Sa, 2.12.2023

Estonian govt approves 2024 state budget

The Estonian government has approved the 2024 state budget and the state budget strategy for the next four years.
The Estonian government has approved the 2024 state budget and the state budget strategy for the next four years. Photo: Madis Veltman

The Estonian government has approved the 2024 state budget and the state budget strategy for the next four years with next year's revenues amounting to 16.8 billion euros and expenditures to 17.7 billion euros, and compared to the budget for 2023, revenues will increase by 7.7 percent and expenditures by 4.9 percent.

The budget is focused on Estonia's military and broad national defense, education, economic revitalization, which is also supported by the green reform, and the sustainability of public finances. Supporting Ukraine continues to be very important for Estonia, as reported by the government's communication office.

In 2024, Estonia's defense budget will exceed 3 percent of GDP for the first time, excluding the cost of hosting allies. The defense expenditure next year will be 1.33 billion euros and about 5.6 billion euros during the period from 2024 to 2027. This will increase Estonia's independent defense capability and readiness to protect itself along with NATO allies.

Over 50 percent of the defense budget will be allocated to procurements. Estonia has significantly replenished its ammunition stocks, and its national defense capability will be increased on land, in the air, and at sea. The state also invests in the defenders of the country and their equipment, maintaining the combat capability of territorial defense. The Kaitseliit (Defense League) volunteer corps will be funded with nearly 300 million euros in 2024-2027.

From 2024 onward, an additional average of nine million euros per year will be allocated for the Ministry of the Interior's national defense tasks. This increases the reserve of the Police and Border Guard Board, including the means and opportunities for recruiting assistant police officers. Protecting Estonia’s borders and developing the eastern border continue to be a state priority, so a total of 15.2 million euros will be allocated for 2024 and 2025.

The Information System Authority will be allocated funds for permanent cybersecurity funding to continue cybersecurity testing and training for government agencies and vital service providers and to develop a cybersecurity reserve. The Tax and Customs Board is to enhance its readiness for crises and the capability to supervise sanctions. Also, permanent funding will be ensured for civil protection investments and the crisis capabilities of the Ministry of Social Affairs made last year. Specifically, the Rescue Board will be funded for the storage of evacuation supplies, and the reliability of sirens intended for danger notification.

To maintain and enhance the resilience of residents and local governments in crises, permanent funding will be secured for civil protection training. As part of civil protection, permanent funding will be ensured for healthcare and social protection under the administration of the Ministry of Social Affairs to assist people in crises. For this, emergency medicine healthcare reserves will be increased, and infectious disease monitoring and control, as well as permanent funding for mental health crisis assistance, will be ensured.

In the field of responsibility of the Ministry of the Climate, the Environmental Board will update the technical means of 15 radiation monitoring stations and laboratories built earlier with foreign aid funds, to ensure 24-hour radiation monitoring, early warning of the population, and the implementation of radiation protection measures.

Next year, only the salaries of teachers will increase among state employees. The 2024 budget has allocated 561.9 million euros for teachers' labor costs, which will grow by 23.7 million euros. Along with the growth of the differentiation fund, the average salary of teachers will increase by 4.3 percent. Additionally, the state supports teachers and support specialists starting work for the first time by allocating a total of 3.7 million euros as a starting allowance.

The implementation of the action plan for transitioning to Estonian-language education continues in full next year. The budget will increase by 27 million euros, and 71.9 million euros will be allocated for transitioning to Estonian-language education in 2024, of which foreign funds make up three million. The transition to Estonian-language education begins in kindergartens and in grades one and four in 2024 and lasts until 2030, according to the coalition agreement.

The provision of higher education in universities and applied higher education establishments will be supported with 274.7 million euros next year. Activity support for higher education is planned to be 232.3 million euros, a 15 percent increase compared to before. The priority is to ensure the sustainability of Estonian-language higher education, competitive salaries for lecturers, and to develop the quality of higher education. Starting this academic year, the rates of need-based study allowances were also doubled, for which an additional 5.2 million euros has been planned in the budget.

A broad-based agreement still stands in the 2024 state budget to allocate 1 percent of GDP to research funding.

Next year, the state will earmark 1.9 billion euros for economic revitalization as investments and investment subsidies, of which approximately 1.1 billion are foreign funds, and nearly 800 million are Estonian taxpayer money.

