Ensuring security
The government will allocate 5.6 billion euros over the next four years for the military defence of Estonia and its people, to which an additional 1.6 billion euros was added in the national budget strategy for the purchase of ammunition for long-range weapon systems until 2031.
Defence spending in the coming years will therefore be well above 3% of the GDP, reaching at least 3.3% of the GDP each year and 3.6% of the GDP in 2027. As it stands, we are second in NATO in terms of defence spending – behind Poland and ahead of the US.
Estonia will continue to assist Ukraine in strengthening its self-defence capacity in the amount of 0.25% of the GDP, which exceeds 100 million euros per year. The state will do this with the help of products from the Estonian defence industry as much as possible, which is the biggest national industrial growth plan to date.
Military defence is successful if it is supported by civil society and if the population and the authorities are prepared for crises. For this purpose, an additional 219 million euros will be earmarked for broad national defence investments over the next four years, of which 165 million euros will be used to strengthen internal security. The projects to be funded include the development of the eastern border, the management of hybrid threats, and the reinforcement of civil protection.
Every person contributes to Estonia’s security. In order to cover the spike in defence costs, the country will introduce a temporary broad-based security tax until the end of 2028. Within four years, the state will collect up to 2.6 billion euros in security tax, of which 594 million euros will come from corporate profit tax.
Economic recovery and people’s well-being
A total of 1.9 billion euros in investments and investment grants are in next year’s budget to boost the economy. In terms of investments, Estonia is at the forefront in the European Union.
An additional 402.6 million euros of the proceeds from the sale of CO2 quotas will be channelled into economic recovery in the coming years. Two thirds of this amount will be used for the construction of Rail Baltic. 50 million will be allocated to energy efficiency investments in apartment buildings and 25 million to support green technologies in the maritime sector.
The state will invest 50 million euros in comprehensive solutions for the production and deployment of green hydrogen. 74 million euros will be used to reinforce electricity networks and build new connection capacities.
In order to develop renewable energy and ensure energy security, the electricity connection of the Gulf of Riga offshore wind farm and the fourth Estonian-Latvian electricity connection are being planned with the support of private funding through specific national plans.
Between 2025 and 2028, the state will provide 160 million euros to support large-scale investments in high-tech manufacturing, which will strengthen Estonia’s exports and create high-paying jobs outside the so-called golden rings.
By the end of 2025, the government will increase the size of the defence fund created by the national investment fund Smart Cap to 100 million euros. The fund invests in companies developing military products and technologies and in investment funds that support entrepreneurship with high added value and based on deep technology in Estonia.
Next year, the state will allocate 262.6 million euros in operating grants for higher education, which will allow for more studies in areas such as ICT, technology, manufacturing, and construction.
Savings in public spending
Savings in public spending over the next four years will amount to 1 billion euros, and to 1.4 billion euros, taking into account decisions already taken.
Public sector spending will be cut by 10% over the next three years.
The savings on the state’s interest costs resulting from the decisions of the government will amount to around 200 million euros over the next four years.
During the budget review, the government made social services more fit for purpose and decided to reform the unemployment benefit system, which was set up more than 20 years ago.
A fairer and simpler unemployment benefit system will enter into force on 1 January 2026 and will help save more than 45 million euros in the state budget until 2028.
The decisions on social affairs concerned the introduction of a cap of twice the average monthly salary for sickness and parental benefits starting from 2026. Social tax contributions for stay-at-home parents will also stop from that time. From 2025, the allowance for a pensioner living alone will no longer be paid to pensioners living in a nursing home.
The state will also reduce bureaucracy and economic costs in research and development activities, and ministries will no longer receive extra money for additional research projects. It is important that the savings do not directly affect the work of researchers, centres of excellence, or companies engaged in research, i.e. innovation that contributes to Estonia’s competitiveness.
A more comprehensive overview of the budget priorities of the government and ministries is available on the website of the government: https://valitsus.ee/2025-eelarve.
The state budget is published on the website of the Ministry of Finance: https://www.fin.ee/riigi-rahandus-ja-maksud/riigieelarve-ja-eelarvestrateegia/riigieelarved
