Budget strategy remains undecided

Seminar at Vihula Manor . Photo: Mihkel Maripuu

The government did not manage to repeat its predecessor’s feat of sorting out the next four years’ fiscal strategy during its spring outing. The state budget strategy for 2020-2023 (RES) remains open. Almost the only concrete decision from the seminar at Vihula Manor was not to allow the state budget to fall deeper into deficit.

Politicians and officials hoped that because wishes of ministries had been thoroughly discussed on Monday, there would be plenty of time to try and balance the fiscal strategy the next day. They included Minister of Finance Martin Helme.

“If we initially hoped to get it done today (yesterday – U. J.), the material we need to go through is so extensive to keep us busy at least until Thursday,” he said on Tuesday.

The ministers spent the first hours of the morning debating the pros and cons of an activity-based budget Estonia will be switching to as well as other technical details. Things picked up after lunch, and ministers did not leave the manor’s palm house again for four hours.

The coalition partners quickly decided that cuts are needed to balance the strategy. Four-year expenses need to be reduced compared to the previous cycle. “We need to be diligent in looking for saving,” Helme said.

However, members of government know that it will not be enough to balance the strategy. The next question was whether to amend the budget act to allow for greater government sector deficit.

Budget law not to be amended

Chairmen of coalition parties announced a little before 7 p.m. that a greater deficit will not be allowed. Neither the Conservative People’s Party (EKRE) nor the Center Party saw it as a problem as recently as Monday. Isamaa was against the plan from the first. “Some government partners have been prepared to amend budget rules, but we have laid that plan aside for now and will move on based on the state budget act,” Martin Helme said.

Because cuts can only go so far in terms of moving closer to balancing the strategy and fiscal deficit will not be increased, additional revenue will need to be found. Inability to find a solution everybody could get behind was the main reason the government failed to agree on the strategy yesterday. The sides did not reveal what options were on the table.

Rumor had it already on Monday that one option would be the partial or complete privatization of state companies. The Ministry of Economic Affairs and Communications has put together a list of companies that could be sold or the partial sale of which could be analyzed. Such companies include Eesti Teed, AS Operail, Metrosert, Teede Tehnokeskus and national airline Nordica.

EKRE have also talked about borrowing. While Estonia has that opportunity, a loan would bring several problems. Firstly, loan money could not be used everywhere as it would immediately be registered as an expense. A potential loan could only be used for investments.

Martin Helme said it is not clear what loan money would be used for. “There is preparedness to involve loan money to get major things done,” he said. “What we need to decide is how we want to spend it for it to be useful.”

Promises will be kept

In addition to all that, parties will have to find a way to pay for their costly election promises. PM Jüri Ratas said that no one has gone back on those promises. “We have not abandoned our plan for an extraordinary pensions hike. How ambitious it will be and when it will happen is for the RES to determine,” he said. “Various salary hikes… wages have gone up in the past three years, but it is not enough. That said, we need to consider realistic possibilities.”

While all three coalition partners agree that excise duties on alcohol need to be lowered, there is no consensus regarding by how much.

The likeliest scenario is one where the duties will be lowered for both light and strong alcoholic beverages but by different amounts. This would see alcohol become cheaper but remain more expensive than it is in Latvia. The effect this would have on the state budget is forecast as neutral. It is extremely complicated to forecast anything beyond that.

The government has until the end of May to find avenues for cost-cutting, new revenue and how to make good on election promises.