In order to fit the economy within the limits of nature, the state will focus on environmentally friendly economic growth and develop a clean and diverse living environment. The state will direct 20 million euros over the next four years towards restoring nature and ecosystems. To transition to a circular economy faster and to add value to natural resources, attention will be paid to resource efficiency, and a waste reform will be implemented.

The state will simplify and accelerate the initiation of green energy production to have more clean energy available on the market at favorable prices. For this purpose, a total of 155 million euros will be invested between 2024 and 2027. Among other things, investments will be made in transitioning district heating to renewable fuels, strengthening power grids, and developing new connection capacities.

Some 96 million euros of external funds will be invested in the development of environmentally friendly public transport and bicycle paths over the next few years. Additionally, the state has increased investments in public transport and the development of bicycle paths by 70 million euros for the next four years. The state continues railway electrification, increasing its funding by 54 million euros. The budget includes 11 million euros for constructing electric charging infrastructure at Virtsu and Kuivastu ports so that the first electric ferry can start operating on the Virtsu–Kuivastu route in 2026.

Construction of the main corridor of the Rail Baltic railway will begin in 2024, with a total investment of 216 million euros in the new year.

To improve nationwide public transport, the government will allocate approximately 60 million euros over the next two years. Plans are underway to make public transport usage easier for passengers and to develop unified ticket sales software and convenient ticket products. There is also a desire to improve public transport accessibility for the visually and hearing impaired. A ferry connection between Hiiumaa and Saaremaa islands will be ensured in both directions, both morning and evening.

In cooperation with the private sector, the state will support the growth of Estonia's economic competitiveness and productivity. The first applied research center will launch in Estonia, helping to increase the research intensity and innovation of Estonian companies. In 2024, the Business and Innovation Agency will increase funding for corporate loans by 100 million euros to support Estonian companies entering foreign markets. Additionally, the state is developing an export loan directed at Ukraine to provide companies with confidence to expand into the Ukrainian market and restore the Ukrainian economy.

The state will also progress in the digital transition by investing in the development of a data-based and modern technology-based personalized state. Public services will become more efficient and convenient for both citizens and entrepreneurs, and the use of artificial intelligence in the public sector will also increase. These presume well functioning IT basic services and a high level of cybersecurity. To ensure this, the state will invest an additional 23 million euros in 2024.

The state will develop the labor market services and support system to help people return to the labor market. It also contributes to enhancing the competitiveness of the business environment. The continued priority is the fight against economic crime.

The structural deficit in the 2024 budget remains at the same level, 1.2 percent of GDP. This is part of the flexibility of the European Union rules, where structural adjustment is not necessary next year in very poor economic situations. For the subsequent years, starting from 2025, the state plans to maintain the structural position at least or better than -1 percent of GDP.

To gain better control of state expenditures, a budget review affecting all ministries' areas of administration has been initiated. Its task is to find opportunities for more efficiency in the provision of state services. The budget revision will start with the Ministry of Social Affairs, the Ministry of Economic Affairs and Communications, and the Ministry of Finance, where the budgets are large. By making state services more efficient and matching subsidies with needs, a total of 150 million euros is planned to be saved across the three ministries.

It is also important for the state to have fair competition and smart and efficient tax collection. The state is making tax supervision more efficient, both in terms of collecting income and value-added tax, and will also utilize the capabilities of artificial intelligence. As a result, savings to the tune of 12 million euros of taxpayer money are expected, and with revenue measures, nearly 100 million euros of additional funds are expected to be collected over four years.

To improve the budget situation, the government has already decided to gradually increase gambling tax and the excise duty rates on alcohol and tobacco. The rise in tobacco and alcohol excise duties alone is expected to bring at least 63 million euros into state revenues over the next two years. In 2024, the state will raise the value-added tax to 22 percent, which is expected to bring in a total of 235 million euros in state revenues.

Estonia continues to support Ukraine through international funds, the European Union budget, and also directly through the state budget. In total, the state will allocate 29.2 million euros to support the reconstruction of Ukraine in 2024. Along with European Union partners, Estonia is significantly increasing its contribution to the European Peace Facility, where the Ministry of Foreign Affairs and the Ministry of Defense plan to contribute approximately six million euros annually until 2027. Bringing Ukraine into the European Union and NATO and participating in rebuilding Ukraine protects the security of Estonia and all of Europe.