The state budget has reached the Riigikogu, and discussions will show in what form it will ultimately be adopted. Nothing will come easily, because a minority government no longer has a voting steamroller.

Those who say (for example, the Fiscal Council) that the savings are temporary and short‑term, achieved mainly by pushing certain expenses into the future, are right. No structural changes have been made.

This is understandable, because elections are at the door, and no one will stop the indexation of social benefits or cut education costs before elections. Instead, cosmetic, symbolic‑value topics are addressed.

For example, Prime Minister Kristen Michal claimed that the salary increase for senior state officials will not come in the amount prescribed by the formula (law). In real life, this means that in 2023 the coefficient determining salary growth was reduced for some officials. The lowered coefficient was initially supposed to apply until 2028, but now it has been decided to extend it until 2031. The financial impact is symbolic; as a message, it is an important step to gain a bit of support. Simply put, pure political technology.

One negative aspect of the entire budget and budget strategy, constantly emphasized by critics, is the rapid growth of the debt burden and the interest costs that must be paid starting in 2030.

If our public‑sector debt burden is roughly 26 percent of GDP, then according to current plans and forecasts it will grow to 38.6 percent of GDP by 2030. Interest payments will grow from €205 million to €650 million. To solve the situation even somewhat, the budget should be brought into balance as quickly as possible.

One must agree that paying current expenses — especially those indexed to price increases — with borrowed money is not very wise. Current expenses should be covered by current revenues. That seems logical. If investments are needed — expenses that will bring revenue back in the future — then borrowing is practically unavoidable.

It must be kept in mind that investment is not only pouring money into concrete or railways, but also investing in human capital. Whether it is for increasing birth rates, improving healthcare, or improving education. All these expenses bring greater returns in the future, whether in the form of more taxpayers or healthier and smarter workers.

But let's return to those three claims and look at each separately. The first is simple. What happens if the debt burden grows to 39 percent of GDP by 2030? The honest answer is: nothing happens. We will certainly still be among the last three in the EU in terms of debt burden, perhaps among the last four, but that does not change the big picture.

According to the EU's founding principles, a 60‑percent debt‑to‑GDP ratio is acceptable; the EU average is 90 percent. Finland's national debt is moving toward that 90 percent, and Finland can borrow on financial markets at very normal interest rates. Scare tactics claiming that "no one will lend to us then" simply do not work in real life.

The second claim — that interest costs in four years will be as large as current spending on science and higher education combined — does not hold for a very simple reason. Carrying current costs into the future requires accounting for price increases; inflation reduces the value of money in the future.

A cost of €650 million will be worth €589 million in four years if we assume a modest 2.5‑percent price increase. Considering what is happening in the world, one can assume that the impact of the oil crisis on prices will be longer and deeper, meaning that a 3‑percent annual inflation rate could easily be used. In that case, the value of €650 million in four years would be €578 million.

Now the other side of the equation. Our higher‑education costs will certainly not be €650 million in four years. If we assume that higher‑education costs grow by roughly five percent annually, then in four years they will be €790 million. Compare the two numbers: 578 and 790 are not exactly in the same magnitude. A five‑percent annual growth rate is more than modest; looking back in time, the growth number could be much, much higher.

The third claim — that we must achieve a balanced budget at any cost, and only then will happiness arrive — also does not withstand much criticism. We forget two factors when talking about the growth of the debt burden: economic growth and price growth.

Everyone wants economic growth, and price growth — at least to some extent — is unavoidable. Has anyone ever thought why the EU has a three‑percent deficit rule, a 60‑percent debt limit, and a two‑percent inflation target?

If we put these numbers into a formula and calculate how the debt burden changes in a year when the economy grows three percent, inflation is two percent, and the budget deficit is three percent, we get a surprising result. Under these conditions, the debt burden does not grow in a year — it stays the same.

If we continue the thought experiment, the current average EU debt burden of 90 percent of GDP would decrease by 0.8 percentage points in a year if we use a forecasted three‑percent inflation rate, a 3.3‑percent consolidated budget deficit, and assume 1.5‑percent economic growth. These are indicators that could characterize the euro‑area economy in 2026. All this happens while the budget is 3.3 percent in deficit, not balanced. For the debt burden not to grow under certain conditions, the budget does not need to be balanced.

Of course, no one knows what our economic growth, inflation, or actual borrowing needs will be in four years. It is impossible to predict because global uncertainty is too great. Therefore, all kinds of model calculations are made, which in turn rely on various assumptions.

Economic forecasting has become mathematics. All the more important is to talk about nominal and real indicators, about how inflation reduces the purchasing power of money in the future, and how economic growth changes ratios relative to GDP. Life is a bit more complicated than simply waving around numbers whose magnitudes are incomprehensible to ordinary people anyway. The specter in the room is much smaller than it is being painted. About the size of a matchbox.

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