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Finance minister: Decisions should remain within the current budget strategy framework

Finance Minister Mart Võrklaev (Reform) en route to the Stenbock House for Tuesday's state budget meeting.
Finance Minister Mart Võrklaev (Reform) en route to the Stenbock House for Tuesday's state budget meeting. Source: Priit Mürk/ERR

Representatives of the three coalition parties congregated at the Stenbock House, seat of the Estonian government, Tuesday morning, in order to discuss how to fill gaps in next year's state budget.

While the latest economic forecasts predict a much larger budget deficit than projected, Finance Minister Mart Võrklaev (Reform) says he believes that tackling the issue should be deferred to the fall, after subsequent forecasts are available.

Minister Võrklaev gave a short interview to ERR at at time when the government is also facing an unprecedented nationwide teachers' strike, now into its second week.

Madis Hindre, ERR Radio News: What themes are on the agenda of today's meeting, in addition to teachers' wages?

Minister of Finance Mart Võrklaev: The meeting today is aimed at reviewing the activities of the state budget strategy (a four-year strategy document drawn up in tandem with the annual state budget and known in Estonian as the RES – ed.), so we can see what things have progressed, and to what extent.

In considering the changed circumstances, we will also look at whether some things need to be done differently. There is also the context of the recent Bank of Estonia forecast.

Furthermore I am also talking about the same €400 million-plus that was planned to be put together via tax hikes and within the RES. I will make my suggestions there, so that more can be focused on making savings.

Hindre: Or will you give a presentation today on how to account for the oft-discussed €430 million, which you "christened" in the meantime as a broad-based national defense tax? 

Võrklaev: Yes, I will present different options on how this can be provided. We're talking about a substantial sum. You can't just take or find this money from anywhere. We will then discuss this, together, and to what extent and how we will fulfill this €400 million.

Does the proposal carry with it any expected tax hikes? Or have you now come to the conclusion that no new taxes should be planned for the next year, at all?

There are a variety of suggestions out there, but my main focus is certainly on finding additional savings. However, those more precise things could still be discussed with the coalition partners first, and then be commented upon publicly.

Will you also be presenting ways to cover the expected additional €114 million from the rise in the unemployment insurance contribution? Or the expected €60 million from the renewable energy fee reform? There has been no consensus in the coalition connected with these revenue streams, either.

We have to talk about all these entries within the state budget strategy. However, I cannot make a presentation on everything at this point, as these areas of responsibility are divided among the ministers, and the coalition parties. 

Indeed, we will have to look at all these measures, while each responsible political party should then provide an overview of how far they are with their specific actions.

So this means that if Minister of IT and Economic Affairs Tiit Riisalo (Eesti 200) was told to increase the RES unemployment insurance contribution by €114 million, but he says that this tax hike cannot be carried out, does he have to then say where the additional €114 million will come from in next year's budget?

There were three coalition parties involved the RES process. Nothing was dictated to anyone behind their backs, but the three political parties agreed on actions that they believe are viable, and necessary, for Estonia's future. 

As we have agreed on these things and they need to be fulfilled, then the three parties must convene and say how far along we are with this fulfillment, that or agree on changes.

So it is for Eesti 200, then, say where this €114 million will come from? While you propose a €430 million provision.

Yes, we have agreed on the responsibilities within the RES via these measures. On all these points, we have to talk together, make suggestions, and listen to each other's suggestions. This, so far as I understand, is the point of today's meeting.

Within the context of the RES, it is expected that this year's nominal deficit will be 2.8 percent of GDP, while next year it should fall to 1.9 percent; by 2027, one percent. Taking a look at the Bank of Estonia economic forecast, it clearly shows that tax receipts are lower than expected, both for this year and for the ensuing years. Are you drawing the same conclusions from these forecasts?

Yes, the central bank's forecast is rather more negative than that of the finance ministry's – the latter forms the basis of the state budget. Certainly, however, we have to take this context into consideration. The next finance ministry forecast is due in the spring. We will make the budget strategy and budget based on the next summer's forecast. 

In other words, when discussing these things right now it is in my opinion wholly reasonable to focus on the agreements we have made within the RES, to assess how far along we are with them, whether they can all be done in that volume, and to what extent.

However to start agreeing on the RES and to add additional measures to the income or expenditure side... It would certainly be reasonable to do this once we have at least the spring forecast. Experience has also demonstrated that a lot can still change between the spring and summer forecast. 

We have consciously moved both the RES and the preparation of the budget to the autumn. By that time, we will have the most recent and most accurate forecast from the finance ministry and which, in line with the law, forms basis for the preparation of these two documents. Up to then, it is reasonable to proceed from the agreements we have made and simply review them over time. 

Surely you understood what I was referring to with my question. If we do everything as it is currently stated in the RES, i.e. collect the same volume of taxes and save just as vigorously, then, with these efforts we will not reach the balanced budget goal that the government set for itself in the same RES. Can you agree on that?

I would not venture to agree on this to the very end, as the forecasts are constantly changing.

Do you expect the new finance ministry forecasts to be significantly more optimistic than the latest Bank of Estonia outlook?

They can be significantly so, though the methodology is somewhat different. In fact, the finance ministry's forecast is also the basis for the decisions and measures we plan for within the budget. Once again, at this juncture, this is still guesswork.

The Bank of Estonia forecast clearly illustrates that economic recovery is delayed. This gives us, yes, as it were, a negative indication. However in order to agree on exact balanced figures and also possible costs, it is still worth examining those measures that we can actually carry out on the income side for the next year, and then look at this forecast. 

However of course, the truth is that it is negative and it is rather not possible to talk about additional costs, because the deeper trend is towards deficit.

As of today your coalition partners would like to talk about a very wide range of issues: A progressive income tax, the additional costs for Eesti 200 in restarting the economy. Do I understand correctly that your goal today is still to discuss specifically those things that are currently written into the RES?

I think that today we will discuss with the coalition partners everything that the various parties want. There certainly cannot be any restrictions here on what can be discussed. But with regard to the framework of the decisions, as finance minister I see that it is rational for us to discuss the measures that are written into the RES, and then see how the land lies with these.

We can then set the RES and the state budget based on the up-to-date forecasts. Experience has also shown that by doing this several times a year based on different forecasts, the result for autumn is something else.

In other words, we are doing work now that may end up bearing scant fruit in the end.


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Editor: Andrew Whyte, Aleksander Krjukob

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