Speaking to ERR in an interview which follows, Prime Minister Kaja Kallas (Reform) put the planned cuts for 2025 at close to 7 percent, in all areas.

Interviewer Madis Hindre: If I understand correctly, if we exclude things that are already "in the pipeline" as it were, there are to be no new tax increases, such as VAT hikes, income tax rises, or any entirely new taxes, next year?

Kaja Kallas: Yes, [though] we have not decided on that yet.

Then in that case, the entire budget strategy will have to be met via austerity.

Essentially, there are two options before us: Either save and cut costs, or find additional revenues. But if we don't find any additional revenues, then we have to solve it via a savings plan.

Does the Reform Party, as well as Eesti 200, support the idea of making a blanket cut, meaning setting a certain percentage of cuts, which everyone must meet?

There have been some proposals like that, and we have done this in the past. In 2021 for instance, everyone was presented with the same uniform task. Everyone simply received four percent less in the way of funding, and then searched for ways to cut costs.

Why haven't we done that yet this time? The reason is, if you remember in 2021, this led to things that caused public consternation. In that case, making savings is generally met with public opposition. However, none of these decisions come painlessly.

Is there an alternative to this blanket cut? Because the smaller the scope in which cuts can be made, the larger each cut has to be in each area.

Yes, that is the case. But so far, various state enterprises and institutions – outside the state apparatus, such as foundations, have been exempt from cuts. So, they too would get a clear austerity goal.

Should cultural foundations have such goals?

Whether culture should be exempt is currently under discussion.

But why is that even under discussion?

Because the situation in the cultural field is such that costs aren't so high, yet the collective displeasure [at cuts] might be greater still.

So, cutting a small portion there would result in a disproportionately large chorus of displeasure, compared with making it elsewhere?

Yes, that is the case. I went to the theater myself over the weekend, and for the ticket cover price I pay to see a theater performance, the state adds a certain sum per visitor. People actually aren't aware of that.

People ask what they get in return for these taxes. Well, you get free healthcare, culture, and education. All of this is done from taxpayer money, yet that doesn't reach people. It does so, when something gets taken away.

I attempted to calculate how much of a blanket cut would be needed. I calculated €900 million, and 7 percent, in all areas, to allow us to comply with EU rules for next year. Were my calculations correct?

Yes, you're very close.

How do you accomplish this without cutting social benefits, for example?

That's a tough question to answer. I don't feel that there's much public or media support for this, and it seems like a very challenging task. Last time, when we were faced with such a task, at least the media understood why it had to be done, and so also backed it. That is not the case now. So it is challenging.

What are the alternatives, given you're saying there's no agreement on tax increases and that would hurt the economy? Is there any alternative to this 7 percent cut on the Estonian state?

The alternative is also to take more from one area so that others have to do less and then, overall, a picture is assembled. Taking more from one area might provoke displeasure from that particular sector in question, but it might find support from others.

Carrying out the same cuts uniformly in turn brings uniform pressure and criticism from all quarters. So there really are no easy choices.

The latest economic forecast reveals that if we stick to the percentage goal set for defense spending, we should spend €60 million less next year than we had envisaged in the state budget strategy. Should we find additional funds for that, or stick to the percentage agreement?

We haven't discussed it in those terms yet. In any case, we need to invest in defense now, as we find ourselves in the most difficult security situation of the past 30 years. But it is also true that there's also a lot of pressure on the budget.

There is still time to hike VAT or income taxes. The corresponding bill could be drafted and passed at the Riigikogu by mid-summer. Why not do so?

Because there is no corresponding political agreement. Plus purely speaking in terms of time-frames, this wouldn't be feasible.

The bill wouldn't be difficult to draft.

The most vital thing is that there be no political agreement on who would be most affected by the tax rises.

My understanding is that SDE is not willing to raise VAT, while the Reform Party is not willing to raise income taxes.

Last time we mostly talked about cost-saving measures. But yes, in general, our preferred option would be to tax consumption, while SDE's choice would be to tax income.

With all this, the question of additional requests comes up. Do you see any scope for teachers' and firefighters' wages to rise next year?

Next year, the "tax hump" will be eliminated, meaning teachers, police officers, and firefighters will see their wages significantly rise as a result. Teachers can even see an increase of a hundred euros per month.

And beyond that?

I don't see that there's currently any possibility there.

Will this government be able to assemble the state budget by fall?

It is my hope that it will do. And, by the way, last week, we got the figures on teachers' wages. Local governments have also contributed, while this year, the average salary for a teacher is over 119 percent of the national average. So, this is exactly what was promised before.

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