By the end of August, the central government's budget deficit, primarily stemming from the state budget, had increased to €697 million, which is €19 million higher compared to the same period last year. The deeper deficit was caused by a decline in non-tax revenues as well as a significant rise in investments and operational expenses, primarily due to defense equipment procurements.

In August, tax revenue growth remained strong, mainly due to a solid intake of corporate income tax. Over the first eight months, tax revenues exceeded budget projections, largely driven by higher-than-expected personal and corporate income tax contributions.

On the other hand, non-tax revenue collection for the first eight months fell short of last year's figures, mainly due to lower owner income and a drop in revenues from CO2 quota sales, driven by the decline in CO2 unit prices.

By the end of August, the social security funds showed a small surplus. The Health Insurance Fund posted an €11 million surplus, which is an improvement over the previous year when there was a slight deficit. However, compared to last year's figures, when the surplus by the same time was €123 million, the current situation is significantly weaker.

The sharp increase in expenses, particularly due to substantial wage hikes under the most recent collective agreement for healthcare workers, contributed to this. The Ministry of Finance highlighted that this year is the last to benefit from the additional temporary financial support allocated by the government at the beginning of the COVID-19 crisis. This support amounts to €123 million for the current year.

The Unemployment Insurance Fund also moved from a deficit at the beginning of the year to an €11 million surplus by the end of August, reflecting a similar situation and intra-year dynamics seen in recent years. The year typically starts with a rise in benefit payments, while unemployment insurance contributions do not increase at the same rate. Additionally, the labor market situation remains satisfactory, with the number of registered unemployed individuals dropping below last year's levels during the summer and continuing to show slight signs of further decline.

The surplus of local governments decreased to €37 million in August, which was €11 million lower compared to the same period last year, despite a 10.5 percent increase in personal income tax revenues.

The total volume of state budget expenditures grew by 4.1 percent year-on-year in August, mainly due to domestic subsidies and the redistribution of tax revenues.

State budget institutions' total spending in August amounted to €1.28 billion, an increase of €49.9 million, or 4.1 percent, compared to August of the previous year. The growth in total expenditures was driven by domestic subsidies and forwarded tax revenues.

Expenditures affecting the state budget position – those excluding foreign funds and redistributed tax revenues – grew by €13.4 million in August compared to the same month last year, increasing by 1.7 percent to €811 million. This growth was primarily driven by domestic subsidies in August. Similar to previous months, financial expenses also contributed to the increase in expenditures affecting the budget position.

In August, domestic subsidies issued by state budget institutions increased by €42.6 million compared to the same period last year. Social benefits saw a rise of €27.7 million, with the growth mainly driven by old-age pensions.

However, support for large families decreased by €5.5 million in August due to a law that took effect in January, which reduced the monthly benefit for families with at least three children from €650 to €450 and for families with seven or more children from €850 to €650.

Domestic targeted financing, which increased by €20.5 million in August, was primarily boosted by the reallocation of subsidies for public transport, support provided to local governments for the transition to Estonian-language education and educational integration and funds allocated to the Health Insurance Fund to cover healthcare costs related to war refugees.

Domestic investment subsidies increased by €1.7 million compared to the previous year, primarily due to more investment grants funded by CO2 quota revenue and co-financing of railway infrastructure projects. Operational subsidies, however, decreased by €7.2 million in August, largely due to the reclassification of public transport subsidies as domestic targeted financing.

Operational expenses dropped by 30.3 percent, or €29.2 million, in August, primarily because defense-related expenses were not realized as expected. State budget institutions spent €7 million more on labor costs in August compared to the same period last year, reflecting an annual growth rate of 6.3 percent in labor costs.

The growth in public sector wage costs in August was driven by an increase in the teacher salary fund. The differentiated portion of teacher salaries increased from 17.1 percent to 20 percent in 2024 and additional payments were provided to teachers in connection with the transition to Estonian-language education. Increased payouts for special pensions also contributed to higher labor costs.

The volume of investments rose in August, mainly due to defense-related investments. State budget institutions made investments that were €2.7 million higher than in August of the previous year, representing an annual growth rate of 4.8 percent. Investments over the first eight months of the year have grown at nearly double the rate of the previous year, specifically by 44.9 percent, or €154.1 million.

Financial costs have steadily increased since October 2022 due to bond issuances and the rise in Euribor rates. In August 2024, financial costs were €5.8 million, or 47 percent higher, compared to the same month last year.

Redistributed tax revenues increased by €25.3 million, or 7 percent, in August, mainly due to higher personal income tax, social tax and unemployment insurance contributions.

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