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PM Kaja Kallas satisfied with Finance Minister Mart Võrklaev's work

PM Kaja Kallas with Finance Minister Mart Võrklaev in the background.
PM Kaja Kallas with Finance Minister Mart Võrklaev in the background. Source: Siim Lõvi /ERR

Prime Minister Kaja Kallas tells ERR in an interview that she is satisfied with the work of Minister of Finance Mart Võrklaev, including his recent statement according to which Estonia should drop €400 million in planned tax hikes.

Your coalition partners expressed surprise at the interview given by Finance Minister Mart Võrklaev to ERR. Võrklaev said that society cannot swallow new taxes and the empty tax line in the state budget strategy should rather be filled through more borrowing. Were you also surprised?

Firstly, Mart Võrklaev did not say that we should increase borrowing; rather, he said we need to look for ways to save. Secondly, I have repeatedly said the same thing to coalition partners, both in private conversations and in interviews, so it was not surprising to the coalition partners or certainly not to me.

When we look at the overall picture, it is clear that people are upset that we are forced to raise taxes to cover costs. Therefore, we must see if we can do this in some other way, so that such a tax burden would not occur. Primarily, we need to look at what expenses can be cut, and here the contribution of all ministers is needed.

The ministers from coalition partners instead rushed to announce that the tax debate in Estonia is now open again, and the state budget strategy and previously agreed upon things must be forgotten, including the elimination of the so-called tax hump. Why even sign a coalition agreement if no one wants to follow it?

Yes, I also talked to the coalition partners about this topic. There is a lot of public posturing in this, but if we have less revenue on the income side, then the answer certainly can't be to take on even more expenses.

We had an agreement to implement the car tax and then move on to the additional €400 million that needs to be covered by 2025. Our sense is that it would indeed be quite challenging to raise those €400 through additional tax increases in a way that the public would support.

Indeed, the issue is not just with those €400 million. We are already facing a €200 million shortfall in the Health Insurance Fund. There is no consensus in the government over deducting unemployment insurance premiums from the state budget line, and the renewable energy fee reform will cost €60 million. I'm sure other fields would like additional funding too; we are talking about at least a billion euros that will be missing by 2025. This was also acknowledged by Eesti 200 leader Margus Tsahkna.

In this respect, you are right; the situation is complex. We have increased defense spending to 3 percent of GDP, and there are many areas that all need additional resources. But the internal coalition discussion should primarily focus on where we will find the funding for these expenses. We cannot cover this with additional revenue from taxpayers, so we need to cover it with additional cuts and contractions in other areas. We also need to take very seriously the budget review that we will be conducting next year in three ministries.

As an observer, I get the impression that government members do not want to talk substantively about cuts. For example, Minister of Economic Affairs Tiit Riisalo (Eesti 200) presents the utilization of European Union funds for implementing digital innovations as cuts, which is clearly a necessary activity, but it's not a cut. It's not about doing things fundamentally differently. For instance, Estonia spends the most in the EU in relation to GDP on the cultural sector. Perhaps we need a debate about reallocating some funds from this sector to healthcare or elsewhere? Such painful and startling questions are needed, aren't they?

This is indeed a very painful question. I just read in the newspaper how actors are planning to go on strike because everyone wants a higher salary, but this salary comes from the state budget.

The revenues to the state budget come from the pockets of taxpayers. It's all interconnected.

But we cannot generalize, as there are ministers who have taken on very painful issues. Perhaps not everyone has contributed equally to this, because, as you rightly say, these are painful topics. That's why we are going to do this budget review, but any omissions face tremendous resistance, because you have a department that is interested in these things, you have various lobby groups that are interested, and it actually takes a lot of courage and strength.

Certainly, the public would also accept tax increases more easily if they saw the money the state collects put toward essential expenses. Shouldn't a specific plan for cuts have been presented simultaneously? Would we have a better substantive debate in that case?

All ministers were given the task of making cuts three months before the state budget strategy was compiled, and these things were presented when the revenue side of the state budget strategy came. It's just a matter of what the media pays more attention to. As I said, the ministers have done this work differently because these are painful topics.

After all, with the recently adopted state budget, we managed to improve the {fiscal] situation by €500 million. For example, in the spring, we made difficult decisions about cuts to family benefits, which have also been painful, and there has been a decent amount of debate about it.

Indeed, usually such debates primarily mean that everyone is against it, and no one says it's a good thing. Generally, when something is proposed to be cut, those who are not affected remain very quiet, while those who are affected become very vocal. Eventually, the impression of everyone being against is created. From there it depends on the minister and whether they dare take the corresponding step or not.

The jury is still out regarding the car tax; why has there been no agreement on it so far?

Currently, the issue mainly lies with one coalition partner. We haven't been able to sit down and agree on these matters. We need to find time for this, and I would like to submit it at the beginning of January.

What is Eesti 200 not satisfied with?

Let them speak for themselves about their concerns. My position is clear: I'd rather have a lower car tax applied uniformly to everyone, instead of a higher tax with exemptions that require administration and bureaucracy. There, I think the choice is clear.

Returning to the beginning of the interview. Are you satisfied with Mart Võrklaev's work and his public appearances?

I am satisfied with Mart Võrklaev's work because he is a finance minister as a finance minister should be. He must make unpopular decisions and defend them. Mart Võrklaev has done this.

Of course, in terms of communication, I am certainly not in a position to criticize anyone else, considering the criticism I have received for my own communication.

So, partly, could it still be a communication problem that a substantive debate has not arisen, and that clever coalition partners know how to run over the finance minister?

No, on the contrary, they are not running over the finance minister. Rather, the finance minister is strong, which is why he is being attacked. But you can always blame communication, and communication can always be better.

It's not just about how we communicate things, but nowadays, it's also important what headlines the media puts out. That affects a lot too and influences people's sentiments, as people react only to headlines. Unfortunately, we live in such a superficial era.

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Editor: Marcus Turovski

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