Who pays for parties’ promises?

Photo: PantherMedia / Scanpix

An analysis of election promises by the Ministry of Finance found that while political forces like to make costly promises, parties pay little mind to how to pay for them, at least in the runup to elections.

The analysis that took around one year to complete was rough going as promises appeared and disappeared. The ministry looked at a total of 3,100 promises 775 of which could be expressed in terms of cost. The ministry did not take into account vague pledges using the words “support”, “consider”, “increase”. In the case of the Richness of Life Party, the ministry found only two promises the cost of which could be realistically calculated. They were bigger research and development funding and a referendum over the construction of Rail Baltic.

The ministry compared effects to the current fiscal strategy, making it impossible for parties to give economic growth as a source for covering expenditure as it has already been included in the strategy. The analysis found that while parties were not shy in terms of making costly promises, pledges to bolster the state budget and pay for grand plans were in short supply.

The Free Party was the only political force to concentrate more on income by including seven promises with potential to contribute to the state budget. Parties that managed to add two gainful promises included Estonia 200, Conservative People’s Party (EKRE), Estonian Greens and the Social Democrat Party. The Reform Party, Richness of Life Party and Pro Patria each had one such pledge, while promises by the Center Party only put strain on the budget.

EKRE had the costliest election promises as the party’s two main ideas alone would cost a billion euros a year. The conservatives’ high-flying promises have also been criticized in the media. Head of EKRE’s economics department Endel Oja told the press that the party sees the economy as a living organism where lowering some taxes will bring new money to the budget. He has given bringing excise duty revenue back from Latvia as one example.

The finance ministry reminds people that because the realization of promises depends on available funds or results of coalition talks, parties might be reluctant to go into detail in terms of promises in fear of disappointing the voter or painting themselves into a corner for coalition negotiations. Looking at promises, major projects seem to concentrate on expansions of main highways and increased research and developing funding. Almost all parties promise to do the latter.

Head of the fiscal policy department of the Ministry of Finance Sven Kirsipuu said almost all parties’ platforms included promises that are unfeasible because of EU directives or limited temporal horizon. The programs of EKRE and Estonia 200 included the most such examples. For example, Estonia 200’s plan of bringing pension money that is collected as tax back to Estonia is impossible as the EU ensures free movement of capital.

The ministry also shot down the Free Party’s promise to allow renewable energy producers to trade CO2 quotas as only the state is allowed to do that. Entrepreneurs do not have the right to trade quotas in the name of the state. EKRE wants to tie free higher education to an obligation to work in Estonia for at least five years after graduation. The ministry finds this to be in conflict with the principle of free movement of people in the EU.

The ministry put together its cost of election promises analysis for the fourth year. Kirsipuu said that the focus and topics have changed over the years. “We can see a pattern where parties that have not held power make more costly promises,” he said. Kirsipuu added that more expensive promises had to do with the social domain. “Proposals concerning bigger healthcare funding, pension hikes and VAT cuts were among the costliest ideas,” Kirsipuu said.

He pointed out that the results of the ministry’s analysis are not final and that rather it constitutes a quick look at magnitudes. “It cannot be ruled out we will be adjusting some figures inside the next week. Several parties have altered their platforms during the election period and several assessments have piled up in the past weeks, which is why feedback from parties has not reached us in full,” he said. Kirsipuu also urged people reading the analysis not to add up the costs of promises as many are interconnected and might not reflect realistic cost when put together.

Leading analyst with the ministry’s fiscal policy department Risto Kaarna said the aim of the analysis is not to punish parties whose platforms are detailed enough to allow the ministry to calculate cost. He added that because it was not possible to analyze all promises, it would not be right to evaluate the full cost of programs.

“We do not provide value judgments of promises, nor are we voicing our political preferences. All parties were notified of the analysis in the early stages. We offered to give everyone an overview of the process and principles we use, and parties have had the chance to specify their promises. Parties were also offered a look at analysis results before they were published.

