Without confidence, there is nothing: the well-being of Estonians does not grow, nor does the faith and investments of entrepreneurs and citizens in a better future, and Estonian children are not born. The new government's plan is growth through confidence.

Our confidence has been shaken by several crises. Most sharply by the brutal war of conquest right next to us. Security, the Estonian economy and the well-being of our people have been hit and the state's financial situation with them. It has become clear that in the last decade, we have left many decisions unmade.

It is what it is, but someone has to fix things. We were once able to take decisions that were necessary as a nation, while we have recently made those that have been convenient. Now we must once again make the necessary decisions. We must be honest and say openly: the decisions that need to be made and that we announce will be difficult. They have consequences that will be felt by all Estonians.

We ask for everyone's contribution, and we highly value that contribution. I thank all Estonians, families and communities affected by these necessary steps. We are well aware that every public sector cut, every tax increase, every decision that needs to be made for us to feel secure – these have an impact on the economy and our people, they slow down economic activity. But uncertainty has an even greater and more harmful effect.

What is this uncertainty? Russia's aggression against free Ukraine and the entire West has shaken the economy and our competitiveness in the region. Our buyers are in a slump, Russian manipulations in energy markets have driven prices through the roof, bringing us high interest rates, investors are cautious and security costs have skyrocketed. We have had to make very large expenditures to improve our crisis resilience that we would not otherwise make.

We have lacked good answers for how to cope with these expenses. The Estonian economy has lost billions due to this uncertainty. Additional costs will come from higher loan interest rates in the future if the state's finances are not in order. Children are not born in an uncertain country, new businesses do not come to an uncertain country and the standard of living does not improve.

Therefore, if we have to choose between cutting through the Gordian knots that have tightened over many years or delaying necessary decisions further and thus prolonging uncertainty, the choice is crystal clear. We need confidence. Confidence to trust each other and, above all, ourselves. Confidence for growth.

Let's start with security. There is no doubt that we must do everything to ensure Estonia is truly protected. Estonian defenders, our men and women, must know that they have at their disposal the best weapon systems and a sufficient amount of modern ammunition that the enemy cannot counter.

The incoming government, if the esteemed Riigikogu authorizes its formation, believes that defense cannot exist without internal security. Before the war, the budget plan for defense was 2.16 percent of the gross domestic product (GDP) annually. This was the defense budget for 2022. Now, just two years later, it has grown by €550 million to over 3.4 percent.

Small Estonia is one of the largest purchasers of ammunition in all of Europe, in absolute numbers. Not per capita, in absolute figures. The costs for the entire society have increased due to the war started by Russia. We have had to strengthen our energy infrastructure in existing power plants, build an LNG terminal and significantly increase internal security expenditures. We know that in the coming years, we must invest even more in security, both external and internal, as well as support for Ukraine. We urgently need this.

In 2023, the government decided to increase VAT by 2 percentage points to cover defense expenses. According to forecasts, this will increase VAT revenues by €240 million annually starting in 2024. This does not nearly cover the current growth in defense spending, let alone new needs.

We have borne this cost at the expense of other sectors and through borrowing, but this cannot continue indefinitely, nor can these expenditures be postponed. Therefore, the new government will introduce a temporary defense tax. This is how we ask for everyone's contribution to building a more secure Estonia. We ask for a larger contribution from Estonian entrepreneurs. Many of them have publicly stated that more needs to be done to ensure defense capability, and they are ready to contribute. I thank them sincerely for this.

The new tax consists of several components: a 2 percent tax on turnover starting in July 2025, a 2 percent tax on individual income starting in January 2026 (the government plans to hike income tax and VAT rates to 24 percent – ed.) and a 2 percent tax on corporate profits starting in January 2026. Next year, the security tax will generate €116 million in revenue and the following year €813 million. A total of €2.6 billion euros over four years.

Tax revenues will not reach the budget immediately, but we will, of course, invest in strong external and internal defense and security without delay. For this purpose, we will also issue defense bonds, through which all Estonians can contribute even more if they wish, and the interest income will stay in Estonia to stimulate the economy.

The defense tax will allow us to cover the already increased defense and security expenses that VAT does not cover and to invest an additional €1.1 billion in defense and security until 2028. In total, we will invest four billion euros more in national defense and internal security over five years compared to the pre-war period. The defense tax is set to be in place until the end of 2028.

The state cannot demand contributions from citizens without doing its part. We must acknowledge that budget expenditures have gotten out of control even without defense costs. We have indexed many subsidies and social expenses to inflation and the strong labor market in recent years. Thus, costs have continued to rise, but taxes to cover them have not been increased.

The consequence is predictable. By doing nothing, the deficit in 2025 would be at least 5.3 percent of GDP, amounting to approximately €2.2 billion. We must plug this gap.

Firstly, the state budget needs to be made understandable and transparent again. It cannot be that our citizens, let alone members of the Riigikogu, do not get answers from the budget about where, why and how much taxpayer money is being spent.

We have decided to cut public sector costs across the board by 10 percent over three years: 5 percent in 2025, 3 percent in 2026, and 2 percent in 2027. This affects labor costs, operating costs and all earmarked and operational subsidies, as well as all public sector institutions, including foundations and state-owned companies. This means savings of €123 million in 2025, €230 million in 2026 and €314 million euros in 2027.

We will reduce the number of central government jobs. It would be easy to suggest that not enough cutbacks have been made. Some already do. In such a complex situation, however, everything must be laid out honestly on the table.

These decisions are and will be harsh. This means fewer jobs and the impact on several important services for people. We firmly believe that without savings, it is not appropriate to ask citizens for a greater tax contribution.

