Uku Varblane, head of research at the Foresight Center, noted that Estonia ranks among Europe's highest spenders from its state budget on culture and sports, according to a press release.

"National investment in these sectors may not increase significantly in the coming years, as the state prioritizes other sectors such as social affairs and healthcare," Varblane said. "Therefore, to ensure the continuing vitality of culture and sports, additional investments from the private sector in the form of donations are necessary."

Estonian companies can donate up to €1 billion each year income tax-free, yet only a small fraction of this limit is utilized. For instance, in 2022, only a total of €4 million was donated to culture and sports organizations listed as tax-exempt.

"There have been various proposed solutions to increase the share of private funding in sports and culture sectors," Varblane explained. "Studies show that support from the state and local governments can increase the sizes of donations from private companies, as they are seen by companies as forms of quality assurance."

In its research titled "The future of involving private investment in the culture and sports sectors," the Foresight Center has developed a calculator to assess the engagement of private funding in these sectors. This tool aims to evaluate the proportion of private funds allocated to culture and sports based on the donation behaviors of companies and private individuals and its impact on state revenues and expenditures.

The Foresight Center highlighted three scenarios based on simulations run using this calculator.

Donation revenues could quadruple or more

The baseline scenario assumes that the level of companies making donations remains the same – at around 0.5 percent of all private companies.

Under this scenario, the number of donors and the total amount of donations increases proportionally along with the number of companies and their profits, leading to relatively little additional funding for Estonia's culture and sports sectors.

In the "Companies +" scenario, the proportion of companies making donations increases to 3 percent of all private companies within the next five years. Compared with the baseline scenario, this would result in the quadrupling of donation revenues in the culture and sports sectors.

"Such developments may not occur naturally," Varblane pointed out. "It may be necessary to implement incentivizing measures."

The most beneficial scenario envisioned for culture and sports by the Foresight Center was dubbed "State empowerment."

In this scenario, the Estonian government supplements donations by at least 3 percent of donating company profits. Within the first year of implementation, this support scheme would be projected to collect €13 million, marking an increase of €8.7 million compared with current levels. State support would make up around a third of this funding, or some €2.9 million in the first year.

"State funding would be partially supported by additional tax revenue generated from the increased engagement in culture and sports activities," the think tank research chief explained. "In the long term, this additional revenue would also lead to an increase in employment and longer active engagement in these fields."

Extra €7.1 million in income tax

Every euro invested in the fields of sports and recreational activities boosts Estonia's GDP by an estimated €1.40. Studies also show that engaging in recreational and sports activities and culture allows citizens to remain employed and active for longer.

In 2022, only 13.1 percent of people aged 65 or over earned revenue in Estonia. If this level could be raised by just 1 percent, the state would receive an additional €7.1 million annually in income taxes from individuals, in addition to revenue from other taxes.

The short report "Scenarios for involving private funding in the culture and sports sectors" is based on simulations conducted using the calculator developed for involving private funding in these sectors as part of the Foresight Center's research titled "The future of involving private investment in the culture and sports sectors."

This research examines the factors and trends influencing donations to the culture and sports sectors and their possible future developments.

The Foresight Center is a think tank at the Chancellery of the Riigikogu that analyzes long-term developments in society and the economy. It conducts research aimed at analyzing long-term developments and discovering new trends in Estonian society.

--

Follow ERR News on Facebook and Twitter and never miss an update!