The government approved the draft state budget for next year and its 2027–2030 budget strategy on Monday.

The general government's nominal budget deficit is projected to fall by 0.5 percentage points from the forecast for next year, reaching 4 percent of GDP.

"Under European rules, we're allowed to run a deficit of 4.5 percent because defense spending is higher. To bring it down to 4 percent and slow the growth of future debt, we had to leave another €250 million unspent," Prime Minister Kristen Michal (Reform) said at a press conference.

He added that although elections are scheduled for next March, the budget is responsible and does not add to the debt burden.

The 10 percent cut in government spending agreed for 2025–2027 will continue.

"Estonia's debt burden will still remain among the lowest in Europe. We do not believe it is right to live at the expense of future generations or leave our children large loan and interest bills to pay," the prime minister added.

The tax burden will fall to 35.2 percent next year, down from 35.5 percent this year and 36.2 percent last year. It was at a similar level in 1995. According to Michal, this means that while the defense sector is growing, all other sectors have had to shrink in real terms.

€2.2 billion for national defense

Estonia's defense spending will remain above 5 percent of GDP, with strengthening national security among the state budget's priorities. The budget allocates €2.2 billion to national defense.

"We are now entering a new security situation in our region. Russia is significantly more aggressive," Foreign Minister Margus Tsahkna (Eesti 200) said. He described next winter and spring as decisive for Europe as a whole, as well as Ukraine. "I'm not talking about war, but about security policy more broadly."

The defense budget allocates €632 million to strengthening air and missile defense, long-range strike, indirect fire and anti-tank capabilities and to increasing ammunition stocks. Of that amount, €100 million is earmarked for developing drones.

The budget also provides €40.6 million for developing a layered air defense system, strengthening air surveillance and improving the management of air operations and the resilience of the air base. Construction of the Baltic Defense Line and development of naval and underwater surveillance capabilities will continue.

In domestic security, faster construction of the eastern border is a priority, with an additional €4 million allocated from the state budget. Development of drone surveillance and counter-drone capabilities will continue. The budget allocates €7.3 million for pay raises in the domestic security sector.

Teachers' salary the priority in education

Higher education will receive an additional €13 million for fields in which more graduates are needed. The funding will increase the number of places for students training to become teachers and doctors, as well as those studying technology and engineering. It will also help universities accommodate the large age groups reaching college age.

In education, the priorities are teachers' pay, recruitment and career development. The teachers' payroll budget will increase by 3.9 percent next year. In 2027, the minimum salary for a full-time teacher will be €2,030 and the projected average salary will be €2,497.

The "Sports in Schools" program will receive an additional €2 million. Funding for the Culture Backpacks program, which supports school cultural visits, will double to €3 million, raising the amount per child from €11 to €22.

"We are doubling funding for school field trips to preserve the principle of equal access to education, so that the quality of a child's education does not depend on their parents' finances," Minister of Education and Research Kristina Kallas (Eesti 200) said.

€2.5 million toward nuclear energy preparations

In energy, the goal is to ensure a reliable, crisis-resilient energy system and competitive electricity prices for consumers. A new incentive, the "wind boost bonus," will encourage municipalities to develop onshore wind power. The measure will receive €12 million from the state budget over the next two years.

For the first time, Estonia's 2027 state budget will fund the establishment of a nuclear regulator. The Consumer Protection and Technical Regulatory Authority will receive €2.2 million to recruit specialists and bring in experts, building the capacity to oversee the use of nuclear energy in Estonia. The budget allocates a total of €2.5 million to laying the groundwork for nuclear energy use.

Nearly €116 million will go toward developing Estonian companies' exports, investment, industry and tourism. Of that, €51 million will come from the state budget, with most of the remainder coming from European Union funds.

Another €134 million will go toward strengthening companies' research, development and innovation capabilities: €96 million from the state budget, €21 million from EU funds and €17 million from revenue from CO₂ emissions allowances.

€12.6 million for SmartCap

The state will contribute €12.6 million to SmartCap's venture capital fund to improve companies' access to capital and speed up investment decisions.

The state will also expand its ability to invest in strategically important companies that support Estonia's security, technological development or economic independence. It plans to spend €100 million on such investments from 2027 to 2030 or €25 million a year.

To make Estonia's digital government more resilient, the government is preparing an IT reform that will consolidate IT services and move critical services to the cloud. The budget earmarks €21 million for cybersecurity next year.

