The government is offering €200 million worth of two-year government bonds to Estonian retail investors with an annual yield of 3.3 percent. It's commendable that the government is finally turning to its own people for funds in a difficult budgetary situation, keeping the returns within the country. However, it is difficult to overlook the fact that, while appealing to patriotism, the government is offering investors worse conditions than commercial banks.

If you only consider the interest income, the situation appears particularly unfair: the yield on government bonds is 3.3 percent, while bank term deposits offer interest returns of 3.5-4 percent.

In reality, these are not comparable, as such yields on term deposits are only available on a one-year basis, and the European Central Bank is gradually lowering its interest rates. While it is not doing so quickly enough to return to near-zero levels in the coming years – something that would greatly relieve homeowners struggling with Euribor – it is enough to make it unlikely that a 4-percent yield will be available on deposits a year from now.

In addition, bonds have the advantage of being tradable on the Nasdaq Tallinn exchange. The guaranteed yield of 3.3 percent represents a "floor," below which no investor will earn less. However, if (knock on wood!) significant disruptions occur in global financial markets, 3.3 percent could start to look quite attractive, and the price could theoretically rise.

It's important to note that the 3.3 percent is not the actual yield, as the state will deduct income tax from the earned interest – 22 percent next year and 24 percent the year after. This kind of skimming should definitely not be overlooked.

Another key issue to discuss is the purchasing power of money. In economic forecasts released this week, Swedbank projected inflation at 4.4 percent in 2025 and slightly less, at 3.5 percent, in 2026. The Ministry of Finance's own forecast was 5 percent and 3.2 percent, respectively. This means that over the two-year bond period, the money invested will be worth less, even considering the interest income.

The government itself is to blame for this, as its tax policy decisions are fueling inflation. Without the car tax or the upcoming tax changes, inflation would be about a percentage point lower, giving investors a real chance to end up with a profit.

Swedbank's chief economist Tõnu Mertsina commented: "In our view, the new tax package will accelerate inflation over the next two years and reduce net wages adjusted for price increases next year. This, in turn, may weaken household confidence, which is already fragile, and negatively impact private consumption. According to our forecast, private consumption volume will not increase next year. Since private consumption accounts for about half of GDP, this will have a significant impact on the entire economy."

This leads us to another concern regarding the bonds. Who are the people capable of purchasing €200 million worth of bonds? The government has repeatedly claimed that Estonians hold a record amount of savings, but the reality is that this capacity is distributed very unevenly across society.

"Savings are gradually increasing, but the distribution of these savings is very uneven across income levels and among individuals. Higher-income and wealthier individuals have larger savings than those with lower incomes," Mertsina said at the presentation of Swedbank's economic forecast.

This makes sense. The government's decisions over the past year and a half, including those like the car tax, which will only take effect next year, have created a great deal of uncertainty among people, leading a growing portion of incomes to be consumed simply to meet daily needs. The smaller the salary, the less money is left at the end of the month.

Thus, with these bonds, the government is courting the wealthier members of society, who are often not just wage earners but also active entrepreneurs. These are the same entrepreneurs who have heard nothing but criticism and arrogance from the government over the past year and a half. We remember how everyone got steamrolled with taxes: the coalition decided on some legal changes, then made a perfunctory round of consultations where interest groups poked holes in the plan, but the government pushed the law through unchanged anyway.

After such prolonged irritation, the government is now going to these same people to ask for money through bonds. This is happening in a situation where they have alternative options to place their money in higher-yield deposits or invest it elsewhere.

The Ministry of Finance has two main selling points: low risk at a 3.3-percent yield – which investors generally appreciate – and patriotism. But is this enough when the coalition has itself been undermining faith in the state for so long?

I hope it is, because national public bonds are actually a step in the right direction. If this first issuance is successful, the government must immediately announce the next one – a defense bond issuance to ensure the purchase of the ammunition necessary for our security. This must be done with a specific and emphasized purpose, so that the coalition cannot use the defense bond money simply to fulfill its election promises.

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