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Local governments in Estonia in slightly better shape than a year ago

Rõuge Municipality signage and accordion player.
Rõuge Municipality signage and accordion player. Source: Mana Kaasik

The financial situation for many of Estonia's 79 local municipalities has improved somewhat over the past year, the Ministry of Finance says, though this was starting from a position, in some cases, of a municipality facing virtual bankruptcy.

Whereas last year local government incomes were most affected by the soaring energy prices at the time, this year's main issue is high interest rates.

However, Regional Affairs Minister Madis Kallas (SDE) says that the income tax take by local governments has gone better than forecast, while the timing of the taking out of loans has also had a positive effect, he said.

Kallas told ETV news show "Aktuaalne kaamera" (AK) that: "Yes, it has brought the situation to one where it is not as bleak as we forecast at the start of the year. But at the same time, all the indicators forecast in next year's perspective do not promise anything good again, either."

Madis Kallas added that the concentration of the working-age population in Tallinn and Tartu with a larger share of elderly residents to be found in the regions has created an unequal situation when it comes to local governments' tax takes.

Kallas aid: "From January 1, we will finance local governments more from pension income tax and less from personal income tax.

"If our tax revenue depends only on working-age residents, it is clear that the flow of money is to Harju County and Tallinn, with nothing to remain in the regions," the minister said.

"Now we want to change this situation so that more revenue goes to pensions in the future also, which can stabilize things. As are result there would actually be fewer issues for local governments in the future," he went on.

Mayor of one provincial municipality, Britt Vahter, of Rõuge, Võru County, told AK that: "In fact, we have certainly guaranteed all services, as a municipality is required to guarantee, but we have also had to tighten our belts in order to continued guaranteeing vital services in the current situation we are in, and we will move forward with reforms and movements in this regard."

Reforms of subordinate institutions that were not carried out after the merger of the municipalities in 2017, a high debt burden and an unexpected refund of euro money, put Rõuge municipality in dire straits at the end of last year, Vahter said, to the extent that the municipality was threatened with restructuring procedures. After comprehensive reforms and rescheduling of loans, however, the mayor of Rõuge states that she can say that the worst is now past.

Educational reform and the merger of some schools are still ongoing in Rõuge, population around five-and-a-half-thousand, while other issues include the provision of administrative services and the planned extension to the nearby Nursipalu military training area.

In the latter case, however, state compensation to the municipality for disruption to be caused once the training area expansion has happened, will help ameliorate the municipality's financial situation, including its ability to cover its own share of investments, AK reported.

Mayor Vahter cited as evidence for this improvement the fact that the 2024 municipal budget will again include grants that had to be left out for 2023.

One of these will be a scattered settlement program, which Vahter described as "the most important measure aimed at supporting rural living."


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Editor: Andrew Whyte, Barbara Oja.

Source: 'Aktuaalne kaamera.' reporter Mirjam Mõttus.

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