An initiative to accelerate the adoption of artificial intelligence is expected to boost the economy. The government will develop testing environments and expand computing capacity, with more than €30 million earmarked for AI.

"Those who work with change from the outset will come out ahead," Kristina Kallas said.

Rail Baltica construction to slow down

The budget allocates €445 million to Rail Baltica. The goal is to bring its main line into operation alongside Latvia and Lithuania during the European Union's next long-term budget period from 2028 to 2034. Construction already underway in Estonia will continue as planned. Work is underway at the Ülemiste passenger terminal and along more than 100 kilometers of the route toward Pärnu.

"I wouldn't really say we're canceling investments. We're slowing the pace of investment, which in some cases has been unreasonably high," Finance Minister Jürgen Ligi (Reform) said.

"There has been a lot of discussion about Rail Baltica. If we were to spend the full amount it will cost by 2030, it would create a very large budget deficit and overheat the sector. That would drive up prices," Ligi added.

Development of national highways, including roads with two lanes in each direction, will continue. Approximately €274 million will go toward maintaining and developing Estonia's roads next year.

On the route toward Pärnu, construction will continue on the Libatse–Nurme and Päädeva–Konuvere–Päärdu sections, each with two lanes in both directions. Work will also continue on the Käsukonna–Imavere section and the Paia junction on the route toward Tartu. These projects are expected to be completed by 2028.

According to the state budget strategy, Estonia will continue to pursue an active foreign policy, with commercial diplomacy playing an important role. Estonia will continue to support Ukraine and take part in its reconstruction.

Tallinn will host a Ukraine reconstruction conference in January, with about 5,000 people expected to attend. A total of €13.5 million has been budgeted for the conference. Ukraine's reconstruction is one of Europe's largest economic projects of the next decade.

Mental health support to get additional funding

In social affairs, the government will focus on balancing the Health Insurance Fund's budget, easing the mental health crisis, improving victim support services and addiction prevention and treatment and strengthening social services and healthcare.

"The Ministry of Social Affairs has the largest budget of any ministry. In 2027, ours will be nearly €8.2 billion. That sounds like a lot, but a very large share of it — about two-thirds — goes to pensions, benefits, compensation and social services. About a third goes to healthcare," Social Affairs Minister Karmen Joller (Reform) said.

The Health Insurance Fund's budget is projected to grow each year, from €2.67 billion next year to about €2.99 billion in 2030. Its deficit will be reduced year by year, with the aim of balancing the budget by 2030.

The budget will provide additional funding for early mental health support services, victim support and women's shelters. Funding for preventing drug use and addictive behavior will also increase.

"Healthcare workers' pay raise is being postponed, but it is not being canceled," Joller stressed. "We certainly aren't drawing up a new budget at the expense of anyone's pay. Minimum pay rates for healthcare workers under the collective agreement have risen by more than 50 percent over the past five years. That has been essential and has helped keep healthcare workers in Estonia."

The government will also allocate nearly €37 million over the next four years to strengthen social services, with a substantial share planned for services for people with special needs. The exact distribution of the funding will be determined as the draft state budget moves through the Riigikogu.

Pensions to rise by 5.1%

Pensions are forecast to rise by 5.1 percent. The average gross pension for a person with 44 years of service is expected to reach €904. The 2027 pension budget is €3.57 billion.

Pensioners who live alone and whose net pension is forecast to be below €1,039 in 2027 will also receive a one-time payment of €200. The budget for this benefit is €18 million.

To support regional access to services, the government will maintain existing public transit routes and service levels while improving quality. About €190 million will go to the public transit network next year, €16 million more than this year. The aim is to ensure that people across Estonia can get to work and reach everyday services.

"Our strategy is to prioritize those who are less well off," Finance Minister Jürgen Ligi said. "The only adequate response to rising fuel prices is to increase public transit funding."

Apartment building renovation support to continue

Grants for renovating apartment buildings will continue, with €80 million planned for funding rounds in each of 2027 and 2028. Ongoing renovations will reduce heating costs and save energy, while increasing home values and providing work for Estonia's construction sector.

Over the next two years, the state will spend €12 million to buy privately owned land subject to nature conservation restrictions. It spent €10.8 million on such land last year and €7.8 million the year before.

The state buys land subject to significant conservation restrictions to fairly compensate owners who cannot use their land as intended, while preserving valuable natural areas.

Funding to host major international sporting events will increase by €2 million to €5 million in 2027.

Prime Minister Kristen Michal will submit the draft state budget to the Riigikogu on Tuesday.

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