Coalition approves state budget strategy for 2020-2023 ({{contentCtrl.commentsTotal}})

Members of the current coalition government.
Members of the current coalition government. Source: Anna Aurelia Minev/ERR

The coalition government has approved its state budget strategy for the period 2020–2023, with a planned budget of just over €48.5 billion during that period. Of this, €11.7 billion is planned in the strategy for 2020 – about half a billion euros more than the current year.

The announcement, made Thursday, states the Centre-EKRE-Isamaa coalition has also approved the first version of the actual state budget draft for 2020, which does not yet include the funding choices made in the budgetary strategy, ERR's online news in Estonian reports. The government is to discuss in detail the draft budget for 2020 in the autumn, before submitting it to the Riigikogu.

Prime Minister Jüri Ratas (Centre) said that in planning budget strategy for the next four years, the government has taken the long-term interests of the state and the healthy state of the economy into consideration. The budget is to grow sustainably, he said.

"Both in the autumn, and in the coming years, the needs and opportunities of the state budget will certainly be reviewed," he said.

"At the same time, I am convinced that the government must continue with a budgetary policy which has sound financial decisions at its heart," he added.

Defense

The coaltion government considers it vital to continue to contribute to national defense, to maintain a spending share above two per cent of gross domestic product (GDP). This will be augmented by resources to host NATO allies, and additional defense investments of to the tune of €20 million.

Pensions

The strategy approved Thursday also includes an increase of €50 per month in tax free income, ensuring that the average pension remains tax-free. The government is also to discuss possible extraordinary pension increases in autumn, it says.

Excise on alcohol

As reported on ERR News, excise on beer, cider and strong alcohol is to be cut by 25 percent, in order to curb cross border trade (i.e. losing alcohol custom to Latvia). Tobacco excise duties is to be raised by five percent, per year, for the next four years.

Roads and transport

The construction of the Tallinn-Tartu highway is set to continue as planned, with around €100 million earmarked for the construction of the Kose – Mäo section of the road, over a period of three years. Creating a two-lane Kose – Mäo road section should save €10 million annually, by curbing road accidents, delays and vehicle costs, the government says.

Other transport connections covered include island ferry routes. The link to Saaremaa, the largest island, is set to receive an extra €7.5 million over the next four years, enabling the continued chartering of an additional vessel during peak periods in the summer.

R&D cuts

Research and development (R&D) funding is set to grow over the next four years though, as reported on ERR News, this only means research spend remains at the 0.71 percent level of GDP. At the end of 2018, the previous administration had signed an agreement to raise R&D spend to 1 percent of GDP. The amount budgeted to achieve this is €150 million, Ratas said.

"Whenever possible, we would like to contribute even more in the autumn budget discussions to move towards the goals formulated in the scientific agreement," the prime minister said.

Money laundering

Around €6.4 million over the next four years has been allotted to combating money laundering, with €1.3 million assigned to improving pre-trial criminal capacity. Through 2018 the scale of the amount of potentially illicit funds to have passed through Danske Bank in Tallinn was revealed to be as much as around €230 billion, with substantial sums thought to have passed through Swedbank as well. Danske is to close its doors later in 2019.

Sustainable fiscal policy

The government announced it is to continue with a sustainable fiscal policy which focuses on structural balance. Budgetary policies support balanced economic growth, and support the reduction of public debt.

The government's 1.4 percent structural deficit this year must be reduced by 0.9 per cent of GDP this year. In 2020, the structural deficit is planned to fall to 0.4% of GDP, with a a structural balance being reached in 2021, and maintained in 2022 and 2023.

To facilitate this, the coalition has had to abandon a restrictive rule which requires compensation for past deficits to the same value in future surpluses. This means amending the Basic State Budget Act, it is reported. According to the new plan, the requirement to draw up a general government balance every year will thus be restored, and the adopted budgetary strategy has already been made in the light of this change.

The government adds it plans to utilize the EU budget support as early as 2021.

Cost-cutting in ministries

While the volume of the budget is to increase in the coming years, in order to balance the budget, the government, in addition to finding additional revenue, has opted to make mandatory cost cuts at all 11 ministries, which must also find savings in their spending plans for the coming years, under the 2020-2023 strategy announced Thursday.

The exact breakdown of savings between different ministries' is set to be determined in the autumn, when decisions made on next year's budget, as well as the decisions of the rest of the country's budget strategy processes, are to take place, and additional funds to finance the priorities are to be found.

Debt and tax burdens lower than EU averages

According to the 2020-2023 strategy, government debt should start to fall, and the tax burden will be lower than the EU average.

The government debt ratio is set to remain at 8 per cent of GDP in 2019 and 2020. By this indicator, Estonian governmental debt is the lowest in the EU. Furthermore, debt burden is expected to decline in future. The tax burden is to remain at similar levels in the coming years, at around 33% of GDP, again well below the EU average.

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Editor: Andrew Whyte

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