Government hopes to alleviate crisis using money

Janno Riispapp
, reporter
Photo: Sander Ilvest

The government’s supplementary state budget bill forecasts nominal fiscal deficit at €1.5 billion this year that coupled with support measures comes to €2.6 billion.

The deficit is caused by greatly reduced tax revenue and increased unemployment and health insurance expenses due to the coronavirus situation. Minister of Finance Martin Helme (EKRE) said that the state will not be going down the path of austerity and will use the state budget to liven up the economy instead.

“The state budget’s expenses side has grown, while the revenue side has shrunk. We will compensate the difference of approximately €2.6 billion using loan money,” Helme said. The finance ministry could not say how much the state would end up borrowing in 2020, while Estonia has already borrowed around €1 billion – €750 million from the Nordic Investment Bank (NIB) and €200 million by issuing short-term bonds.

Estonia’s crisis measures package totals around €1.15 billion, the largest single piece of which (€250 million) will be labor market support made available through the Unemployment Insurance Fund for a period of two months. The government’s reserve will be bolstered with €250 million, the construction market stimulated with €145 million, €100 million of which will be used for co-financing of construction and renovation of apartment buildings and small private residences.

According to Minister of Economic Affairs and Infrastructure Taavi Aas, the effects of supporting the construction sector will reach a quarter of Estonian companies.

The only additional source of revenue in the budget is freezing payments the state makes to the second pension pillar of people between July this year and August next year that is expected to free up €142 million.

Next to the first and second support package, work is underway on a third long-term plan. The finance minister said the latter mainly concerns infrastructure investments, preparations for which and funding take a long time.

Chairman of the opposition Reform Party Kaja Kallas promised the opposition would not stand in the way of the supplementary budget being passed in the Riigikogu but added that the government must not spend everything it has in the first few months as the crisis will be a marathon rather than a sprint. Kallas proposed cutting public sector expenses by 10 percent in all areas that do not directly help solve the coronavirus crisis.

The diesel excise duty cut included in the support measures caters to transport companies, while people using gasoline cars will not benefit.

The government decided to lower the duty on diesel by 25 percent to match the Lithuanian level and undercut the duty in Latvia. Fuel prices in gas stations should fall by 14.5 cents per liter based on the excise cut alone. The price of a liter of diesel fuel is estimated to fall from €1.249 liters to €1.104.

Gas station chains led by Circle K have promised to lower prices as soon as the bill is passed.

The supplementary state budget should come up for its first reading on Monday next, while it remains difficult to say when the bill will be passed.

“It is a wise decision and one we have been anticipating for a year or even a year and a half now,” said Villem Tori, head of the Union of Estonian Automobile Enterprises. He said that it is likely Estonian carriers who used to fill up in countries where fuel was cheaper will now return to Estonian gas stations.

Head of the Estonian Oil Association Mart Raamat described the decision to lower the duty on diesel to the Lithuanian level as a bold and welcome move but added that the government should also have cut duties for gasoline and liquid pressurized gas.