We must also ask, what is the alternative to implementing a temporary defense tax? What is the alternative to the planned cuts? Should we forgo acquiring the ammunition needed to defend Estonia? Or should we cut or freeze pensions, as some opposition parties have demanded, in a situation where reducing the pension growth index by 50 percent would mean that within a few years, every sixth pensioner would fall below the poverty line?

All realistic alternatives to the temporary defense tax that involves the entire society would reduce our people's sense of security. We do not support or intend to do this. It is crucial to know that pensions will not be cut. Neither will the indices or extraordinary pension increases, which have led to faster pension growth in recent years. We will not cut the volume of investments either.

However, the largest tax relief, which will increase the income of all working people so that those earning an average salary will receive over a hundred euros more in their accounts each month – the elimination of the tax hump and the increase of the tax-free minimum to €700 – all this is coming. We only ask for society's understanding that this will be postponed by one year.

The outgoing government's tax decisions will not be reversed, with one exception: we will not implement the tax on sugary drinks. Parties can seek a mandate for this tax and the principles it represents in 2027 if they wish. Additionally, we will increase the excise duties on alcohol, tobacco and gasoline by 5 percent annually and sell state property, including buildings and land.

With these changes, we will get expenses under control and keep the deficit within the agreed limits. State finances are not an end in themselves but a condition for growing the economy. A large deficit, or living beyond our means, harms Estonia's credibility and brings higher costs, such as interest payments, for both businesses and the state, creating uncertainty – the biggest hindrance for our economy.

The government can do much to boost the economy. Estonia's competitiveness must be and remain the government's main focus. We cannot compete with the subsidies paid in large countries, change the geopolitical situation overnight or improve conditions in our main export markets, but we can restore and amplify our main strengths: the simplicity, flexibility, predictability of the business environment, and digital solutions. To this end, the government plans a strong reduction in bureaucracy and a reform of planning procedures.

We will significantly shorten the time required to complete planning processes, and in cooperation with local governments, we will create priority development areas for new industrial enterprises. These areas will have the necessary infrastructure developed, and all required operating permits will be obtainable in an expedited manner.

We will reform the environmental impact assessment system, halving the assessment process time and requiring environmental impact assessments only when truly necessary. To speed up administrative procedures, we will reduce the number of required permits and simplify their issuance.

Minimal or positive environmental impact is a clear competitive advantage in our economic space. We will amend the Public Procurement Act to better consider local business and environmental footprint, promote innovation and more thoroughly account for potential security risks in procurement processes.

We will also establish a rule that for every new requirement imposing an administrative burden on businesses, an existing requirement must be eliminated. We will reduce reporting obligations for small and medium-sized enterprises. We will review the tasks of the public sector to make the state more efficient and reduce duplicative bureaucracy. We will improve strategic governance and the capabilities of the State Chancellery in supporting the government's work, as during challenging times, Estonia needs better foresight and the ability to implement reforms.

To enhance the quality of governance, we will prioritize data-driven decision-making, the use of artificial intelligence and the automation of dealings with the state. We will continue to develop e-government services, make them accessible via mobile devices and enhance their resilience and cybersecurity.

In addition to restoring Estonia's existing strengths, the government will focus on two major areas that will drive new economic growth in the coming years. These are the defense industry and new industries and technologies based on clean production. A competitive and modern economy, including the defense industry, is a vital guarantee of Estonia's well-being and sense of security.

To support economic growth and competitiveness more robustly, we will implement several key reforms in governance. The economy and industry will receive special attention with the appointment of a dedicated minister. In summary, this means having someone who offers value propositions to industries, ensures faster progress and helps revise restrictive regulations.

The planning sector and the newly created Land and Spatial Planning Board (MaRu) will join the economic and industrial fields. This sends an important message: the faster planning processes are completed, the quicker ideas and investments turn into jobs and added value.

The Ministry of Climate will have two ministers. This means that alongside environmental and climate issues, there will be more focus on infrastructure, connections, trade and logistics, areas heavily impacted by Russia's war of conquest.

The intersection of justice and digital issues has long been a daily reality. The rules governing data, citizens, states, artificial intelligence and businesses determine who can do what and how. The new economy needs a responsible entity to help navigate this regulatory maze and find the best possible solutions in Europe.

Of course, the above list is not exhaustive. The government faces many issues that need addressing. However, the primary focus will remain on restoring confidence for Estonian people, our allies and partners.

Our people must know that Estonia is protected to the best of our ability; that our allies stand with us, ready to defend Estonia and Europe alongside us; that despite the difficult security situation, our economic future is brighter than before; that there is a plan to jumpstart the economy and it is working; that our products and services are needed globally and are competitive; that Estonia's strengths, from the world's best education system to a simple and digital state, are maintained and further developed; that Estonia is a good place for everyone to live, not just to live, but to create and raise families; that those in power are ready and able to make the necessary decisions and implement the changes needed. This is the government's task, and we will accomplish it.

I thank our coalition partners, the Social Democratic Party and Eesti 200, for being ready for this journey. During the coalition negotiations, no one shied away from responsibility or obstructed the necessary decisions. Not those that are convenient, but those that are painful yet essential for a more prosperous, secure and free future, which altogether means a more certain future.

I have one more thing on my mind. I also address all those who do not support the incoming government, both in the Riigikogu chamber and even more so across Estonia in every home.

I assure you that your opinions, suggestions and desires, as well as your sense of security, are very important to the government. The incoming government serves you as well. We are not so wise or so arrogant as to dismiss good ideas simply because they sometimes come from the opposition.

My firm belief, my expectation of partners, and my call to opponents is that the infighting and prioritization of party interests that have long poisoned Estonian politics do not help us feel secure about the future. This is not the time for that! We can better protect ourselves and turn the economy towards sustainable growth. We can be leaders in building the security and competitiveness of the entire free world, but we must do it all together.

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