Estonia's budget deficit reached 0.8 percent of GDP in August
Estonia's general government budget deficit stood at €342 million as at the end of August, the Ministry of Finance has said.
This represented 0.8 percent of expected annual GDP — a fall of €207 million on year.
By the end of August, central government — meaning mainly the state budget — had a deficit of €381 million. The position, which had shown a surplus in January thanks to an extraordinary inflow of corporate income tax, transformed into a deficit in March following income tax refunds and deepened slightly further in August. However, this year's deficit is €231 million less than that seen in the same period last year, Helin Kütt, analyst at the Ministry of Finance's fiscal policy department said.
Tax revenues in August exceeded the levels expected both in the state budget and in the fresh economic forecast. Over the first eight months of 2025 as a whole, tax revenue collection also surpassed budgetary expectations, mainly thanks to personal and corporate income taxes, Kütt added. Non-tax revenues similarly exceeded last year's levels, driven by a growth in foreign aid and in the sale of goods and services, which was partly due to the introduction of the motor vehicle tax.
As to social insurance funds, these ended up in August with a deficit of €35 million, most of which — €48 million — derived from the Health Insurance Fund. The deficit tallies with the summer economic forecast, which projects an overall shortfall of nearly €122 million by year-end, the result of a rapid rise in healthcare workers' wages, increased demand for medical services, and the public expectation that waiting lists should not get any longer, Kütt explained.
The Unemployment Insurance Fund meanwhile posted a surplus of €14 million by the end of August, after a small deficit earlier in the year. Its budget position is expected to hold steady, with the summer forecast anticipating a balanced outcome by year's end.
The labor market situation remains satisfactory, the ministry said. The registered unemployment stood at 6.3 percent in August, compared with 6.9 percent a year earlier. Unemployment is also lower than during the same period over each of the past three years. Local governments' budgetary positions meanwhile demonstrated a surplus of €74 million by the end of August, exceeding last year's level by €35 million. The position weakened somewhat in August itself, however, due to faster growth in expenditures.
The total volume of state budget expenditures rose by 10.3 percent on year to August, primarily the result of increased investments and operating costs, Kütt said. The total expenditure by state budget institutions reached €1.41 billion in August, up by €131.9 million, or 10.3 percent, compared with August last year.
Expenditures affecting the budgetary position — that is, those excluding foreign funds and redistributed tax revenues — rose by €103.7 million year on year, bringing total spending for August to €914.3 million. Cumulatively, these types of expenditures amounted to €7.794 billion as of the end of August.
State institutions distributed €1.6 million more in domestic grants in August than in the same month in 2024. Social benefits rose by €14.5 million during that time, €13.5 million of which derived from old-age pensions.
Foreign grants channeled through the budget came to €24.4 million more than a year earlier. State institutions spent €126.3 million on labor costs in August, an annual growth rate of 5.5 percent. The rise in wage costs was driven in August by the defense sector and higher payouts of special pensions.
Operating expenses rose by €32.1 million year on year in August, due to defense-related spending and the VAT hike. Over the first eight months of 2025, the use of defense-related funds stood at €32.2 million more than it was in the same period last year.
The volume of investments grew by €48.9 million in August, including €41.4 million more investment in the defense sector compared with the case a year earlier. Over the first eight months, total investment reached €165.6 million more than last year, the majority of which — €152.1 million — was allocated towards defense. Spending on internal security has also risen.
Redistributed tax revenues grew by €26 million, or 6.7 percent, mainly due to higher personal income tax receipts, health insurance social tax, and contributions channeled into pension funds.
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Editor: Andrew Whyte
