Ansip also called for openly explaining to the public why austerity measures need to be put in place by the state, while attributing the budget deficit to defense spending is nothing short of shameful, he said.

This week, the government reached an agreement on a negative supplementary budget totaling €175 million.

At the same time, it faces the uphill task of finding a solution for the missing €1 billion hole in the state budget, which could even double next year.

Ansip handled budget discussions at government level for 10 years (2004–2014), including during the global financial crisis, when he and his party became well-known for pursuing austerity measures. He was also head of government when Estonia adopted the euro, in January 2011.

Ansip, who has been an MEP since 2019 but is not running at next week's European Parliament election, gave an interview to ERR which follows.

As a former prime minister, you had to draft negative supplementary budgets several times and balance the state budget during some extremely difficult economic situations. What can other prime ministers learn from your experiences with complex agreements and negotiations?

Am I the best teacher on this? Each crisis caries with it its own unique characteristics, making it hard fully to replicate previous crises and their solutions.

However, certain principles are indeed universal. First, it is crucial to speak directly to the people. To explain what will happen if nothing is done and the consequences of following various recommendations. There must be a general understanding that the situation requires improvement; this is the basis for any structural reforms.

Next, it is vital to involve as many knowledgeable people as possible in finding ways to improve the state's financial situation. In 2009, during the pan-global financial crisis, we had some austerity experts in the parliament, as well as academic experts, led by Professor Urmas Varblane. The Bank of Estonia provided significant support. There wasn't a single person who had all the answers; this was a joint effort.

However, no one can forcibly proffer their advice if it gets met with resistance. Public understanding of the need to address the issue is an essential underpinning for experts to be willing to contribute.

You state that this goal must be clearly defined. In the current context, what should the goal be?

Setting the goal is crucial. While €175 million might seem like a substantial sum to the ordinary person, it is rather symbolic in considering our state budget of €18 billion. With a budget deficit of €1.3 billion this year (ie. 3.4 percent of GDP) and projections of 5.3 percent or €2.2 billion next year, talking about €175 million seems almost comedic.

This approach of addressing the deficit incrementally, on a cent by cent basis, is impractical. Society cannot withstand gradualism of that kind, alongside threats of further taxes and cuts. A comprehensive plan is needed, but the public understanding of this plan is vital.

No single party gets to decide on the budget alone. Striking an agreement with partners is essential. What is the "secret password" when achieving consensus?

The magic word is the public. Politicians act according to public expectations. If the people do not prioritize addressing the state's financial situation, politicians will hold of on making those decisions.

At present, goal-setting is practically non-existent. €175 million is a token gesture rather than representing any real cuts. If we compare this to Jüri Ratas' analogy of a 100-kilogram man going on a diet, it equates to losing just 400 grams in a year, even after drastic cuts and efforts.

This is not a significant achievement; it is comparable to skipping one meal. The state budget is a fundamentally similar thing.

Do you think returning to cost-based and resource-based budgeting would help?

Yes I do, Estonia should indeed return to cost-based and resource-based budgeting. Whether this is activity-based or not is a matter of preference, but the budget must be comprehensible to MPs and the general public.

Without that understanding, it would be challenging to pinpoint where cuts should be made, and what can be sacrificed.

There has been talk about boosting defense spending and the significant budget deficit. Have these things not been adequately explained to the public?

No, the explanations so far have not been adequate. It is highly inappropriate to blame our budget deficit on increased defense spending. While the budget has grown by €6.4 billion in the last two years, defense spending has increased by only €557 million. As for a defense tax, which is a feasible concept, this addresses less than a tenth of the massive budget deficit.

This deficit does not originate from time immemorial. In 2022, our budget deficit stood at only 1 percent of GDP, rising to 3.3 percent in 2023, 3.4 percent this year, and is projected at 5.3 percent next year.

So this financial mismanagement is a recent thing, and it is fruitless to put the blame on previous governments.

Yes, those are certainly at fault for not saving when times were good, but the current government must resolve these problems in the here and now, rather than pointing fingers into the distant past.

There are at present some conflicting views within the government on how to fix the budget. Do you think this across-the-board cuts concept is a good idea in this case?

