Commenting on the recently revealed draft of next year's state budget on the "Terevisioon" morning show, Peeter Raudsepp, director of the Estonian Institute of Economic Research, first praised politicians, noting that making cuts is difficult and requires significant political courage and agreements, which are not easy to achieve. However, Raudsepp questioned whether the cuts are sufficient.

"Over the last seven years, the state budget's expenditure has grown by about one billion euros annually on average. This means that we should either cut costs or raise taxes by that amount each year to keep the budget's income and expenses balanced. But raising taxes isn't easy. Today, our economy is already heavily taxed and there aren't many options left for the future. Maybe a property tax will come up at some point," Raudsepp explained.

With expenditures increasing by a billion annually, the economist believes more significant intervention is necessary. "We can't raise taxes every year; a more decisive step is needed."

Raudsepp refrained from giving specific suggestions on where and how to cut, noting that it is a matter of political agreements.

"But in addition to the annual one-billion-euro problem, we also face issues such as the need to increase defense spending. In the future, we will also have to address the funding of healthcare and education, which are extra costs that make the situation even more challenging. In the future, we will certainly face large and significant cuts, and hopefully, a political agreement on this will be reached," he expressed optimism.

Next year's proposed cuts amount to €132 million. "There have been claims that these are drastic cuts. What exactly is drastic about it when expenses are still growing and at a pace twice as fast as the forecasted economic growth?" Raudsepp commented.

Another issue Raudsepp touched upon was the promise of tax peace made by some politicians. "But what kind of peace is this? Perhaps peace has come for those who impose taxes, but those who will have to pay them – consumers and businesses – will be fighting for survival. This is not peace."

The impact of tax hikes on Estonian society in the coming years will be continued economic uncertainty, slower economic growth and faster inflation, Raudsepp noted. The increase in the VAT rate will hit Estonians the hardest. "With this, we are moving, particularly in terms of food prices – and I'll stress again that food prices are a strategic issue – toward having the second-highest VAT rate in Europe," emphasized the head of the institute.

Raudsepp sees the proposed support for large investments aimed at stimulating the economy as a necessary measure, but its effects will only be seen in the long run.

"Support measures for the economy have been introduced in the past, but they haven't prevented economic downturns or declining economic confidence. These measures shouldn't be viewed as a guaranteed way to boost the economy, but they do have a positive impact. Measures will only start to stimulate the economy once they reach entrepreneurs, meaning there's a significant time lag before their effects are felt," Raudsepp explained.

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