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European Commission: Estonia's budget deficit may deviate from objective

Stacks of €10 and €100 bills.
Stacks of €10 and €100 bills. Source: (Leonhard Foeger/Reuters/Scanpix)

The European Commission has submitted its spring recommendations for EU member states, according to which Estonia's budget deficit may amount to 0.9 percent of the GDP next year instead of Estonia's forecast 0.5 percent, which does not correspond to EU fiscal balance objectives.

The Commission recommends that Estonia take action to pursue its fiscal policy in line with the requirements of the preventive arm of the Stability and Growth Pact, which implies to remain at its medium-term budgetary objective in 2018, the European Commission said.

According to the estimates of the stability program provided by Estonia, the country would have a structural surplus 0.2 percent of GDP in 2017 and a deficit of 0.5 percent of GDP in 2018, which would respect the medium-term budgetary objective. Based on the recalculated structural balance based on the European Commission's common methodology, however, the deficit is projected to amount to 0.1 percent of GDP in 2017 and 0.9 percent of GDP in 2018, which is below the new medium-term budgetary objective.

The Commission is also recommending contributing to strengthening the social safety net. The Commission estimates that Estonia has a well functioning labor market, but the gender pay gap is still one of the highest in the EU. The ratio of incomes of the richest 20 percent of households to that of the poorest 20 percent also rose from 5.4 in 2012 to 6.2 in 2015.

The key driver for inequality appears to be the high wage dispersion as a result of strong income growth among the higher skilled, whereas benefits, particularly pensions, social assistance and unemployment benefits, are not keeping pace with the growth in market incomes.

At the same time, the poverty-reducing effect of social support has decreased from 36 percent in 2010 to just 22 percent in 2015. Thus one of the Commission's recommendations for Estonia is to ensure better adequacy of the social safety net. Other recommendations include taking measures to reduce the gender pay gap, in particular by improving wage transparency and reviewing the parental leave system.

Estonia should also promote private investment in research, technology and innovation, including by implementing measures for strengthening the cooperation between academia and businesses.

The economy in the EU and the euro area is proving resilient, but challenges, such as slow productivity growth, the legacies of the crisis — including persisting inequalities — and uncertainty arising mostly from external factors continue. The Commission is therefore calling on member states to use this window of opportunity to strengthen the fundamentals of their economies by implementing the economic and social priorities identified in common at European level: boosting investment, pursuing structural reforms and ensuring responsible fiscal policies.

The Commission's recommendations for EU member states are adjusted each year according to accomplishments and changed situations. The recommendations published on Monday are based on discussions, state programs, Eurostat data and the Commission's recently published spring forecast for 2017.

The Council of the European Union must now accept the country-specific recommendations and member states implement them fully and on time.

The European Commission on Monday published the country-specific recommendations for the year 2017, which include economic policy guidelines for each specific country for the next 12-18 months.

Editor: Aili Vahtla

Source: BNS

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