Fundamentally speaking, everyone will have to to tighten their belts, but how much each area should cut is another question. When a private sector company faces difficulties: No orders, no revenue, they explore all possible ways to make cost cuts.

Employees may be laid off, company cars returned to leasing firms, purchased equipment handed back, and so on. Private business responds very swiftly, but for the government, it seems like there is no need to hurry with anything.

Cuts need to be made in all places, but determining how much each sector should cut is up to the government and experts to decide. The idea of applying a uniform cut across all sectors is both unrealistic and impractical.

The CEO of Coop Pank has also said that in the case of across-the-board cuts, a leader is unnecessary if agreement cannot be reached and everyone is cut in equal measure.

That is how it is. Certain activities were highly necessary for the state at one time, but as time passed, they lost track of their original purpose.

One must always review what money is spent on. Essentially, it's like the case with a family: If there is no income, you think about where to save, but you can't make savings everywhere. The water bill must still be paid, as must the heating bill. Some things are beyond our control, yet are essential for living.

So in your opinion, the state should review current priorities, such as security, social services, education, and push the other services aside?

Efficiency can certainly be increased in the security sector as well.

There is no area where efficiency couldn't be built on. We remember how things looked in respect of €10 million for teachers' wage increases, yet then we read in the newspapers how €15 million had gone on green skills retraining.

It seems that the priorities are not very well set. I don't dispute that green skills are necessary for someone, and need to be taught, but if you have existential problems, you deal with these first.

Then again every minister says that they can't give up any services within their sector, as they are all highly necessary.

It's natural for everyone to try to protect their own area, but if the general understanding is that the country's financial situation needs improvement, and the budget balance needs to be improved, even the most ardent defenders of their ministerial areas will yield to the general will, and go along with the idea of improving the budget balance picture.

It was the same in 2009: At first, everyone said that cuts couldn't be made anywhere, but then the government, ministers, and the prime minister opted to reduce their salaries by 20 percent.

This served to telegraph that the problems were significant ones, as people wouldn't want to give that much up in any other case, so the pain must be significant if politicians go down the route of cutting their income. And once a benchmark is set, others will follow suit.

There were also ministries back in 2009 that quickly raised salaries, but thought no one would cut salaries. But when the task was given to cut public sector salary costs by 10 percent in all places, just as the government gave up part of its salary, those below the ministry level did so, too.

Returning to the opposing views within the governing coalition. The Social Democrats argue that everything that can be has already been cut as far as possible, while since endless cuts are not viable, taxes must be raised. What do you say to that?

I don't quite understand this claim that everything which could be cut has been cut, so no more is possible. Compared with the situation in 2015, our economy has grown just by 101 percent, and inflation has caused significant damage.

Budget expenditures have risen by 106 percent during that time; public sector expenditures by 116 percent. Then if we think about teachers' salaries, they've only risen by 88 percent during this period.

So, expenditures have grown, but they have grown very unevenly across the state, which is another argument against uniform cuts across all areas.

Someone must be living quite happily, somewhere, but that someone is not national defense. Blaming the current poor financial situation of the country on the growth of defense spending is very wrong-headed and on the whole, shameless.

But raising taxes?

First of all, expenditures should be reviewed. Inevitably, if expenditures more than doubled in 10 years, there is no reason to think that all expenditures are particularly efficient.

I don't think we should cover all of this with additional tax rses. But if we plan tax hikes, they must be comprehensible to the people. What goals are they aiming for?

It is hard to understand the sugary drinks tax, for instance; does it really aim to protect public health? If managing this tax costs almost as much as the revenues due from it, it doesn't seem very rational.

As for the car tax, people understand that yes, polluting the environment is wrong, and those who pollute more should pay more.

But then comes the age component, which essentially encourages the use of older cars. We are setting a goal which is completely counter to environmental protection. Then comes the statement that our goal is for cars to continue in use for as long as possible.

But has anyone in Estonia seen an almost new car standing somewhere outside, keys in the door, ready for anyone to take it, because it is no longer wanted?

Everything does already get driven as long as possible and then taken to the scrapyard, in the hope that some parts can be sold, to get the most out of the vehicle.

