The government of the Reform Party, Estonia 200 and the Social Democrats concluded a new coalition agreement

The Reform Party, Estonia 200 and the Social Democratic Party (SDE) published the text of the new coalition agreement on Friday. Photo: Tairo Lutter

The Reform Party, Estonia 200 and the Social Democratic Party (SDE) published the text of the new coalition agreement on Friday.

Estonian Prime Minister Kaja Kallas submitted her resignation at a government meeting on Monday due to her nomination as the European Union's high representative for foreign affairs and security policy.

Kristen Michal, the Reform Party's prime minister candidate, said on Friday that there will be a national defense tax, which will be made up of three parts.

Michal said at Friday's press briefing that the motto of the coalition agreement will be establishing security, and it is also extremely important for Estonia that the war in Ukraine definitely ends with the victory of the Ukrainians.

According to Michal, it is inevitable that there will be a national defense tax Estonia's security costs, which will be made up of the increase in VAT and income tax and the taxation of corporate profits.

He said that VAT will increase by 2 percent from 2025, income tax will also increase by 2 percent from 2026, and from the same time the profit of companies will also be taxed by 2 percent for the benefit of national defense. Its purpose is to bring an additional three billion euros into national defense.

The security taxes would be temporary, valid until the end of 2028.

«The government taking office after the 2027 Riigikogu elections will decide on the further need for or changing of the tax,» the coalition agreement states.

The new coalition to be formed promises to ensure national defense spending at at least 3 percent of GDP, plus the costs of hosting allies.

With additional defense investments, the coalition wants to acquire long-range weapons systems and the necessary munitions in order to destroy the threat to Estonian security in the enemy's territory, if necessary.

New coalition agreement not containing teachers' salary hike

The education, labor market and healthcare chapter of the new coalition agreement contains no mention of a teachers' salary increase.

The government coalition of the Reform Party, the Social Democratic Party (SDE) and Estonia 200 promises to organize the school network and organization of secondary education at the level of the law.

«We will implement the vocational education reform, the purpose of which is to ensure that vocational education is a more important and attractive choice for basic school graduates. The ability of vocational schools to provide high-quality secondary education must also increase,» the coalition agreement states.

«To ensure the quality of vocational education and to meet the needs of the labor market, we will create a joint operating model with the Estonian Unemployment Insurance Fund. We will focus on the orders of the Estonian Unemployment Fund's training activities to acquire skills and professions, and we will organize the teaching of the Estonian language to adults more effectively than before,» the new coalition promises.

The parties also promise to develop Estonia's talent policy and strategy for the availability of skilled labor and to make the involvement of skilled labor more flexible and faster in cooperation with social partners.

«Alongside free higher education, we will give universities the opportunity to charge tuition fees for Estonian-language curricula in certain cases and aim to increase learning opportunities in applied higher education,» the agreement states.

In the field of health, the parties promise to valorize health data and to use the potential of personalized medicine more extensively than before in science, entrepreneurship and the provision of healthcare services.

«We will transfer the digital solutions of the medical system to a common platform in order to reduce duplication and improve the availability of healthcare and social services. Together with labor market participants and social partners, we will look for ways to more effectively organize issues related to sickness benefits and vocational education,» the agreement states.

Another goal of the new coalition is, together with social partners and representative organizations of interest groups, to create a unified support system for people with reduced work ability.

«We will agree on a sustainable healthcare financing model. We will legalize the declaration on end-of-life medical care,» the coalition partners add.

New govt coalition to bring excise duty hikes, more rental apartments

Estonia's new government coalition aims to raise excise duties and create more rental apartments.

Prime minister candidate Kristen Michal said that the Reform Party's plan to eliminate the tax hump, or bracket creep, will be postponed by a year to fit within the budget.

«We will raise excise duties on alcohol, tobacco, and gasoline. Additionally, we will need to privatize unnecessary enterprises and sell assets,» Michal said. «Many people in various institutions will need to cut costs. We must ask for the public's understanding if some necessary tasks remain unfinished.»

Lauri Läänemets, leader of the junior coalition partner Social Democratic Party (SDE), said that the coalition is trying to find solutions to increase the number of rental apartments.

«The more rental apartments there are, the smaller the increase in rental prices. We will improve state guarantees to ensure that people can access loans more easily. People's jobs depend on the performance of the Estonian economy,» Läänemets said. «We aim to direct major investments to rural areas so that people can live a decent life on their wages everywhere.»

Läänemets said that the state will not reduce or freeze pensions, nor will it change indexation. He highlighted teachers, defense personnel, and internal security providers as priorities.