The new analysis was presented on Thursday and carried out by a working group led by academic Jaak Aaviksoo, a former minister of education and rector of TalTech and Tartu universities, in cooperation with the Ministry of Education.

Aaviksoo found that Estonia's long-term education costs are around 25 percent higher than other EU countries, with the exception of Finland. Additionally, the amount of money spent on education as a share of total government sector costs is among the highest.

The share of funding allocated to investments, i.e. the money spent on the construction of buildings, is 14.9 percent, almost twice the EU average of 7.8 percent.

At the same time, Estonia's share of labor costs in current expenditure is slightly below the EU average – 67.5 percent and 69.2 percent respectively.

At the report's presentation, Minister of Education Kristina Kallas (Eesti 200) said that luxurious educational buildings are being built in Estonia, and the ministry wants to cap how much money can be spent on construction. A cost model will be created to establish the recommended average price per square meter. This will become a set standard for municipalities that build new kindergartens or school buildings.

A political decision should be taken to direct more money to salaries instead, Kallas added.

The minister said far too much money has been allocated for some buildings over the past 30 years. If it had been better distributed, more schools could have been renovated than has been possible so far.

Kallas singled out the Tallinn School of Music and Ballet (MUBA), which she said, in her opinion, is the most expensive educational institution in the world considering the total amount of investment and the number of students.

However, it was also pointed out that investments and new buildings have been necessary over the last three decades, and a large number are still in poor condition, the analysis states.

Secondly, a lot of EU funding has been spent to create new school buildings, which could not have been used to pay teachers anyway.

"If Estonia's level of investment had been at the average level of the European Union and there had been no restrictions on the use of the money, the funds freed up could have been used to raise the average teacher's salary by an estimated 20 percent. However, the burden on the state/local budget would have been much higher without external funding and the ability to pay salaries would have been correspondingly lower," the report notes.

Teachers' salaries depend on city or municipality

The working group pointed out teachers' salaries are not allocated evenly across Estonia.

The disparity mainly stems from large socio-economic differences between cities and municipalities and the different availability of labor by region. The report found that teachers' salaries do not depend significantly on the size of the municipalities, the student-teacher ratio or the total costs, but are significantly correlated with the salary level of other municipal employees.

This means teachers' salaries are also higher in wealthier municipalities.

"Despite the political objective of ensuring equal pay for teachers across the country through public funding, this has not been achieved," the working group notes.

The relatively high share of investments, or construction money, and the low share of teachers' salaries in education costs is clearly visible in general education. The analysis notes that raising teachers' wages is only possible through changes in the cost structure.

However, the way in which investment grants are distributed across Estonia would need a clear national system with at least a 10-year perspective that takes into account priorities and actual financial possibilities. It should include the establishment of uniform spending norms, the group found.

Preschool education more expensive than general education

More money is spent on early years education in Estonia per student, than on general and vocational education the report found.

The running costs of primary education per child per municipality range from €5,000 to €7,000 per year, with an average running cost per child of €6,069 per year and a total cost of €7,074.

In basic and middle school education, the running costs per pupil are €3,500 per year in the larger towns and €6,000-8,000 in the less populated municipalities. The average cost per pupil is €4,200 per year in municipal schools and €4,400 in state high schools schools.

On early years education, the group noted that its share of total education spending is among the highest in the EU, partly due to high educational and living standards. In order to better manage the costs, the working group recommended using standard solutions for the construction of nursery schools and implementing common indicative cost models.

Vocational education is underfunded

Vocational education is in a worse situation. In short: more money is needed.

 "In vocational education and training, the overall volume and cost per pupil is low compared to other levels of education. In addition, the level of expenditure as a share of GDP has been on a marked downward trend over the last decade," notes the working group.

Education establishments lack internal reserves to reorganize their activities and perform additional tasks, it added.

To improve the situation, the working group made three proposals: To define more clearly the place and tasks of vocational education in the Estonian education system, including consolidating the division of tasks between institutions; to strengthen the costing and budgeting of vocational education; and to develop appropriate costing models.

Additionally, teaching staff's salaries should be analyzed and raised to a level that ensures the quality of learning and the realities of the labor market.

Higher education costs falling

Estonia's higher education costs are comparable to the EU average, but have been on a downward trend over the last decade, the report said.

Higher education funding is characterized by large differences between universities and universities of applied sciences, as well as by the diversity of funding sources. As a result, the averages are highly misleading for higher education expenditure, including internal university expenditure: for example, professors' salaries vary depending on the level of additional funding.

The working group also noted that, in contrast to international practice, the central operating grant of Estonian higher education institutions accounts for less than half of their total income, which makes it very difficult to manage the institutions' core activities, including restructuring to achieve strategic objectives.

It recommended agreeing on a general framework for funding higher education and academic research and developing a new funding model. Funding for higher education institutions should be provided through an institutional operating grant to ensure that all the institution's statutory tasks are carried out.

Structure changes could also be undertaken to increase the share of applied higher education and reduce the number of curricula to contain rising costs, the analysis found. 

Introducing tuition fees could also be discussed to make higher education funding more sustainable. Small sources of income with high administrative costs that do not help to solve real problems should be avoided, the working group notes.

Activity-based state budgeting does not work

The analysis also criticizes the activity-based state budget, which, according to the working group, functions only as a formality.

"Public funding for education is fragmented between a number of financial instruments that are vaguely defined and not formulated in a transparent way, which does not allow for a cost-effective use of budgetary resources. Education institutions, including the Ministry of Education and Research, do not have public budgets. The information on the functional cost structure and financial situation of the department is based on ad hoc requests from responsible officials and management. Education's substantive management and fiscal management operate separately and cooperation is formal. A feedback-based fiscal management system for education services should be set up in the ministry, which would allow the efficiency and effectiveness of the use of budgetary resources to be monitored in a meaningful way," the analysis said.

Aaviksoo said a lot of work is needed to understand where the money actually goes: "Because in reality, there is no picture. If the Riigikogu says they do not understand – then nobody understands."

The academic said another problem is the separation of content and funding, which means that big and beautiful plans are made before the financial backing has been found.

The working group also pointed out that educational institutions have €394 million of income from sources outside the state budget, which is 17 percent of total expenses, or 1.1 percent of GDP.

Somewhat problematically, the largest share of external funding (including the Structural Funds) totals €216 million – a serious challenge to maintaining education funding levels if EU subsidies decline, it noted.

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