Coalition slashes fiscal deficit reduction target

The government will give up chasing the state budget strategy item of reducing Estonia's deficit to 1.9 percent of GDP in 2025 because it is not feasible, Minister of Finance Mart Võrklaev said. But even the cabinet's new target of 3 percent would mean cutting a billion euros from public spending.
According to the Ministry of Finance's spring forecast, next year's budget deficit will reach 5.3 percent. During the development of the national budget strategy, the government decided to attempt to reduce the deficit to 1.9 percent through taxes and cuts. Finance Minister Mart Võrklaev (Reform Party) now confirms that this target is unrealistic.
"Our economic environment is recovering more slowly than we initially planned in the economic forecast underlying the budget. Based on the latest economic forecast, which shows that tax revenues will be lower, we have somewhat reduced our ambition to decrease the budget deficit. Next year, we definitely aim to comply with the budget rules, which dictate a maximum of 3 percent," Võrklaev explained.
The minister noted the need for saving. "If we need to reduce the deficit by 2.3 percent, that amounts to about one billion euros," Võrklaev said. But Estonia is only set to introduce a car tax next year, while the abolition of the gradual income tax reduction scheme will take more money from the budget.
"To achieve those 3 percent, we have to make significant cuts in various areas. I am preparing that proposal. Naturally, it will be quite a difficult and tough decision, as it will likely affect all sectors and various services, given the large sums involved," Võrklaev mentioned.
At the beginning of the year, coalition partners were not in agreement regarding changes to the national budget strategy, but now, Health Minister Riina Sikkut (Social Democratic Party) says that concessions are inevitable due to the economic situation.
According to Sikkut, quick, across-the-board cuts will not yield long-term benefits or effect, are painful and cannot really help to meaningfully reduce the deficit.
Reform's coalition partners Eesti 200 and the Social Democrats would consider the implementation of a national defense tax as a source of revenue. However, Eesti 200 first wants explanations from the finance minister about what such changes would entail.
"What is the plan if it is 1.9 percent and what is the plan if it is 3 percent. The budget is perhaps the tightest in all our years of independence, and these need to be comprehensive cuts, but we definitely do not want to talk about any additional tax increases until we have a clear plan of where we want to end up," stated Toomas Uibo (Eesti 200), member of the Riigikogu Finance Committee.
The government is set to approve its stability program at its sitting Thursday.
--
Follow ERR News on Facebook and Twitter and never miss an update!
Editor: Mari Peegel, Marcus Turovski