The revenue of the 2023 budget amounts to 16 billion euros, an increase of 16 per cent compared to the 2022 state budget, including the supplementary budget. Expenditure amounts to €17 billion, an increase of 18 per cent compared to this year’s budget. Investments amount to €775 million, which is around €30 million more than this year.
“We had two clear priorities in drawing up the budget: that the security of the Estonian state and people would be guaranteed and that our people would be taken care of,” said Prime Minister Kaja Kallas. “National defence and safeguarding people are the only clear priorities at a time when the security situation is more tense than it has been for generations. Our budget for next year will keep Estonia in safe hands. This is the budget that will guarantee Estonia’s security. It is a budget that will increase the cohesion of our society and help us to deal better with the exceptional circumstances that our aggressive neighbour has thrown us into. This is a budget that gives the people of Estonia the confidence that together, we can overcome all the difficulties that lie ahead,” said Kallas.
Prime Minister Kallas noted that with the preparation of this budget, the government has taken important steps towards restoring the credibility of public finances. “The national budget is the common money of the Estonian people and it does not grow on trees. The government has a duty to be responsible with this money. I can honestly and happily say that the draft state budget act has been drafted responsibly. The budget deficit that we inherited from the peacetime government of 2016–2019 has been greatly reduced. Improving fiscal discipline is the financial cure that we may need if things get worse than expected,” Kallas said.
According to Minister of Finance Keit Pentus-Rosimannus, the state is strengthening Estonia’s security and doing everything it can to ensure that people and businesses can cope in these difficult circumstances. “We agreed on the biggest defence budget ever. By changing the rate of basic exemption, we leave almost €100 million more in the hands of the people,” she stressed. “Despite difficult times and new critically important security investments, we will avoid increasing the budget deficit next year – it will remain at 2.6 per cent of the GDP. In view of the rising interest rates, it is important to maintain a prudent lending policy – next year’s debt levels will remain within the 20 per cent limit, which is almost 4 per cent lower than we planned half a year ago.”
Minister of Foreign Affairs Urmas Reinsalu stressed that the approved budget ensures that the Estonian nation state will last. “Full funding has been allocated for the transfer to a general education in the Estonian language, as well as additional funding for higher education and a pay rise for teachers. The budget also includes a family benefits reform, which is a crucial message for families with children in this time of crisis. We also contribute to the enduring of the Estonian nation state with soaring national defence spending that will exceed one billion euros over the next four years.”
Next year’s budget will see historic pay rises in the field of internal security, according to Minister of the Interior Lauri Läänemets. “Salaries will increase not only for rescuers, rescue operators, and police officers, but also for back line employees, which ensures the maintenance and development of prevention work and broad national defence planning capabilities. However, this time, the front-line pay rise will not come at the expense of redundancies or cuts. The war in Ukraine and several other man-made and natural crises elsewhere have shown the importance of engagement, training, and preparedness at the level of citizens and communities. This is an integral part of national security, in which we need to invest continuously and systematically,” stressed Läänemets.
NATIONAL BUDGET PRIORITIES
Extensive national defence
Europe is facing its biggest security crisis in 30 years. To ensure Estonia’s immediate security, defence spending will exceed €1 billion for the first time in 2023.
To maximise defence capabilities, the national budget strategy for 2023–2026 foresees procurement investments amounting nearly to €2.5 billion, or more than half of total defence spending. Estonia will have a functioning medium-range air defence capability by 2025. The medium-range air defence system will be procured together with Latvia, which will help to further protect the region as a whole. The state will also invest in additional critical capabilities, such as anti-tank systems, indirect fire, coastal defence, situational awareness, and the infrastructure needed for the increased presence of allies.
In addition to direct military capabilities, the state also contributes to the protection of the population. A total of six million euros will be allocated next year to support the involvement of volunteers in internal security, to improve comprehensive national defence, and to support non-governmental organisations. In addition, the state will increase the volume of training at the Estonian Academy of Security Sciences to ensure that there will be a new generation of police officers and other internal security officers.
