The intra-coalition discussions both in and of themselves are a search for ways to improve the state budgetary situation in the current economic situation, and are a way-stage to the state budget process for 2025, which will not start till late summer.

The saga also needs to be seen in the context of tax hikes versus austerity, with the Reform Party traditionally very much in the latter camp, even has taxes have either been hiked (notably the 2-percent rise in the sales tax, to 22 percent) or new ones are to be introduced (such as the planned car tax).

The topic is somewhat of a moving target also in that just how bad the economic situation may or may not be is not wholly clear, while the Ministry of Finance's spring forecast is yet to be issued in any case.

Government met on Tuesday

The government met on Tuesday ahead of bills to be issued which will put a tax on sugary drinks, raise penalty rates and freeze the income tax-free threshold of pensions in Estonia.

These bills would be subject to a Riigikogu vote before entering into force.

Tuesday's meeting took place at the Stenbock House involving all three coalition parties, the Reform Party, SDE, and Eesti 200, and took into view the four-year state budget strategy (known in Estonian as the RES and drawn up on a rolling basis each year alongside the state budget itself), adopted last fall but which has been spread out more and more thinly since then.

€150 million in cuts to the RES are already foreseen as part of a "zero budget" (ie. balanced budget) process.

Minister: Agreements to be put into action

At the same time, the changes agreed upon have had a difficult birthing period, with SDE taking the position some time ago that its local government proposals could be a quid pro quo for support for Reform's "Robin Hood" tax.

The picture here is slightly clouded by the fact that, as a "Robin Hood" tax, ie. taking from the rich to give to the poor, the sugary drinks tax and higher penalty rates are both SDE-initiated policies in any case; SDE is in that way turning up the heat on the process.

Essentially, Läänemets said, the time was now for action, on the assumption that agreements were in place.

Meanwhile proposals made in January by Minister of Finance Mart Võrklaev on how to fix the hole, as it were, in the RES particularly in respect of the cancellation of a proposed national defense tax were also revisited.

"My focus is heavily on savings," Võrklaev said, adding that other ministries have already submitted their austerity plans to his ministry.

"We are screening, reviewing and discussing these together," the finance minister said. "For myself I would hope that there could certainly be more clarity on these decisions come May. But the final decisions will still come with the budget in the fall."

Pension income tax-free threshold to be frozen at €770

"We made specific decisions on how to move forward with several measures from the RES," Võrklaev continued. In addition to the tax on sweetened beverages and an increase in misdemeanor penalty rates, the income tax-free portion of the pension would be limited to €770 per month.

SDE wants key workers' wages, for instances those of first responders and teachers, to rise next year and that additional revenues could be found to fund these; the current state budget strategy (known in Estonian as the RES) projects a nominal state budget deficit of 2.8 percent of GDP for this year, to fall to 1.9 percent next year and to 1.2 percent by 2027.

This is also in line with EU norms which insist that this deficit does not exceed 3 percent of GDP. Since the current recession is in fact a help rather than a hindrance in keeping structural deficits under control, there is wiggle room for the government to exert downward pressure on the balance target, it is argued.

On the point that the Reform Party certainly does not want a "Robin Hood" tax and is planning other developments, Läänemets said. "If you want to put it that way, then a bill being sent for its coordination round is not indicative of its getting governmental support."

However, Läänemets says he is also convinced that the plan to redistribute wealth between municipalities will make progress. "This is ultimately connected in the sense that we've all agreed on it, so everything needs to be carried out."

Madis Kallas plan not set in stone

While a solution proposed by Madis Kallas, SDE's regional affairs minister, is one of the best of all options, it is not set in stone either, he added.

The proposed tax on sugary drinks, ie. non-alcoholic sodas, is projected to bring in an additional €25 million for the upcoming year, while the income tax-free threshold with regard to pensions staying at the level of this year's average pension is, also, expected to save about €25 million next year.

Minister of Finance Mart Võrklaev (Reform) says the financial impact of these measures will be as stated in the current RES; additional tax planned in the budget strategy was canceled to avoid further over-burdening of the economy, he said.

A fundamental question not resolved on Tuesday is how much the state should incur in additional spending. For instance, coalition partner Eesti 200 says investments into a digital state would make savings via a more precise targeting of social benefits, making them needs-based, among other things. Minister Võrklaev noted that nonetheless political will was needed on this; in any case budgetary goals in the current situation will be hard to achieve, as will meeting those agreed upon at EU level.

Ministries came up with cuts last year

A separate question is how and where to find the additional cuts which would help cover the €430 million remaining from the so-called national defense tax. Finance Minister Võrklaev would not be drawn on this, though noted that last summer, all of Estonia's ministries had been able to propose figures for cuts, themselves.

However, percentages might this time be required to be imposed, though this "is certainly not easy, as everybody wants to spend," the minister added.

In any case, not all funds that are currently lacking could be found via cuts.

Võrklaev put the figure of keeping all 11 ministries up and running at €130 million per year.

Lauri Läänemets said there had been s no talk of percentage cuts at Tuesday's meeting, adding that there is scope for savings in state agencies, firms and foundations, and that this is likely the direction the government will take.

A national defense, or security tax, ie. tax hikes to boost defense spending, would reflect just that, ie. how much has been spent on defense in the current situation, and also that there is at present no scope for boosting key workers' wages, Läänemets said.

Foreign Minister and Eesti 200 Chair Margus Tsahkna said around €400 million could be collected from a tax of that nature, which has the added advantage of being in an area which is quite comprehensible to the public.

State budget process takes place in the fall

Minister Võrklaev said that these could be taken into account in the 2025 state budget, which will be prepared in the fall with a view to being passed by year-end.

In December last year, Madis Kallas came up with a plan which would reduce the income base of wealthier municipalities and provide more money to those municipalities which have a larger population of pensioners.

However, in January Reform in a sense played the role of the Sheriff of Nottingham by rejecting this plan (also at the time given the "Robin Hood" tag).

buoyant, prompting Läänemets to note that, just as the sugary drinks tax had been written in to the RES, so too had support for poorer municipalities - in the latter case in the Reform-SDE-Eesti 200 coalition agreement signed in April last year.

EU rules prevent budget deficit rising above 3 percent of GDP

Võrklaev also pointed towards the finance ministry's spring economic forecast as a watershed and which would provide a more concrete basis on which to act.

"Things are constantly changing with time; economic conditions are changing. Perhaps engaging in divination is not too rewarding of a job. Let the analysts do this, based on the forecasts," he said.

Budgetary targets written into the RES have not been struck off, Lauri Läänemets said, and attempts are currently being made to stay within the framework set in that strategy. "However, I think the principal framework is that the nominal deficit should not go above 3 percent [of GDP], as this would also go against EU rules."

"When there's anything we need to do faster, or slower, within that framework, it can certainly be discussed," Läänemets added.

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