The government of the Reform Party, Eesti 200 and Social Democrats on Friday launched state budget strategy (RES) deliberations. Läänemets told ERR that the Ministry of Finance's economic forecast did not change the tune of the talks as the Bank of Estonia's forecast from late last year was much worse still.

"We should see growth return to 3 percent next year, meaning that the economy is doing well. But considering the deficit we're sporting, revenue from that growth will hardly improve matters," he said.

The minister said that the cabinet on Friday discussed where costs could be cut and by how much, as well as whether additional tax changes are in order.

"I say we need both – the austerity side – because it might not be all that effective and the state will stop functioning if we just shut everything down – and tax changes," the interior minister said. "We briefly touched on the idea for a national defense tax, which the Social Democrats have proposed, in terms of finding ways to cover the more than half a billion euros we've spent on national defense."

He added that there is not enough time to lay down a new tax next year, which is why it makes more sense to talk about 2026.

According to Läänemets the revenue side of the 2025 budget is a tough nut to crack, and it is impossible to say at this time what will happen.

Tsahkna after cuts

Minister of Foreign Affairs Margus Tsahkna (Eesti 200) said Estonia's fiscal position has deteriorated and measures need to be taken.

"I believe we need to take a more serious look at public sector austerity and everything having to do with the zero-budget initiative. I'm not just talking about ministries, but also state foundations, companies – all of it needs to be dialed back."

Tsahkna agreed that the revenue side also needs a look, while no decisions were made Friday. The situation is not good ​and the status quo cannot last, which is why he finds the government should fix things itself, instead of waiting for Estonia to face EU proceedings and European officials dictating how much Estonia can pay teachers or pensioners.

The government wants to take stock of the operating expenses and necessity of various foundations.

"We have a lot of different foundations, and while they may be doing noble things, they are not on the same rung of the ladder as ministries. We will decisively cut back ministries. We'll move service by service, go through everything from the point of view of the zero-budget, whereas the same needs to happen with foundations and state companies," the minister and Eesti 200 chair said.

Asked whether public revenue should grow as abruptly as the state budget strategy prescribes, Tsahkna said that it is perhaps impossible to move as quickly as was planned a year ago as the economy needs to find its footing first.

"The economic situation is where we'll need to invest because we need to think years ahead in order to have something to tax. Without growth, there is nowhere to get the money from. That is to say we need to strike a balance," Tsahkna said, adding that the government hopes to make progress by August.

He added that the deficit should not exceed 3 percent of GDP, while an exact target will be found in August when next year's state budget and budget strategy need to be approved. It should also become clear by then whether Estonia will need a negative supplementary budget.

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