Asked during an appearance on Vikerraadio's "Uudis+" on Tuesday whether the state's finances are currently in safe hands, Ligi responded that they are not.

"They are not in my hands; they are, more than anything, in [Vladimir] Putin's hands," he said.

"But I still think we need to slow down a bit and acknowledge that we're not about to engage in a duel with Putin, but instead have to calmly articulate the basic principles of who governs the country and what the real security threats are," Ligi continued. "That's why I cannot support this working group putting forward some sort of plan for a 9 percent or 7 percent defense budget, only for it to drop to 3 percent later."

Instead, he noted, they are setting a defense spending target of 5 percent.

"Even that much is an enormous effort — an enormous strain," the finance minister acknowledged. "For the whole country. And a very bold ambition. We are defending our country collectively, together with our European neighbors. Above all, we're still also relying on the Americans. And Putin's focus is not on how to invade here with the remnants of his military forces; it remains on Ukraine. So we have time."

He added that the solution is not for Estonia to spend itself into exhaustion on munitions, but rather that everything needs to be done according to a comprehensive development plan. "Training and all other investments must be made as well," he pointed out.

"The European budget framework must be utilized to the fullest extent," Ligi said. "Of course, we must also make full use of our own efforts that have already been made to improve the budget situation and still sharply increase defense spending, but the rest of society has to survive too."

This, he said, is why the coalition government will also be providing tax relief next year. "Both compared with plans and what has already been announced — namely, the tax hump, the rollback of special taxes as well as a longer-term tax perspective than agreed upon in coalition negotiations with the Social Democrats (SDE)," he noted.

The finance minister expressed hope that no one would promise teachers another pay raise.

"Money isn't the first thing," he said. "What we need to get settled first is the recognition that we are not going to be armed to the teeth by this fall; we're carrying out planned procurements and training so that, ultimately, [our] security would be guaranteed."

Income tax, VAT hikes here to stay

Asked whether the two percentage point increases in income tax and VAT will remain permanent, Ligi said yes.

"Finances must keep pace with the security situation," he said. Initially, these tax hikes had been planned to remain in effect only through the end of 2028.

Ligi emphasized, however, that the taxation of income will become more limited, meaning that it will not apply starting from the first euro earned. Instead, a basic monthly exemption of €700 will be implemented.

"Of course, this is a burden on the budget," he acknowledged.

Last year, the Riigikogu passed the Security Tax Act, establishing a security tax through the end of 2028 to generate additional tax revenue for the development of Estonia's defense capabilities and making security investments.

The security tax consisted of three components: a 2 percentage point increase in VAT starting July 1, 2025, a 2 percent security tax on individuals' taxable income starting January 1, 2026, and a 2 percent tax on corporate profits likewise beginning January 1, 2026.

Estonia's new government has pledged to repeal the corporate profit tax.

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