Ministries trying to hide budget cuts until election

The ministries are trying to hide the precise places where the axe would fall, but some painful cuts are already clear. Photo: Sander Ilvest

The state budget strategy approved by the government on Thursday plans to make cuts amounting to 60.4 million euros. The ministries are trying to hide the precise places where the axe would fall, but some painful cuts are already clear.

As soon as the state budget strategy was announced, the ministries began issuing press releases about where they would invest in and whose salaries would be raised. However, they are reticent about on whose account the cuts would be made.

“It is possible that the ministries will rearrange expenses within their own budgets because it would be complicated to make specific decisions within a couple of days after the government’s decision was announced;” said Märt Belkin, representing the Ministry of Finance.

He added that the government would return to discussing the 2022 state budget in the autumn before submitting the bill to the parliament. “The definite details of expenses and cuts will be known by then,” he said.

Keeping mum while under the axe

The largest cuts must be made by the Ministry of Defence (14.3 million), the Ministry of the Interior (11.7 million) and the Ministry of Economy and Communication (6.8 million).

The one under the largest axe denies it the loudest. Minister of Defence Kalle Laanet and Minister of Finance Keit Pentus-Rosimannus (both Reform Party) claimed that the defence spending in the coming years would actually increase (ERR interviews).

On the other hand, the Ministry of Defence spokeswoman Karin Kivipõld admitted that the cutting task spelled out in the budget strategy means a revision of military development plans and making corrections. “The goal is to reorganise defence so that the impact on military capabilities would be as small as possible,” Kivipõld said

“I am amazed that both the minister of finance and the minister of defence can lie so straight-faced in a live broadcast,” Margus Tsahkna, a former minister of defence and a board member of the Eesti 200 party, pointed out the obvious contradiction.

He also explained how the ministries managed to construct this seemingly truthful claim: the irrelevantly introduced the amount of this year’s defence spending and said nothing about the cuts meant for the coming years.

“While the existing state budget strategy, which was agreed upon last year, allocated 721 million for next year’s amount, according to the new strategy it is 704 million. This means minus 17 million euros. This will accumulate with every year; the cut for 2023 will be as high as 23 million and in 2025 even bigger. The total cut per four years will be 100 million,” Tsahkna revealed.

Minister for the Interior Kristian Jaani (Reform Party) claimed as boldly as the other ministers that the wage fund of internal security could be increased by seven million euros …thanks to cuts! But he was unable to state the source for the wage rise or the method for simultaneously reducing expenses by 11.7 million. Elmar Vaher, Director General of the Police and Border Guard Board, announced that the personnel budget would also have to be revised to achieve the cut.

“The decisions will presumably be made by the state budget debates in the autumn. This is also the time when the new Ministry of Finance economic forecast will be completed and then the income and spending of the state budget can be reviewed again,” Jaani said.

Taavi Audo, PR advisor of the Ministry of Economy and Communications, said that the 6-7-percent cut would be made on account of operating expenses and supports, but no definite decision about the cuts has yet been made.

Centre Party’s vice-chairman Jaanus Karilaid fanned the fire of controversy still further by claiming that state budget strategy in its present form should not be approved at all, since the plans are unrealistic.

Close down small schools?

The Ministry of Education and Science is almost the only one to release its (partial) plan for saving 6.4 million, but that has caused much debate in the public.

The ministry wants to reduce the support for recreational activities granted to municipalities by a half (from 14.25 to 7.25 million) and to direct the sum into the teachers’ wage rise. But closer study of the state budget strategy reveals that this just one cut.

As it appears, the strategy states that more emphasis will be put on the reorganisation of the schools network with a broader goal if finding extra funds for boosting the teachers’ salaries. This line of the budget includes significant cuts: 5.699 million in 2022 and 2023. Does that mean that some schools will be closed down?

