There are 79 municipalities in Estonia, whose duties include operating kindergartens and schools, roads, culture and sporting activities, social welfare, recreation and other public services. Municipalities receive 61 percent of their income in taxes, 24 percent from the equalization and support funds (see below) and 15 percent from other sources.

The increases under the state budget 2020 follow a general trend in increased municipal income, which has risen by 28.6 percent (€521 million) over the past three years, much of it from tax receipts.

Commenting on this increase, Minister of Public Administration Jaak Aab (Centre) said: "The rapid increase in income has been facilitated both by healthy inflows of tax receipts as well as the decision of the state to increase the income tax receipts and equalization funds granted to municipalities in 2018-2021 by an additional €185 million."

The equalization fund supports the financial capability of lower-income municipalities.

"Of the money allocated to increase income base, municipalities will receive €55 million next year," Aab added.

The municipality support fund has doubled in size over the last decade, to €440 million in 2020. The fund is used to support various aspects of municipalities' remits, including education, road maintenance, and recreation.

These increases have also caused Estonia's municipalities' financial capabilities to expand, According to estimates, with investments by municipalities set to grow to over €2 billion 2020-2023, including half a billion euros in 2020 alone. 

Tax receipts and equalization funds growth

Municipalities stand to receive close to €1.4 billion in tax receipts next year, compared with €0.7 billion in 2010.

Support from the equalization fund has grown to €107 million, from €70 million in 2010.

Planned future funding

In addition, regional development is to be supported to the tune of €17.1 million in 2020, via various regional subsidies, to which external funding and income from the sale of emissions credits will be added.

Regional subsidies are to grow by €9.8 million over next few years, Aab said. 

Additional funding of €10 million has been planned for converting gravel roads to paved roads, with another €7 million to be made available as investment support to allow municipalities to improve local roads used by transit traffic for local businesses.

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