The coalition agreement is a strategy document and should, as such, start with a description of the situation. What is good and what isn't. What has been done right and what hasn't.

Talking about the economy, our problem is our competitiveness in the new geopolitical situation and stage of development. Our economy no longer sports the advantage of low salaries. In other words, we have reached where we've been headed for the past 30 years. We should be glad instead of mournful.

But what could be our advantage moving forward? In industry, more added value usually comes with greater capital and energy-intensity. Our electricity costs twice what it does in Finland or Sweden, while interest rates on loans are more expensive by between 1 and 1.5 percent. This costs our people and companies an extra billion euros annually. It is more than 2 percent of GDP and a serious problem.

The coalition agreement proposes no solution to said problems. Enterprise support will not solve these problems. It is wholly unclear whose taxes should pay for this support. Who should we tax more in order to support businesses?

I hoped the coalition agreement would say that we will refrain from harsher regulation that what the European Union mandates and will turn back things where we've already gone above and beyond.

For example, why does a country that has one of the cleanest airs in the world provide at the level of legislation that we need to generate as much renewable energy as we consume in a year by 2030? In other words, 100 percent. The requirement is 42.5 percent in Europe. Why do we need 100 percent? We all know that energy consumption is highest during cold winters, which is also when we have almost no wind.

For renewable energy generation to match annual consumption, the combined output of our wind farms would have to be 2.5 times peak consumption. In other words, we would have to export a notable part of our wind power.

Seems like a sound plan at first glance, it's export after all. Unfortunately, we are subsidizing it, and the more we export, the more we have to dish out in subsidies. This will lead to increased costs, competitiveness and the standard of living taking a hit. Are we really doing it just so a ministry activist can beam with pride on Brussels stages and perhaps land a high-paying job there one day?

The part of the coalition agreement dealing with energy is brimming with slogans, while they will not buy us new competitiveness. We should revise our entire energy economy through the eyes of specialists and economists. We won't get far if we just stick with ideologues.

Instead of utopian visions and plans, we need to look at the big picture and understand what is possible and what isn't. And how much it costs. We also need more openness and involvement in decision-making.

For example, the why of the Ministry of Climate's course of promoting offshore wind parks remains obscured from view. It is a known fact that onshore wind power is cheaper than its maritime counterpart. We've seen no public debate, while there are plans to assume a financial obligation of three billion euros for the whole of society. Plus whatever billions it will cost to build the necessary transmission infrastructure. That is just where our competitiveness disappears to.

Staying true to tradition, this coalition also promises to dial back red tape. The coalition agreement reads that we will "reduce regulation and put in place a rule according to which every new regulation that adds to companies' administrative burden will see an existing regulation lifted."

I wonder how that will work in real life. If we take the volume of ESG reporting, accounting is the only other regulatory obligation of comparable volume. One might jokingly ask whether the government plans to lift the accounting obligation.

At least it is now clear, when it comes to the state budget, that "tidy finances" means a deficit of up to 3 percent of GDP. A year ago, the coalition set about rectifying the deficit by hiking taxes, but the deficit started to grow instead. Our problem was high inflation and the government decided to accelerate it even more by hiking VAT. The deficit only got worse.

In my opinion, we have not highlighted one important reason for the budget deficit. As we know, nominal economic growth equals the sum of real economic growth and inflation. Since inflation has been significantly lower than nominal economic growth for the past thirty years, we have been able to increase wages and other budget expenditures at least by the rate of inflation.

Now, with the economy declining for more than two years, we are in the opposite situation. Costs are rising at the rate of inflation, but nominal economic growth and budget revenue growth are lower than that. From a budget perspective, this means an increasing deficit, which we have also observed. Therefore, inflation, which is higher than nominal growth, has certainly been one of the reasons for the deficit.

Hiking VAT is definitely not a good idea as it will only add to inflation. Especially in a situation where the cost of living is already a serious problem. The coalition should be able to learn as much from its own past mistakes.

The abolition of the tax hump (Estonia's gradual basic exemption reduction scheme – ed.) at least was postponed by a year. There's that.

When it comes to taxes, it would be fair if income for active work (salary) would not be taxed higher than passive income (dividends and rental income, for example). Value is created through work, and it is wrong to tax it higher. Hundreds of millions in tax revenue could be found there.

Before we hike the excise duty on gasoline, it would be fair for those who drive electric vehicles to have to pay at least the same amount. After all, electric vehicles take a greater toll on our roads.

Instead of hiking income tax, I would have abolished the second pension pillar. I don't have the exact figures, but it should be the same ballpark financially. Those who wish could put money aside in the third pension pillar. Besides, it should be clear by now that no pension pillar can deliver us in the conditions of such low birth rate.

The new government's energy policy will continue to weaken our economy. The income tax hike will impact people's purchasing power, while a higher VAT rate will raise prices, which will hurt purchasing power even more. As purchasing power falls, so will the economy. Our standard of living will continue its decline.

If our GDP per capita in terms of purchasing power was 85-86 percent of the European average from 2020 to 2022, by the end of last year it had dropped to 81 percent. By the end of this year, it will fall to 78-79 percent, which is the level we had in 2016 and 2017. Sad, but true.

In summary, reading the coalition agreement did not leave me feeling we've hit bottom.

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