Coronavirus restrictions could be costing the state between EUR 7 million and EUR 19 million every day, according to experts. Lifting restrictions alone would also not spell immediate economic recovery either.
Investor and businessman Risto Rossar said last week that in his estimation, restrictions on every working individual in Estonia cost the state EUR 712 per month, taking into account Gross Domestic Product (GDP), borrowing and also, with reservations (since Estonia is part of the eurozone and so not in full control of money supply) the printing of money.
When totaled, the restrictions cost the state EUR 19 million per day, Rossar said.
Naturally this was just an estimate; concrete figures Rossar took into account in his calculations included the combination of a GDP fall of EUR 1.57 million last year, together with EUR 2.47-million government borrowing and Estonia’s EUR 2.9-billion share of the euro money supply.
Of the latter, Rossar said: “With printing money, there is an interesting trick, which makes it really a sort of tax on savers and wage earners. It also entails a massive withdrawal of money from people who don’t own property, and is directed towards those that do.”
Madis Aben, economist at the Ministry of Finance, puts the figure at a little over a third of this level, however, at EUR 7 million per day. He also excludes the printing of money from consideration as a cost.
“Printing money was an essential measure and was designed to stimulate economic activity as much as possible in this precarious situation,” Aben said; moreover GDP should not be compared with 2019’s level, but rather, with what it would have been in 2020, had the coronavirus pandemic not struck.
By this estimate, GDP decline was even higher, at EUR 2 billion for 2020, while this figure looks set to be repeated in 2021, Aben said, with no end in sight for the crisis.
Changes in the salary fund are another important indicator, he said.
“In 2020, people earned about EUR 500 million less in net wages than in 2019. It is likely that we will lose the same amount this year as well, compared with what net earnings would have been without the corona crisis,” Aben said.
This translated to a year-long income per employee of EUR 1,000 less than in 2019, he said, adding that the government’s relief measures needed to be offset against this.
In short, public debt needs to be taken into account, according to Aben, who noted that last year’s government loan taken out by the previous Center/EKRE/Isamaa coalition was not spent in its entirety on current expenses – some was allocated to reserves.
Moreover, the EUR 1.7-billion net increase in the government’s debt burden softened the economic downturn, which would have been greater without it, Aben said.
Another factor is the effectiveness of the restrictions vis-a-vis health costs for those hospitalized. Deaths, which would have been avoided without the pandemic, and loss to the economy by those quarantining, suffering from the virus at home or being in hospital also need consideration.
However, Risto Rossar said that this presupposed that the restrictions had reduced the number of deaths and the burden on hospital.
“There is one very strong assumption in your sentence – that these restrictions reduced the number of deaths and the burden on hospitals,” Rossar said, adding that a higher value had been placed on saving a life than was the case in pre-pandemic days.
“Take another situation; if an individual has cancer or another serious illness, for example, then at some point the Health Insurance Fund will say “stop, treating that individual is no longer viable”.”
“Today it is simply the case that saving a person who has COVID-19 is priceless. Even if the restrictions save lives, the cost is clearly higher than we have previously agreed to pay to save an individual,” Rossar argued.
Nonetheless, the original round of restrictions imposed this time last year was justifiable, since everything was in uncharted waters.
However, other than for mass events, they are not required, Rossar said, while the economic gains resulting could be better invested in strengthening the hospital system.
With that in mind, Rossar said he was surprised by the relative level of public support for the restrictions, while the government itself had also been misled.
“When the new coalition entered office in late January, the new prime minister Kaja Kallas made some quite reasonable statements on the matter of restrictions at first at a time when the viral spread was picking up again, but a few weeks went by, and she likely saw that she could not resist public opinion and went back on the same restriction-imposing track.”
Rossar also said that he thought a piecemeal lifting of restrictions was not needed and, given that temperatures were finally warming up, people were getting vaccinated and indicators showed a fall in viral spread, this could be done wholesale.
Madis Aben said that lifting the restrictions was not a panacea of the economy, however, pointing to the reliance of the economy on foreign tourism. Full recovery of this is needed for full economic recovery, he added.
Ultimately, it is the virus that dictates the pace of economic recovery, he said. (ERR/Business World Magazine)