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2024 Estonian state budget may have been optimistic on revenue expectations

€100 bill (photo is illustrative).
€100 bill (photo is illustrative). Source: Siim Lõvi/ERR

Since the economic forecast underpinning the rationale contained in the 2024 state budget, which passed at the Riigikogu on Friday, was more optimistic than is now the case, revenues next year may turn out to be lower than projected, meaning the state will have to borrow more to make up the shortfall.

Meanwhile, 2024 may buck the trend seen in recent years of tax receipts exceeding those planned for in the state budget for that year.

This in turn means that the 2025 state budget process may prove even more complicated than the task already is.

Expenses and investments contained in next year's budget total €18.5 billion, while revenues come to1€6.8 billion, meaning a borrowing requirement of €1.7 billion.

At the same time, the economic outlook has been deteriorating significantly, and the meaning the assumptions in the 2024 budget look optimistic at this point, ETV news show "Aktuaalne kaamera" (AK) reported Friday.

Reform Party MP and finance committee member Aivar Sõerd said: "The situation has changed much The economic forecast which the budget is based on foresees a real economic growth of 2.7 percent for next year."

"None of the forecasts now show anything even close to that, and instead the opposite. There will in fact be no growth, or even a minor recession next year," Sõerd went on.

The Ministry of Finance says risks remain high, the economy as noted is doing worse than expected, while people are stockpiling and reining in spending ahead of planned and anticipated tax hikes, which in turn could reduce next year's receipts. This means forecasts will likely have to be revised downwards and there may be a need to borrow more than planned.

A spokesperson for the ministry told AK that if the state is not able to collect revenues to the volumes it desires, it is indeed likely that there will be a need to cover this via an additional loan, though there is not a direct obligation to draw up a supplementary budget such as those seen in recent years in the wake of the Covid pandemic.

One the other hand, "If additional expenses need to be incurred, for instance due to a need for support schemes or something similar, there will be more of a basis and reason to then consider a supplementary budget," Kadri Klaos, head of the ministry's fiscal policy department, said.

Ülo Kaasik, vice president of the Bank of Estonia (Eesti Pank) referred also to the state budget strategy, known in Estonian as the RES, which covers several years and is drawn up at the same time as the state budget for the following year.

Kaasik said: "If we take a look at the RES, there are pledges there of the order of 2 percent of GDP which are currently not covered by legislation, be it the car tax, be it a tariff, or be it some kind of environmental charge, as well as the proportion of cuts permissible."

"We already have a large number of pledges that have not been fulfilled. If there are any additional needs there, things will certainly not prove easy," he went on.

The coalition says it will start discussing new taxes in the spring time.

The state budget process gets underway at cabinet level at the end of summer, with a view to the state budget passing into law by year-end.

While this year's bill had been held up at the Riigikogu due to an ongoing opposition filibuster, the tactic the coalition has been using in response to this filibuster, tying bills to a motion of confidence, was applied here, allowing it to pass in any case.

The bill passed with 58 votes in favor and 31 votes against. Since MPs were in fact voting on a motion of confidence in the government (whose parties have 60 seats at the 101-seat chamber), the state budget for 2024 has passed at around the same time in December that it does in more ordinary years.

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Editor: Andrew Whyte, Barbara Oja

Source: 'Aktuaalne kaamera,' reporter Huko Aaspõllu.

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