The Riigikogu passed the 2020 supplementary state budget yesterday. Chairman of the Riigikogu Finance Committee Aivar Kokk (Isamaa) explains how the budget took shape.
Everyone always wants money and it is especially true today. How did you arrive at this particular set of measures?
We have tried to treat companies and employees equally. Everyone who has an employment contract and has paid the unemployment insurance premium qualifies for support in the volume of 70 percent of salary. Self-employed persons are exempt from having to pay social tax in the first quarter. I must commend Estonian banks that were immediately ready to put back clients’ loan deadlines. We can guarantee €1.5 billion worth of loans through KredEx. The Estonian Rural Development Foundation (MES) has been allocated €200 million as support for rural enterprise.
While some like it better than others, we will also be lowering excise duties for a period of two years from May 1. As an entrepreneur, I can say that production inputs are a major source of expenditure and the possibility to save money there will help us weather the crisis better.
We lowered the waterways usage fee to zero to attract foreign ships to register in our ports. Regarding KredEx measures, around €100 million will be spent on renovation of apartment buildings in rural areas, with €15 million allocated for high-speed broadband development.
Local governments will be given investment support in the volume of €70 million to help the construction sector survive. In terms of roadbuilding, €30 million will be allocated to local governments and €10 million to the Road Administration. Enterprise Estonia will channel €25 million in tourism support.
Aren’t rural development measures a little over the top considering the sector’s weight in GDP, especially compared to the tourism sector?
We need to keep in mind that rural tourism is included in the MES instrument. People tend to only associate MES with farmers, but it covers all rural enterprise.
The second pillar of pension has been a hot topic lately. Would it not have been more sensible to take out a loan instead of freezing state contributions to mandatory funded pension?
We will know in two years’ time. Fund yields are likely in the red today. Will they have recovered a year from now? We can pray. We might be forced to pay more in compensation than it would have cost us to borrow in that case.
It makes sense for people who have joined the second pillar not to have to lose in terms of rate of return, which is why the yield of the period during which payments are suspended will be calculated starting in 2023.
Would it not have been more sensible to issue bonds with a fixed rate instead of borrowing from tomorrow at an unknown rate?
Such is the political decision today. If the funds only break even or stay in the red, we will not have to pay extra.
At the same time, it is the only measure putting new money into the budget today. Because the cost of measures was growing with each passing day, we had to create a revenue side. That is why state payments are suspended until the entry into force of the bill to render the second pillar voluntary that the president has currently contested in the Supreme Court.
This takes us to public sector cuts that we are just not seeing. Why haven’t you cut costs?
A day before the supplementary budget bill was entered into Riigikogu proceedings, I made a proposal for the government to deliberate on and approve possibilities for cost-cutting before the end of the second quarter. All such possibilities will be reflected in the 2021 state budget if not sooner.
We agreed not to cut costs for a period of two months to keep the economy from collapsing completely. The hope today is that the emergency situation will end by June 1, which is when normal economic activity can return.
When are you planning to discuss a potential second supplementary budget?
Cuts need to be analyzed and approved on the government level by Midsummer Day. The Riigikogu will convene to discuss another supplementary bill in July if necessary.
It has been said that future measures should rather be long-term. Can you say anything about them today?
No new measures have been agreed today. We can see problems piling up in certain sectors that will not be able to recover in just a few months. It will take a year for some and longer still for others. These things will become clear once borders are reopened. We need to be thrifty.