Plenty has been written about the new government's tax hikes, and their negative impact on economic growth. To put it briefly: A rise in consumption taxes hikes prices, while a rise in income taxes reduces purchasing power, ultimately leading to curbed consumption.

Consumption accounts for almost half of our GDP, so the impact will be clear and direct.

The other side of balancing the budget involves cost-cutting. To start with, many expenses should be detailed within the legislation, followed by a cost-based budget which outlines specific expenditure lines, rather than abstract programs.

This way, policymakers can identify areas to cut or at least understand what they are cutting.

The coalition has pledged to create a cost-based budget, yet there has been little discussion about detailing expenses within the legislation.

Were savings desired, this ought to be done as nearly 80 percent of budget expenditures are mandated by law, making it challenging to find available funds to make savings from.

Now comes the most important point. There has long been talk of the need to slash bureaucracy and the proliferation of the state apparatus, but little actual progress has been made there.

It seems that public sector employment is a problem throughout Europe, as relevant comparative statistics are difficult to find.

Three major sectors dominated by the public sector are: Public administration and governance, education, and healthcare.

Together, these sectors account for about 22.5 percent of all employees in Estonia. The data comes from the Eurostat database, and is from 2023.

This figure is however towards the lower end of the scale Europe-wide, ranking at 18th.

It becomes more complicated though since we don't know exactly where we stand in terms of public sector employment, meaning how many people are paid from the state purse. Relevant recent data on that is simply unavailable or not accessible from public databases.

For instance there are 51,000 employees working in the healthcare sector in Estonia, 37 percent of whom work in the private sector, compared with 17 percent of employees in education who work in the private sector.

By contrast, 10,000 employees in the transport sector are on the public sector payroll, and as many as 11,000 in the arts and entertainment sector, too, receive their salaries from the state.

I was able to find a comparison from 2020 and from 2010 from among EU member states, specifically highlighting the government sector. This represented one of the few opportunities for international comparison.

Using this comparison, Estonia was clearly among the leaders in public sector employment, ranking fourth after Sweden, Denmark, and Finland. It is estimated here that approximately 24 percent of our employees are paid from the state budget.

From international comparisons, more recent data can be seen for public administration, security, and social security. Here, the private sector's share is practically nonexistent. Approximately 40,000 people work in this field in Estonia, with a discrepancy seen between Estonian statistics and Eurostat data.

A significant portion of employment consists of law enforcement agencies, comprising about 9,000 employees. So, the number of state-paid employees and officials ranges between 30,000 and 31,000.

Overall, public administration employment accounts for a little over 6 percent of total employment. By European standards, this is not too high; we rank 19th in Europe.

For example, in Greece, the figure is 8.8 percent; in Hungary 8.5 percent. Meanwhile, it is 4.9 percent in Finland, 5.7 percent in Denmark, and 8 percent in Sweden.

Just as a thought experiment, if we had proportionally the same number of employees in public administration as Finland does, we would have 9,500 fewer employees in this field compared with the current figure.

By Estonian standards this is a very large number. There is likely something to learn from the Finns. The claim that there are no opportunities to make savings is thus hard to agree with, especially when looking at specific numbers.

Speaking of potential savings, it is hard to understand why the state should subsidize the second pension pillar.

We have a voluntary third pillar; isn't that enough? This, in a situation where inflation tends to torpedo any savings anyway.

Moreover if we talk about the long-term subsidies for wind energy and Rail Baltica, there are likely more areas where state spending appears to be throwing money away and distorting the market, and here we are not talking about millions, but rather billions of euros.

Bold decisions are needed.

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