On Monday, Prime Minister Kaja Kallas (Reform) said cuts of up to 7 percent could be enforced on all ministries next year – although not from defense spending – to reduce the deficit without raising new taxes. The plan is supported by Reform and Eesti 200, but not SDE.

Opposition party MPs from Isamaa, EKRE, and Center said they back the plan.

Riigkogu Finance Committee member Aivar Kokk (Isamaa) said the government should look to cut more than 7 percent.

"There are plenty of places to cut today. If we see that practically 150,000 people are paid from taxpayer money and 30,000 of those are purely white-collar, then I think that entrepreneurs and the Estonian economy would hardly notice if (some) were laid off. And with that, you would automatically save €300 million every year. This work definitely needs to be done, and different governments have tried to start dealing with it," Kokk said.

"There are also many foundations and NGOs that were created years ago for a specific project or to solve a situation, and that topic is long gone, but still, these (foundations and NGOs) operate, where there are significant costs involved and where it is definitely possible to save," he added.

Finance Committee member Andrei Korobeinik (Center) said the Estonian state apparatus is huge and hides several hundred million euros.

However, he would not enforce the same cuts across the board.

"We have quite a high number of officials and definitely, in some ministries, there is more potential for cuts. If you take education or culture, then the proportion of officials is actually smaller and if you cut there, you are actually cutting the salary fund for teachers and so on, which is definitely not sensible," he said.

"If you reduce the number of officials, certain processes become more efficient. And that is the key to growth," Korobeinik added.

Committee member Siim Pohlak (EKRE) said that cuts are needed because the public sector is living in its own world, while Estonian businesses need to make savings to get survive. However, he said the plans should be well thought out.

"Looking at the current government's positions, unfortunately, cuts are being made mechanically, which could deepen the economic downturn even more. What is actually needed is a systematic approach and to look at the big picture. Increase efficiency, eliminate unnecessary activities," Pohlak said.

Defense spending should be protected

Next year, defense spending is set to be 3.1 percent of the gross domestic product. However, with the recession and shrinking economy, this will nominally reduce the amount of money given to the sector. But politicians want to protect this area.

"The defense budget is a general political agreement and I don't think any party wants to cut there. If anything, we can look at it and analyze where exactly that money is going. Maybe, for example, more money can be channeled into innovation," said Korobeinik.

Kokk said it is not possible to reduce spending on defense. "It is difficult to cut defense spending today, but we need to make the right decisions there too. Maybe we need to find more money for it," he added.

"But there are certainly places where there is also a lot to be spared and where it is possible to save a little. I believe that today's Defense Forces leaders are the best judges of what will definitely need to be bought next year and the year after, and their decisions should be used as a basis for reviewing the budget to see whether or not additional money is needed," Kokk said.

Pohlak said it is unreasonable to reduce the defense budget in today's security situation.

Tax bank profits instead

The opposition MPs were against raising taxes or creating new ones. But Center's Korobeinik said, if you must, then take from the areas where there is money.

"It would still be more sensible to think about how to kick-start the economy, and not to take money from the poorer, for example through an income tax on pensions. A car tax that hits the poor hardest is undoubtedly the wrong way to go. It would make more sense to take the money where the money is – a bank tax. A graduated income tax instead of a tax break for the richest people from next year, costing half a billion euros," said Korobeinik.

A graduated income tax would immediately add €300 million to the treasury, he added. "And if you take away the tax credit from January 1, that's another half a billion, so essentially we're talking about finding a billion pretty much overnight," Korobeinik suggested.  

Pohlak also suggested taxing banks' profits. "There are solutions to reduce the budget deficit – around €700-800 million could be found by taxing bank profits and abolishing the payroll tax, but for political reasons the current government is not even considering these options," he said.

Kokk said it should be agreed that there will be no new taxes.

"And that next year's income tax reform will also be dropped. I think that would give businesses and people confidence that the economy can be fixed, businesses will start investing and people will have the courage to buy. Today, people are keeping their money in savings and entrepreneurs are not daring to make any investments," Kokk said.

"No country has become rich through taxes. Every tax increase reduces the fiscal position because the economy is falling. The money will still come from business and the business will then move out of Estonia," he added.

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