Helme: We are seriously considering an extraordinary pensions hike

Martin Helme. Photo: Sander Ilvest

The Ministry of Finance presented its fall economic forecast on Monday that serves as the basis for the 2021 state budget. Minister of Finance Martin Helme told Postimees about the government’s plans.

What are the finance minister’s main proposals for the new budget process?

I’m not sure whether I can differentiate between those of the finance minister and those of the Conservative People’s Party (EKRE) chairman here. There is little political difference. The economy clearly needs to be stimulated also in the coming years. It will help us recover from these lost years quicker and keep up with other countries. We will have a recession in both 2020 and 2021. I am not ruling out the possibility of cutting public sector costs.

You’ve said that public sector wages and pensions will not be touched. Does this apply to this year or is it a broader principle?

Our vision is to freeze salaries but avoid cuts. Institutions will be free to make decisions inside their own salary funds. For example, to finds ways of getting the work done with fewer people, which might see some salaries grow. We should motivate such efforts.

Salary advance remaining modest in the coming years will have an effect on the indexation of pensions. We are seriously considering an extraordinary pensions hike. Even though it is very expensive. However, pensions can also help liven up the economy, through domestic consumption and taxes.

Keeping the economy going with loan money alone is unthinkable. How to boost revenue?

Firstly, both domestic and EU investments are set to grow. (The EU will contribute €0.5 billion a year from 2021 – M. L.). We plan to invest on average 6 percent of GDP or around €1.7 billion a year in 2020-2024. The most important thing is to make sure these investments are spent where they are needed and not on high-sounding slogans. The other important thing is improving Estonia’s competitive ability. For that, we need to go over environmental fees, various energy fees and taxes. Transmission network and renewable energy fees should not be hiked in the near future. The price of energy is clearly a bottleneck in terms of competitiveness today.

The third and longer-term measure is retraining. The crisis has hit the tertiary sector where salaries are lowest the hardest. If we play our cards right, some of these low-paid jobs will disappear to make room for better ones. The Unemployment Insurance Fund must adjust to the situation.

What about export support? The state failing to help exporters impacts our competitive ability. Our embassies and Enterprise Estonia offices have been weak so far.

Indeed. We have two major export support organizations, Enterprise Estonia (EAS) and KredEx, and both need to up their game. They should be more focused, more efficient and sport greater volume.

There is an idea going around for turning KredEx into a bank. Has it gotten anywhere?

The idea has passed through the first round of political deliberations. But because creating a bank is such a major undertaking, further discussion is needed. Two-thirds of the government likes the idea, while Isamaa needs more time to ponder the possibility.

We do not know what will become of the second pension pillar reform. The Supreme Court will rule in terms of its constitutionality in October, while the state budget bill needs to move to the Riigikogu by September 30. What are the budget’s A and B options?

Option A is that the state budget does not count on the second pillar reform. Even should the Supreme Court greenlight the reform, these sums will only become available in the spring of 2021 when we will be working on the next state budget strategy. There is no option B at this time.

What kind of sums are we talking about?

That will depend on people’s behavior. (How many will withdraw second pillar assets, how many will continue to save there, as well as the state’s continued contribution – M. L.). We are talking about €70-300 million for the state budget should the reform go ahead.

Ministries and MPs make a plethora of additional applications for state budget funds every year. What will happen to those?

I believe we will not be entertaining additional applications this year. It is a kind of ritual dance where we see billions worth of additional requests for funding every year regarding which it is said that everything will collapse if we don’t get the money. Both the people making such claims and those listening to them pretend that it’s serious. While both understand that it is not.

There are some fundamental priorities.

Every ministry has their own things as per the coalition agreement. For me, it’s money laundering, while the Ministry of Internal Affairs has guarding the border; the education ministry teachers’ salaries, Estonian classes and research and development funding; with the Ministry of Social Affairs worried about pensions.

How goes the process of moving the money laundering data bureau under the finance ministry?

Work is underway. There is a competition to find the director general and we should have the names of candidates in October. There is a lot of technical work involved, including domestic and international contracts, human resources matters, IT solutions, premises, budgeting etc. Efforts started in spring and we are on schedule.

Has the flak you’ve taken over the Freeh contract delivered a setback in terms of the ministry’s activities?

It has not hindered our efforts. This “flak” has not gone beyond the domestic scene. Everyone has seen it for what it is – a domestic political skirmish.