“The government has considered it important to mitigate the effects of the coronavirus crisis on the economy and people. This has also been the approach of the current government with the recently adopted supplementary budget. At the same time, these have understandably been temporary measures, and long-term survival on loans is not sustainable for the country. At the same time, the future economic recovery will help increase state budget revenues. As a result, the deficit can and must be reduced. Organised public finances will also increase our resilience to possible crises in the future,” said Prime Minister Kaja Kallas. “In the crisis, the private sector was forced to cut costs and the public sector must show solidarity. We have been looking for ways to save money in the government by mapping places where different ministries deal with the same issues. At the same time, we have worked hard to find money in priority areas for raising the salaries of internal security staff and teachers. On the positive side, the crisis provides an opportunity for reforms that would not otherwise have had the necessary impetus. Thus, we have savings, but also unprecedented investments that will lay the foundation for the future of Estonia.”
Minister of Finance Keit Pentus-Rosimannus confirmed that public finances will be in better shape over the next four years. “Gradually stopping living beyond our means is not only about responsible behaviour – better public finances will reduce the pressure for tax increases in the future and provide opportunities for the development of public services,” said Pentus-Rosimannus. “This budget strategy is a strategy for preparing for the future – day-to-day spending will be brought under control while future R&D funding will be at least 1% of the GDP, the state will consolidate its duplicate or distributed activities in several places, the green transition, which is important for the future economy, will receive specific funding of 1.8 billion euros, the planning to connect Estonian and Finnish economic areas with a tunnel will take a more concrete form, and the state will move forward with privatisation to focus more on its core functions. Reforms and cost savings will make it possible to bring about an increase in pensions and a pension income tax exemption, as well as to increase the salary fund for teachers, internal security staff, and employees in the cultural sector by at least three per cent.”
Among other things, current expenditure savings are planned in all areas of government to cover the costs. From 2022, the savings will account to 61 million euros a year. The possible austerity measures were identified by all ministers in their respective areas of government on the basis of the actual labour and management costs in 2019.
The austerity measures as a whole will reduce the deficit in all years of the budget strategy. In 2022, the structural deficit will improve by 2 percentage points to 3.4 per cent of the gross domestic product (GDP) and in the following years, the structural deficit will decrease by at least 0.5 per cent of GDP per year. Compared to the economic forecast of the Ministry of Finance, the structural deficit will decrease faster than expected.
The state budget expenditure in 2022 is over 13.8 billion euros, which is 5 per cent more than in the previous budget.
“The priority of the Centre Party is undoubtedly the extraordinary pension increase, which will come into force in 2023, but important things will also be done earlier. We will support the salary fund of employees in the cultural sector and higher-category coaches who receive a salary from the state with an additional two million euros, which contributes to the next generations responsible for the transmission of Estonian culture,” said Minister of Public Administration Jaak Aab. “Internal security staff who support the well-being of all of us will also receive a total salary increase of 7 million euros. It is also important for people to be able to move, for which we will invest a total of 413 million euros over four years to support bus, train, ship, and air traffic. We will support a better living environment through the reconstruction of residential buildings and the demolition of old houses.”
This year’s revenues of local governments have been increased by both the supplementary budget (16 million euros for the support fund) and 30 million euros for investments; an increase in revenues is expected again in 2023, Aab added.
Key sectoral decisions
Defence spending will continue to exceed 2% of GDP over the next four years and more money will be spent on defending the country in all years of the budget strategy than in 2021. The salary fund for employees in the fields of education, internal security, culture, social welfare, and health will increase by at least three per cent in 2022. For example, the minimum salary for teachers will increase to 1,354 euros, and the projected average monthly salary will be 1,586 euros next year. A total of around 400 million euros is planned for teachers’ salaries in 2022.
Research and development funding, i.e. investments to increase research and development activities and innovation, is at least 1 per cent of the GDP.
The coping of the elderly is also a priority. Therefore, the extraordinary increase of pensions will continue in 2023, when both the basic part of the pensions and the national pension will be increased by a total of 20 euros. The average pension will be exempt from income tax from 2023. Along with the extraordinary increase, the average pension is forecast to be 622 euros from 1 April 2023, and the pensioners’ tax-free income will be the same amount, regardless of their other income.
In order to reduce the cutting pressure in the state forest, the state’s expectation of dividends from the State Forest Management Centre will decrease in the state budget strategy from 2022 onwards.
In the years 2022–2024, the level of Estonian investments will reach a record high with the support of the European Union funds – the general government sector will invest more than 2 billion euros every year. Among other things, preparations for the establishment of the Tallinn Hospital will continue.
It is planned to allocate 1.8 billion euros to the green transition in 2022–2025, including support for companies to increase resource efficiency and develop innovative technologies, but also to finance environmentally friendly transport and increase the energy efficiency of housing and heating systems. Almost 343 million euros will be allocated for the digital revolution of companies, the development of the digital state, the solution of faster internet and the last mile, and the development of 5G.
To support public transport, the government will allocate a total of 413 million euros over the next four years to develop the bus network, ensure continuous air and sea connections between the islands and the mainland, and support train traffic. To make transport greener and meet the climate goals, the electrification of railways will continue so that by the end of 2024, people can take an electric train to Tartu.
In 2022–2025, the government will allocate nearly 45 million euros to boost tourism to make Estonia an attractive place for foreign visitors. In order to increase the volume of foreign investments, the state will allocate almost 8 million euros in 2022–2025. The programme for the involvement of foreign specialists (WorkinEstonia) will also be supported with almost 6.5 million euros. The government will allocate a total of 27.8 million euros to the e-residency programme in 2022–2025.
The government will allocate 22 million euros for the construction of a new environment and nature house. The new building will be made of wood and contribute to both climate goals and to adding value to local raw materials. The Estonian Museum of Natural History and the units and subsidiaries of the Ministry of the Environment in Tallinn will move into the building.
Investments in significant cultural objects will also continue. 53 million euros were allocated for the overhaul of the National Library building. The National Archives will also operate in the building. The construction of the Kääriku sports centre will be completed and the state will allocate an additional 1.56 million euros for this purpose.
In making its decisions, the government was guided by its priorities – a rapid exit from the COVID-19 pandemic, green transition and digital revolution, support for people’s mental and physical health, financial sustainability, education and innovation, a green economy, foreign policy activism, national defence, and the reduction of regional disparities.
The aim of the budget strategy is to set out activities and funding in the longer term based on the priorities of the government, future forecasts, and global trends. The budget strategy links the major objectives of the government, the plans and activities of the ministries, and their funding for the next four years.
State budget strategy document: https://valitsus.ee/media/3951/download