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Ardo Hansson: The government shouldn't hit the gas right now

Bank of Estonia Governor Ardo Hansson at ERR on Wednesday. Feb. 28, 2018.
Bank of Estonia Governor Ardo Hansson at ERR on Wednesday. Feb. 28, 2018. Source: (Siim Lõvi/ERR)

If Estonia is unable to bring its state budget into a surplus during the current period of economic growth, the country risks throwing its economy out of balance, Bank of Estonia Governor and European Central Bank (ECB) Governing Council member Ardo Hansson said on ERR's "Straight from the News Building" on Wednesday.

Commenting on last year's 4.9 percent economic growth, the highest recorded in the last six years, Hansson cited the improvement of Estonia's neighboring countries' economies and central banks' monetary policy as factors which have fueled the economy. At the same time, he sees signs that the economy is at risk of overheating and recommends that the government draw some serious conclusions accordingly.

"If the economy is growing at an annual rate of nearly five percent, this is a fast pace at our standard of living," Hansson said. "The government does not need to hit the gas right now. We may have tougher times ahead, or this growth rate may slow down. If we aren't capable of producing a budget surplus now, then when else? If we spend during hard times and spend during good times, we will throw our economy out of balance."

As Estonia's wealth increases, EU funding will decrease in the future accordingly. According to to the central bank chief, this will initially mean setbacks, especially in investments funded by EU monies, such as in agriculture.

"EU funding will decrease because we have become wealthier," he said. "But which is better — would it better for us to remain poorer and for money to come from support? In other words, the question for us is how to come up with the money. Does this mean taxes? Loans? Cuts? The last of these of course would be painful in the short term."

'Our simplicity was our trademark'

As wages in Estonia are currently rapidly increasing, pensioners are starting to end up relatively worse off.

"But there's no easy source for additional money, as has been demonstrated by the excise duty policy," Hansson said. "Sometimes we have to make difficult decisions, whether that is the retirement age or pension levels."

On the subject of changes in taxation in Estonia, Hansson admitted that it has become more complicated than it was in the past, but is nonetheless simpler than in older European countries.

"Our simplicity was our trademark, but this has now decreased," he said. "But this has its pluses and its minuses. Theoretically, easy to levy, broad-based taxes are rational. But if you want to influence people's behavior, you have to start implementing simple taxes."

As current ECB President Mario Draghi will be stepping down in October 2019, Bloomberg had named Hansson among the top five potential contenders for the influential position. Hansson himself, however, is not interested in the job.

"I can't picture myself in that role — for personal reasons either," he said. "One reason why we came back to Estonia was so that our children could grow up here. It is a harsh job too. Otherwise it's nice to read the speculation, because according to Forbes, [president of the ECB] is the eighth most powerful position. It just shows that our work at the Bank of Estonia is valued, and this is recognition for Estonia as well."

'Workers are the backbone of our economy'

According to Hansson, Estonia is among the wealthiest countries in the world, especially among countries of the former Eastern Bloc, but it has not yet reached the level of other countries toward which it is aspiring.

"At the same time, there has been a lot of good in the past 25 years," he continued. "The presidency of the Council of the EU was successful because we have a well-functioning state and good agency. But the backbone of the economy is still entrepreneurs and workers, each of whom is working toward a better future in the context of their own family."

Editor: Aili Vahtla

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