Supplementary budget comes to €700 million, Estonia to borrow

Minister of Finance Keit Pentus-Rosimannus. Photo: Sander Ilvest

Minister of Finance Keit Pentus-Rosimannus revealed the volume of Estonia’s supplementary state budget and admitted that Estonia will have to put up with a new tax soon.

“We are planning a crisis alleviation package to make sure our economy could cope, jobs would be kept and the overburdened healthcare system hold out,” the finance minister said. She emphasized that the budget first and foremost supports the medical sector and job retention.

At least three salary support instruments

“We can say that we will be applying a proper bandage to crisis wounds, while we will have to return to fixing more chronic concerns in the next full state budget,” Keit Pentus-Rosimannus said at the government press conference on Thursday.

The finance minister could not give the final volume of the supplementary state budget, while it is believed to fall between €500-700 million. Half of it or around €250-350 million will be used in the aforementioned fields. This leaves around €125-170 million for salary support. The minister said that salary support will be the single biggest item in the budget.

“It should cover salary support needs for a period of three months,” the minister explained. “We believe we need to at least cover April salary support in the first half-year, while the virus situation today means no one can forecast what is in store. It is probably sensible to maintain a buffer to be prepared for the fall.”

In addition to the salary scheme, the government plans to aim support at sectors that suffered the most last year, she added. The horeca sector is looking at aid of €20-25 million, while bus operators who have lost all business activity will also be supported.

The government is currently discussing whether to extend the unemployment insurance benefit for people whose support period is about to expire. The change would make it possible to extend the support period in a flexible manner depending on the labor market situation. Creative persons and athletes are also looking at new support measures.

“As concerns companies hit by the crisis for which salaries are not the biggest expense, their measures need more work today,” the finance minister admitted.

Healthcare is looking at an additional €100 million that includes hospitals’ extraordinary crisis expenses, vaccination and testing equipment and Remdesivir procurement. Money will also be spent on restoring the Health Insurance Fund’s reserve capital.

The finance minister said that work on the supplementary budget will now continue on weekends and that the government hopes to take the bill to the Riigikogu in the coming weeks. She hopes the budget will be processed quickly.

Short-term bond issue

While the government will not borrow directly for the supplementary budget, Estonia will be seeking additional funds from issue of government bonds. “The parliament has introduced a ceiling of €8 billion and we are nowhere near that limit today,” the minister said, adding that a loan will not be taken to finance the supplementary budget. “We will be issuing short-term bonds probably in late March, which is what our initial plan prescribed from the start. Because companies made sure the year started on a strong note, this has not proved necessary until now.”

Keit Pentus-Rosimannus also said that the Riigikogu is working on the so-called European sources of income system that prescribes a tax for plastic packages that are not recycled. The change was approved last year, while Estonia is joining the system now. The EU is looking to collect 3 percent of budget revenue using the instrument, lowering the GDP-based component by as much.

“It is not a tax,” Pentus-Rosimannus emphasized. Every member state must pay the EU 80 cents for every kilogram of plastic packaging not recycled. In other words, the better Estonia becomes at recycling these packages, the less it has to pay. “As things stand, Estonia would be contributing an extra €11 million to the EU budget,” the minister said.