The government on Tuesday approved the 2021 state budget bill and the 2021-2024 fiscal strategy. The new budget suggests that all coalition partners have managed to include their election promises in what will be a local government council elections year. Cuts were not mentioned.
State budget expenses will amount to almost €13 billion, while income will just about exceed €11 billion. This means a fiscal deficit of around €1.9 billion. To avoid major cuts, the state will be borrowing €2.3 billion next year. European Union subsidies will amount to €1.4 billion.
Both Prime Minister Jüri Ratas (Center) and Minister of Finance Martin Helme (EKRE) admitted that fiscal balance is nowhere in sight, while the government promised to plot a corresponding course. The goal is to reduce the 6.6 percent fiscal deficit in 2021 to 2.5 percent by 2024.
The government is planning cutbacks worth €1 billion after the coronavirus crisis, no less than half of which would be put into practice in 2024. The independent Estonian Fiscal Council criticized the fiscal strategy for failing to mention what kind of measures will be used to find saving and finds the goal of reducing deficit to 2.5 percent by 2024 to be unrealistic.
“The budget will achieve everything that’s expected of it and while our public debt will grow as a result, it is by no means out of control. We will still sport the lowest loan burden in the EU after a few years,” Martin Helme said.
The new coronavirus crisis budget reflects the election promises of all government parties. The Center Party got its extraordinary pensions hike, Isamaa managed to maintain defense spending in absolute terms, while the Conservative People’s Party (EKRE) secured additional funding for internal security and the internal security reserve. The latter was not funded in this year’s budget.
Helme said that every item in the budget was the subject of fierce debates, which is how truth is established. “In the end, it were the major things that sparked disputes, things like the pensions hike, national defense, internal security and the general fiscal situation,” the finance minister said, adding that the Defense Forces will get coastal defense capacity.
Isamaa chairman Helir-Valdor Seeder said that the budget process was extraordinary this year because of unprecedented uncertainty in terms of the global and Estonian economies. “It was a common victory, being able to agree on a budget in a situation where priorities were very different going in and forecasts depressing.” He highlighted as victories for Isamaa growing research and development and education and culture funding as well as maintaining national defense spending.
Prime Minister Jüri Ratas (Center) said that the budget is aimed at overcoming the coronavirus crisis and rapid recovery of the economy. He highlighted as priorities in the 2021 budget the healthcare system, internal security, research and development and IT investments.
Research and development funding will grow by €56 million to €280 million that will see it exceed 1 percent of GDP in 2021. “I would describe it as a mystical milestone we have not crossed before that is included for the entire fiscal strategy period,” PM Ratas said after feeling a lot of pressure from research circles in past months.
The extraordinary pensions hike as sought by the Center Party will take effect on April 1. The cost of the hike comes to around €50 million in the 2021 state budget that will see the average old-age pension hiked by €20.
National defense spending will grow from €615 million to €645 million for 2.29 of GDP. Over the next four years, additional investments of €66 million will see Estonia procure coastal defense capacity.
Tax revenue will grow from around €9 billion this year to €9.3 billion in 2021. The tax burden will fall to 32.7 percent of GDP from 33.8 percent this year.
Government sector investments will come to around €1.9 billion. Investments will prioritize modernizing the network of hospitals (€545 million) and digital capacity (€232 million).
Hospitals in focus
European Union subsidies will be used to fix several medical centers and hospitals all over Estonia. The government’s preferences include the Hiiumaa Hospital and health center, the ER of the Järva County Hospital, the Ida-Viru County Central Hospital and the Viljandi County Hospital, along with its psychiatry center, as well as the city of Viljandi’s health center. The list also includes the North Estonia Medical Center in Tallinn.
The finance minister said he is glad a considerable part of hospital network investments will land outside Tallinn and that the projects will help offset the construction market contracting in the crisis. Funds were also earmarked for more effective coronavirus testing and monitoring and the Health Board.
Investments will also be made in internal security and the road network. In addition to allocating €2 million for the internal security reserve, the service life of Police and Border Guard Board helicopters will be extended and three additional medical choppers procured.
More important roadbuilding investments include the Tallinn-Tartu highway (€18 million), grade separated Riga street intersection in Tartu (€26 million) and the new projects fund (€5 million).
What was not discussed
Nothing was said during the Tuesday press conference about tourism support measures or changes to the sick leave compensation system, even though the government discussed both. It also remained unclear how much of the money Estonia will borrow is meant for covering running costs, including social expenses paying for which using loan money was suggested by Helme during talks.
The question of the government’s plans for retraining for people who have or are about to lose their jobs also went unanswered, as did inquiries about potential cost-cutting in the public sector. This and which other major goals proposed by ministers were left aside should become clear once the government documents are made public.
The government is set to present the 2021 budget document and the 2021-2024 fiscal strategy to the Riigikogu on Wednesday. The first reading of the budget is scheduled for October 19.