warned of key markets in, for instance, Scandinavia, unlikely to see the green shoots of recovery until 2026 at least.

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Editor: Andrew Whyte, Merili Nael

Source: 'Aktuaalne kaamera,' reporter Huko Aaspõllu.

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