The Estonian government at the September 12 Cabinet meeting began 2018 budget negotiations. For the first time in Estonian history, the state budget will exceed the EUR 10 billion mark, meaning an increase of at least 3.6%.
During budget negotiations at the Cabinet meeting, members of the government received an overview of the fresh economic outlook of the Ministry of Finance, questions concerning staff and wages and the plans of the ministries for transferring jobs outside of Tallinn.
“For the first time, state budget income and expenses in the 2018 state budget will exceed 10 billion euros,” Prime Minister Juri Ratas (Center) said. “The government will continue with a responsible budget policy regardless of the increase in economic growth. The government sector’s debt burden will decrease and the tax burden will remain on the same level during the next few years.”
The state budget strategy for 2018-2021 was drawn up in spring, the volume of which was more than EUR 40 billion and according to which the government’s four major goals were to increase the population of Estonia, social welfare and cohesion, promote economic growth and strengthen Estonia’s security.
The aim of the government sector’s budget position promises to allow for the overdrawing of the budget by 0.5% of GDP in 2018 and 2019 and by 0.3% of GDP in 2020. The government has planned to use the deficit for strategic investments. According to the plan, the government sector’s budget will reach structural balance by 2021. The government sector also involves local governments, the Estonian Unemployment Insurance Fund and the Estonian Health Insurance Fund, which have their own budgets.
According to the budget strategy, labor costs in the next few years will decrease while indirect taxes will increase. Labor costs will decrease significantly due to the basic exemption reform, which will increase the basic exemption of people with low and middle income to EUR 500 per month. The tax rate of effective workforce next year will fall to 0.74% of GDP.
The government sector’s investment will reach the highest level of all time in 2018. The government in 2018-2021 will invest EUR 2.3 billion, including investment funding and investments through state real estate management company Riigi Kinnisvara AS (RKAS). With its strategic investment program, the government in 2018-2020 will contribute altogether EUR 315 million to fields that improve the competitiveness of Estonia’s economy and defense capability, including infrastructure.
Among other things, the government is planning to amend the system of parental leave and benefits in order to promote a more balanced distribution of parental leave between the mother and the father and support the parents’ participation on the labor market. In order to achieve this, the plan is to create more flexible opportunities for parents for using parental leave and receiving benefits. At the same time, the government will also continue increasing the wages of teachers in order to ensure the existence of motivated teachers and the increase of young teachers.
Healthcare will receive altogether EUR 215 million over four years with the healthcare funding reform. This will help ensure the sustainability of funding the health insurance system and improve access to medical aid and the quality of services.
The government will contribute at least 2% of the GDP annually to Estonia’s independent defense capability. The costs connected to allies stationed in Estonia will also be covered, including investments to Tapa Army Base. In addition, a total of EUR 60 million will be invested through the defense investments program in 2018-2020, while the construction of the eastern border will also continue.
The government is to present the state budget bill to the Riigikogu at the end of September.
The share of income for this year’s budget is EUR 9.48 billion, while expenses and investments in the state budget total EUR 9.65 billion. (ERR/Business World Magazine)