Kaspar Oja, an economist at the Bank of Estonia (Eesti Pank), said government sector spending had increased in Estonia as well as in other European countries over the past five years. In Estonia and elsewhere in Eastern Europe, the growth has been sharper, partly because of higher defense spending.
In Estonia, government sector expenditures have risen by about 4 % in the past five years. Revenues have also grown, but not as quickly.
“Usually the relationship is such that when government spending increases, those expenses are not reduced over the long term – instead, tax revenues are raised. If we’re talking about Estonia’s tax debate, then we should be talking about an expenditure debate: is this the kind of government sector we, as voters, really want?” Oja said.
“When we look at which areas have seen the most growth, it’s not necessarily the average civil servant, but rather the large social security funds and healthcare, where spending has risen the most,” he added.
According to Oja, defense spending has also clearly increased in Estonia, along with the government’s interest payments. That is due to higher interest rates and the rapid growth of national debt.
Oja explained that when he spoke about the need to curb spending growth, it did not necessarily mean cutting social or health expenditures.
“You can also look at it from the perspective of future growth – what kind of costs we anticipate going forward. It doesn’t have to mean reducing spending, but perhaps not increasing it as much as we had planned. Efficiency doesn’t appear overnight. It has to be done the way it has in other fields: by keeping budgets stable for some time so the organization can improve its internal efficiency,” he said.
In recent years, the largest increases in government spending have been in healthcare and social protection. Oja could not specify the exact areas, noting that Eurostat data did not easily show such detail. One reason may also be that as the population shrinks, society has fewer working-age people.
“At the time, we needed specific services, for example in hospitals, but as the importance of this field grew in the public eye, it allowed overall spending to increase. Maybe that’s not wrong, but it definitely requires analysis: is the growth in spending justified and could a different kind of spending growth have delivered more services with less inflation?” Oja said. (ERR)