The government agreed on the principles of the 2018-2021 budget strategy in Wednesday’s cabinet meeting. Allocations to healthcare and defense will increase, new taxes on cars and banks’ business are not to be expected. A pay raise for kindergarten teachers discussed earlier was also left out.
The government agreed to use past years’ budget surplus in the amount of 0.5 percent of Estonia’s gross domestic product (GDP) for strategic investments in 2018 and 2019. In 2020 this is to be reduced to 0.3 percent GDP, and for 2021 the government expects a balanced budget again.
Over the next four years €215 million in additional funding is to be spent on healthcare and improving public health. Defense spending is set to increase as well, with an additional €60 million allocated to national defense beyond the 2 percent GDP goal of NATO’s member states.
Additional investments in infrastructure are planned as well, including further support for public transport.
In an interview with ETV’s “Aktuaalne Kaamera” newscast on Wednesday, Prime Minister Jüri Ratas (Center) said that the most difficult part of the debate had been the sustainability of healthcare funding.
The prime minister was reluctant to call the planned cut into the previous years' surpluses a deficit, but eventually conceded that the step amounted to as much, though a budgeted deficit was not necessary.
Ratas insisted that the government’s plans didn’t mean spending now and leaving it to future generations to foot the bill. “We’re certainly not handing out a single cent we don’t have today,” Ratas said. “We can only spend what we can cover in reality.”
The prime minister did not comment where the additional €215 million for healthcare will come from.
Sester: No specific sources of revenue tied to specific expenses
Minister of Finance Sven Sester (IRL) explained to ERR on Wednesday that the budget didn’t include indexed expenses corresponding directly to different sources of revenue. Specific expenses did not come with a specific source of funds to cover them.
“There is no specific price tag. We could just as well ask where the money to move the Academy of Security Sciences is going to come from, or the money for increasing salaries in the public sector,” Sester said, adding that there was no specific expense that required introducing a new tax.
As an example of a future source of money, Sester mentioned taking AS Tallinna Sadam (Port of Tallinn) to the stock market. Income like this couldn’t be directly connected to expenses. “Tallinna Sadam’s IPO is an example of a one-off gain that can be used to cross-finance healthcare, among other things,” Sester said.
The minister stressed that the government had taken the principal position that taxes related to earnings would be lowered, and taxes linked to consumption increased.
More money for defense and infrastructure
In addition to the 2 percent GDP minimum set as a spending aim by NATO members, national defense will see another €60 million in investments. The plan is to buy ammunition.
The cabinet also want to invest €45 million in Estonia’s infrastructure over the next year. All in all, investments in transport and public transport are set to grow by some €70 million.
Minister of Economic Affairs and Infrastructure Kadri Simson (Center) said she considered the infrastructure investments one of the most important aspects of the government’s new budget strategy, with a total of €135 million to be spent over the next three years. “This additional injection will help us complete several other large and long awaited projects beside the Tallinn-Tartu highway,” Simson said.
Considering that structural support from the European Union was quickly drying up, these additional means would help Estonia reach its targets, and with it contribute to improving its economic situation, the minister added.
The overall contribution to public transport is set to increase by €70 million to €92 million, of which €34.1 million will go to passenger train operator Elron, €34.8 million to bus operators in the counties, and €22.8 million to sea and air transport.
The budget strategy would also include an option for a minimum excise duty on electricity for industrial bulk consumers, Simson said. This would free up capital in businesses to increase their investments and create additional jobs. This step showed that the government was taking business into account, and was working to improve Estonia’s business environment, Simson said. The according legislation was planned for 2018.
No car tax to be introduced
The coalition’s negotiations in 2016 included a tax on cars. This plan seems to have been given up for the time being. Finance Minister Sven Sester said that he was glad that the coalition had supported his proposal to drop the idea, as it would have increased the tax burden on all those who needed a car. “As it is possible to put a budget together for the next years without such a new tax, it’s reasonable to give it up,” Sester said.
Sugar tax remains part of the package
The government agreed to go ahead with the introduction of a new tax on sugary drinks. The highly controversial measure will most likely affect products that contain at least 5 g of sugar per 100 ml. According to the government, the aim isn’t to make sugary drinks more expensive, but to get producers to change their recipes and lower sugar content.
The government plans to exclude natural fruit juice from the measure. As this means going against the principle of equal treatment of producers up to an extent, the government is applying for an exception with the European Commission.
Editor: Dario Cavegn