State companies gain the most from subsidies

Photo: Arvo Meeks / Lõuna-Eesti Postimees

A theoretical possibility to divide Estonia in two in terms of European subsidies – into more developed Harju county and less developed rest of Estonia – was discussed last week. Looking at recent subsidies, it turns out the biggest beneficiaries in Harju county are state companies or agencies that are using support mainly for construction.

Analyses by the Ministry of Finance suggest that the rest of Estonia could stand to gain €150-700 million over seven years.

However, based on recent subsidies (2007-2013), Tallinn and Harju county would lose nearly €1 billion as a region no longer in need of aid in the eyes of the EU.

Current subsidies made available to Estonia by the European Social Fund, European Regional Development Fund, and the EU Cohesion Fund come to a total of €3.5 billion, with Tallinn and Harju county as the biggest beneficiaries.

The main argument against dividing Estonia in two is that it would negatively impact research institutions, including universities, social services, and medical institutions in Tallinn and Harju county.

It turns out that a drop in subsidies for Harju county would instead hit state-owned companies, mainly those in logistics. The largest sums have reached the Road Administration’s projects, Tallinn Airport, and railroad developments.

Sums channeled into education, universities, social welfare, and healthcare are more modest but are also spent mainly on construction projects. In other words: Harju county would mainly lose resources it has been pouring into concrete.

It needs to be kept in mind that revision of EU subsidies would not concern direct agricultural support, rural affairs development, and maritime and fisheries instruments. Support from central EU funds is also separate.

The latter include the Connecting Europe Facility used to support Rail Baltic and the Balticconnector pipeline, and Horizon 2020 that supports research projects and which Estonian universities have successfully made use of.

Money sought from central funds might not move through the state budget – universities have their own budgets for example.

Should Estonia decide in favor of dividing the country into two regions, the first chance to apply will come in February 2019, whereas the regional divide would not concern the 2021 period, but only the following 2028 budget period.

The National Audit Office has said that Estonia needs to start preparing for the end of the golden age of EU subsidies and looking for ways to cover expenses created by subsidized investments and developments from the state budget.