Liina Kersna, Minister of Education and Research (Reform Party) did not answer specifically. She explained that Estonia is among the top three in Europe as to the comparison of education expenses, but among the last among the OECD countries as to the amount of the teachers’ salaries. “Too much of the education spending is currently used on maintaining half-empty schoolhouses while we cannot offer competitive salaries to teachers,” Kersna added.

She did not specify that schoolhouses (which often also house libraries, local clubs etc. in rural areas) are maintained by the municipalities, while the ministry pays the teachers’ salaries according to a complicated capitation scheme.

Since the schools in Tallinn, Tartu as well as, for instance, Võru, are all filled to capacity, it can only concern rural schools or, more precisely, exerting pressure on local governments to begin closing down the schools. The minister intends beginning negotiations with municipalities “how to change the school network so that the changes would allow increasing the teachers’ salaries and how the state could motivate the revision of the network”.

Tarmu Kurm, representative of the Ministry of Education and Science, said that the specific plan would be completed by the autumn, while decisions for changing the school network would be made by April.

Minister of the Environment Tõnis Mölder presented on Friday a graph about the reduction of dividends from the State Forest Management Centre (RMK): 7.84 million less in 2022 and 16.84 million less in the following years as compared with 2021, but this need not reduce the volume of logging. To compensate for the declining dividends it is planned to earn in 2024 and 2025 from leasing forest areas for the construction of wind farms and from the sale of land – more than twice the previously planned amount.

“RMK has found the areas potentially suitable for wind farms. We have set the goal that RMK will announce the suitable areas by 2024. The areas not covered with forests are preferred;” Mölder explained the plan which is expected to yield three million euros annually. The area of the land to be leased is still being determined.

As for the sale of land, only the sum the government wants to earn from the transaction is currently known. “The planned income from land sale according to the previous strategy was 39 million; due to the large-scale ending of land use contracts during the upcoming strategy period the ministry submitted to the strategy an increased income estimate (78 million), while the government decided to add a further four million annually, amounting to 2022–2025 land sale income of 94 million euros,” Tõnis Mölder explained. “Farmers can currently lease land from the state at favoured terms. During the following period we shall assess the prospect of farmers preferring to purchase land rather than lease it.” In other words, leasing of agricultural land at favoured terms will come to an end.

Repeating the cuts pattern experienced 12 years ago?

It is planned to spend 330,000 euros annually to make preparations for the large-scale land sale. The ministry is also intending a three-percent wage fund rise for the target groups (internal security personnel, IT buildings, cultural institutions’ staff) – 242,000 euros annually.

The need to make such cuts is nothing new for a Reform-Party-led government. During the 2009 economic crisis and Andrus Ansip’s second government every ministry had to devise how to carry out the seven-percent operating expenses cut demanded by the government. “A lot of cuts, officials are sent on obligatory unpaid leave and redundancies can be expected as well,” Postimees wrote at that time.

The meaning of such cuts to a sphere of activity is illustrated by the fire and rescue service: “An agreement was reached that the salaries of rescue workers will be cut eight percent from July, while there will be no redundancies or closures.” They also returned to 24-hour shifts to avoid making 193 rescue workers redundant and to close down firehouses. (“Rescuers promised to cut their wages”, Postimees, 29. June, 2009).

Now, 12 years later, Prime Minister Kaja Kallas announced that the public sector cannot remain untouched.

“The private sector had to cut its spending in the crisis and the public sector must show solidarity,” the prime minister said.

But wage cuts have not been mentioned this time, on the contrary. Minister of Finance Keit Pentus-Rosimannus said that the cuts will allow for increasing wages and pensions and will reduce the pressure for tax increases.

Besides recreational activities, a similar amount of cuts has been announced, concerning the intention to terminate from 2023 the tax exemption of interests on housing loans. According to the Tax Board, the impact of the change on the state budget will be six million euros annually in 2023 and 2024 and 6.2 million in 2025.

The document of the 2022 state budget shall be submitted by the government to the parliament three months before the beginning of the financial year at the latest, i.e. in the end of September, while the parliament has to approve the budget in December at the latest. The local election takes place on October 17.