In Estonia, there's no problem that needs to be stimulated by taxes to ensure cars are used to the end.

As for how the government has looked for savings, do you think too much time is spent debating trivial matters, or is it normal for these discussions to be time-consuming?

The recent discussions were indeed about trivial matters, and this isn't the first time they've dealt with trivialities like that. At one time, the goal was to cut €50 or €60 million, which led to the idea of liquidating the Estonian Defense Forces orchestra, a proposal which didn't succeed, in the process garnering public outrage, then ultimately the orchestra was sent to the museum, and not a cent was saved. What they were trying to save then was the sum of €1.3 million.

This 175 million is not much different from the case with previous cuts. We fit within the 3 percent debt limit set by the European Stability and Growth Pact after this cut, but allowing a 3 percent deficit in the current situation for Estonia is also an excessive luxury because, as mentioned, there is no classic economic crisis going on in Estonia at the moment

The economy has been in decline for a long time, but in a classic crisis, state revenues fall sharply, while state expenditures increase significantly. Companies receive no orders, employees lose their jobs, they no longer pay taxes to the state, while the state has to pay either subsistence benefits or unemployment benefits to these same former employees.

Nothing like that is happening at the moment; state revenues are still growing rapidly, but unfortunately, state expenditures have grown even faster.

This is our problem, one which is purely a management issue, not directly deriving from the economy. If some people think that economic growth will solve the problems, they are deceiving both themselves and the public.

If a 20 percent inflation rate doesn't culminate in a surplus budget, a small economic growth certainly won't compete with a 20 percent inflation rate in terms of budget revenue.

You probably don't like me asking this, but I still have to ask: If you were the prime minister, where would you start with cuts?

Of course, I don't like to dwell on the topic of "if I were prime minister nowadays," but it's the same principle we've been talking about.

First, we need to start with describing the situation and making the public aware of it. Next, we should gather those people capable of offering ideas on how to get out of this situation. When academic circles, the Bank of Estonia, and members of the Riigikogu are all involved, solutions will start to be forthcoming.

But the goal must remain clear, and it can't be just €50 million or €175 million; we need to be talking about €2.2 billion in the context of the next year.

Additionally, we need to address the €1.6 billion requested by Gen. Herem, as quickly as possible, because that too is an existential issue.

We are talking about an amount in the order of €4 billion, and in this context, spending a month debating €175 million is just such a waste of time.

Do you have any sense of what the priority should be on what we shouldn't cut, and what should be the first area to be cut?

In 2009, we didn't have a clear idea of where to cut funds and what we absolutely shouldn't touch.

You may remember that back in 2009, there were people publicly discussing in the media that pensions should be cut. We argued against that idea, because it would exert no positive financial impact on the state.

It was known then, as it is now too, that the vast majority of single pensioners were at risk of poverty, so if we had cut pensions, we would have had to pay more in subsistence benefits to those people in any case.

There would have been no financial gain, yet at the same time, we would have lost the understanding of some 300,000 people and their relatives and neighbors.

We didn't go down that route, but those discussions were public, and even now, we shouldn't dismiss out of hand any ideas proposed.

When we experience existential problems, they need to be resolved, and everything else can be endured if there is an understanding that things cannot just continue as they are.

How should this discussion or public understanding be created?

It's already starting to emerge now. But for a long time, it hasn't been present; the talk has been about how plenty of funds have gone to national defense, and for this reason we have problems. In reality, less than a tenth has gone towards national defense, while the rest has gone elsewhere.

We should be discussing where this has actually gone.

Yes, but first we need to understand where it's really going. It's easy to say it goes towards national defense, and everyone understands that because we see wartime events on TV every night, but in reality the public is being misled into thinking that all the ballooning budget expenditures have been spent on national defense.

Certainly, a separate issue is the €1.6 billion requested by Gen. Herem. We need to move from peacetime reserves to wartime reserves, because the threat is becoming increasingly real. Right now, we can see that it's no longer viable to procure ammunition from anywhere in the world and within a reasonable time-frame and at a reasonable price.

The illusions we once had, that we would acquire what we need during a crisis, are now just pipe-dreams. We need to act today.

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