"The state budget must be clear and transparent," the current government's coalition agreement states. "In the letter of explanation for the 2025 state budget, we will start publishing a budget based on cost accounting in parallel with the activity-based budget. We will then decide on the need to continue with an activity-based budget and on changes to the budgeting process."

ERR asked the Finance Ministry whether there will be a line-item budget in 2025 in addition to the activity-based budget, and whether this is already in the process of being drawn up.

Sven Kirsipuu, the ministry's deputy secretary general of fiscal policies, replied that the state budget always is cost-based.

"For the sake of clarity, let's clarify the terminology: the state budget is always cost-based," he wrote. "At the same time, costs are categorized differently –
some clarification on the terminology: from an activity-based perspective and from an accounting perspective (economic content, such as labor costs, etc.)."

The deputy secretary general noted that this economic content is already accessible in the state budget's letter of explanation (for example, Appendix 12 of the 2024 state budget's letter of explanation), and that it will be budgeted for in the 2025 state budget as well.

"Discussions are still ongoing regarding whether it will be practically feasible to include economic cost information from the letter of explanation in the 2025 state budget law," he continued. "The data will be available in the letter of explanation in any case, as mentioned above."

Asked if, since the state budget is already cost-based, the statement included in the coalition agreement is therefore meaningless, Irina Satsuta, chief specialist at the Ministry of Finance's Public Relations Department, replied, "The expectation outlined in the coalition agreement will be specified during budget negotiations, and nothing has been anticipated incorrectly – options exist in the details of one or another view as well."

Since 2016, Estonia has used an activity-based budget in lieu of the prior line-item budget, which has made the state budget more and more difficult to understand each year, and nearly incommensurable by expenditure items and year. When politicians in recent governments have started looking for opportunities for budget cutbacks, they've ended up encountering, among other difficulties, the state budget's lack of transparency.

The goal of an activity-based budget is to gain a clear overview of how various national objectives are funded and achieved as well as what their outcomes are. In other words, expenditures in the state budget are linked to the state's strategic objectives.

Critics of the activity-based budget have included the chancellor of justice – who has argued that decision-making regarding the state budget has shifted from the Riigikogu to the government and ministries – as well as the auditor general.

Taavi Rõivas, Estonia's Reform Party prime minister from 2014-2016, was chair of the Finance Committee of the Riigikogu in 2010 when preparations were already underway for an activity-based budget. This July, he called the activity-based budget a "failed experiment."

Nonetheless, the current minister of finance, fellow Reform member Jürgen Ligi, has repeatedly stated that the criticism of the activity-based budget is overblown and the issue overrated.

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