Estonian government reaches agreement in principle on state budget strategy

Minister of Finance Martin Helme (EKRE) in front of Stenbock House on Monday afternoon. May 27, 2019.
Minister of Finance Martin Helme (EKRE) in front of Stenbock House on Monday afternoon. May 27, 2019. Source: Siim Lõvi/ERR

The Estonian government reached an agreement in principle on Monday regarding the 2020-2023 state budget strategy and the 2020 state budget bill. Both the state budget strategy and next year's state budget bill have been added to the agenda of Thursday's government meeting.

Prime Minister Jüri Ratas (Centre) said that when it comes to planning the state budget for the next few years, it is important to keep the state's long-term interests and the good state of the economy in mind, according to a government press release.

"The budget will grow sustainably, and both this autumn as well as over the next few years, we will definitely review the needs and opportunities of the state budget," Ratas said adding that it was important to contribute to priority activities.

"What is important is that the government decided to increase pensioners' tax-exempt income by €50 per month," he highlighted. "The government will continue discussing an extraordinary pension hike this fall. One of the sources of funding for this will be a reform of the second pension pillar. The government also considers ongoing investments in defense spending a priority. Regarding growth in research funding, we have likewise decided to maintain the current share of the GDP."

Alcohol excise duty to be lowered 25 percent

"We will prioritize investments that increase the growth potential of the Estonian economy," said Minister of Finance Martin Helme (EKRE). "The government will do whatever possible to begin spending the EU structural funds of the next period as quickly as possible."

Among other things, the government decided to lower the alcohol excise duty on low alcohol by volume (ABV) beverages and spirits alike by 25 percent in order to combat cross-border trade to the south.

The government also decided to replace a more drastic one-time 10 percent increase in the excise duty on tobacco scheduled for next year with a five-percent increase per year for the next four years.

According to the press release, the government considers investments into national security and maintaining defense spending at a level of 2 percent of the GDP a priority. This figure is exclusive of expenses connected to the hosting of allied troops and additional defense investments.

The government will allocate additional funding to research and development activity, with the intention of improving productivity and competitiveness. This will guarantee that research funding will remain at the current level of 0.71 percent of the GDP.

Structural balance to be achieved by 2021

The government will continue embracing a conservative budget policy, the central pillar of which will be a structural balance. As a result thereof, state budget policy will support balanced economic growth as well as limit the growth of the state's debt burden. As a result, significant state budget-funded wage increases cannot be expected in 2020. The government also decided in favor of slower growth than previously planned in operational expenditures and operating subsidies.

The Estonian government decided on Monday to improve the budgetary position of the government sector. The 2019 state budget is currently estimated to be in a structural deficit of approximately 0.9 percent of the GDP. Next year, the structural deficit is planned to be reduced to 0.4 percent of the GDP, and the state budget should achieve structural balance by 2021, which it is projected to maintain through 2022 and 2023. The government sector's nominal budgetary position is planned to be in a surplus from 2020 through 2023.

Jüri Ratas' second government will, however, give up the rule which currently requires that previous years' deficits must be compensated by equally large surpluses in the future. According to the new plan, the requirement to compile a structurally balanced government sector budget each year will be restored.


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Editor: Aili Vahtla

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