EKRE – Pensions doubled (594 million)

The more expensive election promises of the Conservative People’s Party (EKRE) outdo all others. The party promises to double pensions, taking the average old age pension to nearly €800 a month inside four years. The negative effect of this promise on the state budget is calculated at €594 million. The party’s second most expensive promise is to lower VAT to 15 percent that would cost €570 million. EKRE pledges to launch a national building program and have four-lane highways running from Tallinn to Tartu, Pärnu and Narva, as well as a bridge to Saaremaa in eight years. These promises would cost a total of €2.2 billion or €283 million a year.

The party’s promise to make higher education institutions and funding and evaluation systems for research and development Estonian-centric and hiking R&D funding to 2 percent of GDP would also be costly. The ministry puts the impact created by these promises at €381.1 million euros. As sources of income, EKRE has proposed a company car tax and axing the Rail Baltic project that would bring €84 million and €85 million a year to the budget respectively.

Not all of the party’s promises are feasible. For example, the plan to tie free higher education to having to work in Estonia for at least five years after graduation is in conflict with the EU principle of free movement.

Estonia 200 – Impossible roadbuilding (418 million)

Estonia 200 promises to exempt people who reach the retirement age from social and income tax. The ministry puts the negative effect on the budget at €256 million a year for social tax and €162 million for income tax, putting the total cost of the promise at €418 million.

The ministry finds that Estonia 200’s promise to have 2+1 lanes on all main highways would cost around €400 million. But there are other problems with this particular promise. The party wants to be done with this by 2020, while the Estonian Road Administration believes it would take 10-12 years. That means the plan can be deemed impossible. The party has two promises with potential to bolster the budget: abolition of free public transport and introducing a social tax minimum for people earning active business income.

Estonian Greens - €600 basic exemption (365 million)

The Greens’ most expensive promises include a basic exemption hike, lower VAT for organic food and a pensions hike. The party vows to take the basic exemption to at least €600 a month. The party also believes pensions of up to €600 should be exempt from income tax irrespective of whether the person works or not.

The ministry puts the cost of the idea at €365 million but adds that it would first and foremost benefit the wealthier part of society and contribute to income equality. The Greens also want to lower the VAT rate on organic food, which the ministry deems impossible as there is not such product group at present.

Social Democrat Party – Pensions to €700 (320 million)

The more expensive promises of the Social Democrat Party are pensions and teachers’ salary hikes. Hiking the average pension to €700 would cost in the vicinity of €320 million, while paying teachers a minimum of €2,000 a month would require €220 million a year. The party pledges to raise the limit for additional stages for basic exemption from €1,200 a month to €2,000. The ministry estimates this promise to cost €180 million a year.

Reform Party – €200 pension hike (266 million)

The opposition leader’s most expensive promises, according to the finance ministry’s analysis, are a pensions hike of €200 a year over four years, a universal €500 basic exemption and four-lane highways to major centers.

The promises are estimated to cost €266 million, €247 million and €200 million a year respectively. A promise to cut the number of public sector workers by 4,000 would yield €89 billion for the budget.

Free Party – Better salaries for teachers (260 million)

The Free Party’s most expensive promise is hiking the salary of teachers to 1.5 times the national average that would cost €260 million a year. The most fruitful promise by the party is the plan to abolish the second pillar of pension that would yield €343 million for the budget. The Free Party has more promises for strengthening the budget than any other political group.

Center Party – 2+2 highways (200 million)

The most expensive promise by the ruling Center Party is for four-lane main highways to cost €200 a year. The Center Party is also the only political party to not have a single pledge to benefit the state budget.

Pro Patria – Roads and defense (200 million)

Promises to construct three- and four-lane highways to Tartu, Pärnu and Narva are the most expensive among those of Pro Patria, coupled with hiking defense spending to 2.5 percent of GDP. The annual cost is €200 and €113 million respectively.