The changes follow the ejection of the Social Democrats (SDE) from office at the start of the week, which the Reform Party and Eesti 200 said would allow the continuing coalition to pursue free market policies more.

The coalition has pledged that, starting next year, the planned 2 percent corporate income tax will not be introduced. Personal income tax will no longer start from the first euro earned, either.

Together with VAT, the so-called security tax was expected to bring in €750 million in revenues next year.

However, due to the abandonment of the two taxes, revenues will now be a third lower, "Aktuaalne Kaamera" reported.

Prime Minister and Reform Party chairman Kristen Michal said: "This €250 million must be covered by reviewing various other expenditures, by making cuts, by making the state more efficient, and by assessing other expenses, as, ultimately, the state's budget is a whole."

"Elsewhere, spending will have to be reduced accordingly. We will all need to tighten our belts," Michal added.

Foreign Minister Margus Tsahkna (Eesti 200) said it is not yet clear how this gap will be covered.

"This is a tough nut to crack, and we will be working on it in the coming weeks," Tsahkna said.

"The finance ministry will soon be releasing a fresh economic forecast, which will provide a clearer picture of what is to happen to Estonia's economy next year, and in the coming years," Tsahkna added.

"This will inevitably spell cuts, and some options through deregulation, but not on such a large scale. It requires significant effort to generate additional revenues," the minister continued.

Aivar Sõerd (Reform), a member of the Riigikogu's Finance Committee, concurred that the most significant issue is reducing public sector expenditures.

He said: "There has been talk of targets, such as reducing public sector employees by 20 percent, and so on. But these are just goals. They still need to be filled with concrete actions, and the specific numbers are not yet known."

However, in Sõerd's opinion, even this may not be enough.

"Since we are dealing with permanent revenues, part of which will not be collected, we need permanent sources to cover them. I personally would have considered whether we necessarily need to increase the income tax-free threshold at such a rapid pace," he added.

Michal stated that the growth of the tax-free income bracket will not be halted.

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