As a small but tech-savvy country, Estonia is investing an additional thirty million euros in improving its cyber security. Russian-led cyber-attacks on our systems have increased dramatically and in order to be successful in the cyber war, we need to sustain funding in this field and ensure the continuity of the state.
Energy and electricity market reform
Russia’s war in Ukraine has led to a surge in energy prices. To mitigate this for people and small businesses, a universal service for the purchase of electricity at regulated prices will be launched for the next four years.
From 1 October until the end of March, household customers will benefit from automatic support to pay their home heating, electricity, and gas bills. There is no need to apply for reimbursement for the increasing prices – the support will apply automatically from October.
Liquidity measures have been introduced to help large companies mitigate the effects of the energy crisis. Businesses will also be able to apply for investment support to improve energy security and resource efficiency.
Developing new energy capacities is particularly relevant in an energy war. Over the next five years, we will be able to use an estimated 2.9 billion euros of EU funds for green investments, plus over 600 million euros from the EU Emissions Trading System. The largest investments will be targeted at supporting the renovation of apartment buildings, developing the rail network, supporting the development of green technologies for businesses, promoting the adoption of hydrogen technologies, supporting a just transition, and reinforcing the electricity grid to increase the production and consumption of renewable energy.
Coping, family allowances, and mitigating price increases
The government considers it important that people are safe in crises caused by the war of Russia.
Wages of people doing important work for the society are rising. In 2023, the minimum wage for teachers will rise from 1,412 euros to 1,749 euros, or 23.9 per cent. This will be supplemented by a differentiation fund of 17 per cent, which will allow school leaders to regulate the work and salary organisation of teachers more flexibly. Next year’s state budget includes 106.6 million euros for an increase in teachers’ salaries. The average estimated salary for teachers will rise to 2,048 euros in 2023.
In 2023, the salary fund of the Ministry of the Interior will increase by more than 20 per cent, or more than 50 million euros, which will allow the minimum salary of rescuers to be raised to 1,620 euros, the minimum salary of police officers to 1,849 euros, and the salary of rescue officers to 1,631 euros.
In addition to teachers, police officers, and rescue workers, the salary fund for health, culture, and social workers will also increase by at least 15 per cent next year. For other people receiving their wages from the state budget, it will increase by five per cent.
To mitigate the impact of price increases, the rate of basic exemption will rise to 654 euros per month from 1 January.
From 1 January 2023, the amount of child allowance for the first and second child and the single parent’s child allowance will rise to 80 euros per month. The allowance for families with many children will increase to 600 euros per month for families with 3–6 children; and to 800 euros per month for families with seven or more children. In addition, from 1 January 2023, there will be a smooth phasing out of the allowance for families with many children when the children reach the age of 24; from April 2024, the allowance for families with many children will be indexed similarly to pensions.
Pensions will increase significantly. Next year, with the extraordinary pension increase and indexation, pensions will rise by more than 100 euros and the average pension for people of pensionable age will be exempt from income tax.
From July next year, the care reform will give the possibility to cover nursing home fees from the average pension. In 2023, the average nursing home fee for a person with high care needs is projected to be 1,300 euros per month, half of which will be paid by the local government, and the average pension of approx. 700 euros projected for April will allow people to cover the other half themselves.
Estonian-language education and funding for higher education
Russia’s war in Ukraine has shown that a united school system and a good, competitive education for all children is also a question of security. The 2023 state budget has secured the necessary resources to launch a crucial phase in the transition to Estonian-language education. Over the next four years, the total additional funding needed for the transition to Estonian-language education is in the order of 300 million euros. In addition, funding for higher education will increase by 15 per cent a year, which will support first-class higher education in Estonian and allow for higher wages for lecturers.
Overview of the financial plans of the state by ministry: https://valitsus.ee/2023-eelarve
