Those in Estonia behind the green transition and attempts to balance the state budget through tax hikes have for years been looking for economic growth in their actions, like Pippi Longstocking searched for the snirkle. Pippi also didn't know what a snirkle was or where to find it, while it did not stop her from searching and having a grand old time. Finally, when the game was getting a little long in the tooth, it was decided that a random bug was the snirkle for a mission accomplished.

I cannot help but to be reminded of Pippi's game to find the snirkle when looking at Estonia seemingly having to choose between economic growth and the green transition. Leading Europe in the green transition, we have unexpectedly landed not in stagnation but recession, with even the Social Democrats and Greens now starting to feel the effects of cuts.

While the green transition is entirely sensible when it comes to reducing pollution, it would also be sensible not to throw our main sources of income out with the bathwater. Statistics Estonia has a lot of useful information on its website – such as tables VKA02 and VKT20 on which this comment is based – to help us make sensible decisions. Allow me to try and mediate and explain to the government Estonia's economic statistics.

A viable economy needs export

Primary tax revenue of the central and local governments (88 percent of all tax revenue) comes from the private sector (Tax and Customs Board info). The remaining, so-called secondary tax revenue, mainly comes from public sector labor expenses. Additional funds come in the form of export, loans or foreign aid.

Foreign aid will run out one day, and it's embarrassing to rely on it anyway, as we're hardly a developing country. At least that is what we think. The problem with loans is that they need to be repaid, with interest. Export of goods and services is therefore the only sustainable way of adding prosperity.

Certain economic sectors are particularly important for society, especially those where exports significantly exceed imports, as they bring additional revenue into the country. The difference between the monetary value of exports and imports is described by the current account balance. When exports are higher than imports, the current account is positive, and vice versa.

For years, Estonia's export of goods has been lower than its import. Imported goods account for around 80 percent of Estonia's total consumption, as we produce only a minority of the goods we need. Last year alone, we imported about €0.6 billion more in electricity and gas than we exported.

If we aim to phase out local dispatchable oil shale, gas and wood-based electricity generation and rely on electricity imports, it will not be possible to give up on our largest export-driven industries, which help balance the current account. This is because importing requires money, and that money comes from the export of goods and services – or from foreign direct investments if we sell assets to foreigners.

Our problem is that we do not produce enough exportable goods and services to cover the financial needs of our imports. At the same time, developing industry in Estonia is challenging because, for years, our governments' attitude towards domestic industry has been, to put it mildly, negative. Perhaps most of these highly educated officials and politicians haven't reviewed national statistics or haven't understood them. Let me explain.

Processing industry the main pillar of our economy

The manufacturing industry has been, and continues to be, the largest contributor to balancing Estonia's current account, bringing an additional €4.2 billion into the country in 2023. Within this, the wood and furniture industries were the top contributors, generating €1.55 billion. Other significant contributors to the positive current account balance were the IT sector with €1.3 billion and transportation and warehousing, which added €1.07 billion.

Other sectors contributed significantly less. For example, construction, a major sector of the economy, brought in only an additional €60 million, as a large portion of construction materials are imported. Tourism (accommodation, food services and travel agencies) resulted in a net outflow of €113 million.

Another crucial sector, energy (electricity and gas supply), saw an outflow of €594 million, primarily due to tax policies (oil shale electricity is unable to compete in the market because of taxes, while other alternatives are not yet available, and Estonia does not produce its own gas). Notably, in 2018, the energy sector resulted in a much smaller outflow of just €22 million.

Service export nice to have, but people mostly need goods

At the Ministry of Economic Affairs and Communications, the interests of the manufacturing industry are represented by just one sector manager and a few officials, while, according to their website, tourism is handled by four people. In contrast, the Ministry of Climate has 36 people dealing with construction and 20 focused on energy. Given the statistics presented earlier, something seems out of balance.

The issue lies in the prevailing attitude: industry is not seen as "sexy." There's a belief that Estonia can sustain itself purely through a service-based economy and IT. However, this belief is wishful thinking and disconnected from reality. People worldwide primarily need goods, and services and trade merely facilitate their distribution. The consequences of poor industrial policy are now evident – our economy has been in decline for three consecutive years, and the budget deficit would worsen even without the increase in defense spending.

The growing deficit cannot be offset by the rapid growth in the export of services, particularly IT services. It's worth noting that the success of many services, such as transportation, is directly tied to the performance of the export-oriented manufacturing industry, which also contributed €299 million to the positive balance of services.

In the coming years, the IT sector will likely surpass the wood sector in terms of its contribution to the current account surplus, as the government encourages the former while hindering the latter. However, even then, as a society, we cannot afford to financially undermine the only export sector based on a renewable resource, as we have nothing to replace wood product exports with. And why should we? Wood, or plant-based materials in general, is the only truly renewable material, unlike metals, concrete or plastics.

To clarify: when the renewal of managed forests (which are not plantations or tree farms, but rather typical Estonian forests) is delayed significantly beyond the maturity age of the dominant tree species, the harvested wood cannot be used for products other than fuel pellets because rot fungi would have compromised its technical properties and chemical structure. This raises the suspicion that so-called forest conservationists might secretly be working for pellet industries.

Estonian state the biggest obstacle for industry

If the government undermines the competitiveness of exporting companies with its ideologically driven green or progressive restrictions (with our local raw materials and electricity already more expensive than in neighboring countries), Estonia's export-import balance will only worsen, meaning more money will flow out of the country.

Of course, the relationship between the current account deficit and the state budget deficit is not direct. However, we can only redistribute the money that has been brought into the country through exports, not the money that has left the country to pay for imports. As it stands, the Climate Resilient Economy Act ensures only one thing: that our largest contributors to the current account balance will no longer be able to perform this role in the future.

How a current account deficit helps achieve a balanced state budget is beyond my understanding. Instead of trying to attract new foreign investments, perhaps the government should focus on keeping the proven local companies afloat? But, of course, that wouldn't provide income for the officials at the Estonian Investment Agency (EISA).

There is only one solution to the state budget and economic growth problems: significantly more Estonian residents need to move from being a cost on the state budget to being contributors, creating redistributable added value. Moreover, the government must start using the statistical data it collects at the cost of tens of millions of euros annually as a genuine basis for political decisions. The state budget deficit is the result of long-term misguided economic and education policies.

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