"On Tuesday, the Ministry of Finance and the major banks released their latest economic forecasts. The trend is, unfortunately, clear: all the forecasts show lower economic growth compared with the spring," Urmas Reinsalu said in a social media post.

The Isamaa chair pointed out that the government had projected 1.7 percent growth in the spring, which has now been revised down to 0.8 percent. Swedbank had forecast 1.2 percent, now 0.6 percent, and SEB had expected 1.8 percent growth, but now predicts 1.2 percent.

"Last summer, the government based its budget on a forecast of 3.3 percent growth for this year (a drop of fourfold already), SEB projected 2.5 percent and Swedbank 1.5 percent. Both banks warned at the time that tax increases would dampen growth prospects, and that is once again what's happening. Tax hikes are driving up prices, which is clearly tied to this wave of taxation. Before the latest round, all forecasters had predicted that Estonia's inflation would be more than twice as low as it is now estimated to be," Reinsalu said.

In his view, rising taxes and prices are undermining domestic demand and creating a situation where people's real purchasing power continues to decline.

"Jürgen Ligi says it's shameless to talk about a cascade of tax hikes. But why? What's truly shameless is running a historic-scale tax chaos experiment using Estonian society as a test lab. Dozens of tax increases have already taken effect and dozens more are still ahead. We're on track to become the tax burden champion of Central and Eastern Europe. Particularly cynical is the prime minister's announcement that, thanks to tax hikes, revenues have exceeded expectations and money can now be distributed. A new realization is beginning to emerge: incompetent leadership marked by constant tax flailing has not been the only financial option, contrary to what the government has tried to make us believe," the Isamaa chair said.

Reinsalu also questioned the government's decision to proceed with the July 1 value-added tax (VAT) increase, despite people's economic hardship — an increase the Isamaa politician believes should have been scrapped.

"On Tuesday, the Ministry of Social Affairs also presented a birth rate study. My thanks to the researchers for their critical perspective. This study is effectively a verdict on the Reform Party-led government's policies in this area of life as well. According to the study, the biggest source of uncertainty for families when it comes to having children is the cost of living. The government's price-hiking policies have worsened our demographic situation and postponed births. In recent years, we've seen historically low birth rates. And the government's response? To further undermine families' sense of security," Reinsalu said, noting that 10,721 children were born in 2023, with just 9,543 projected for 2024.

"Now, in light of the study, Reform Party members are talking about family policy and the need to discuss new measures. This is a cynical stance. In four months, several cuts will take effect, including a reduction in parental benefits and the elimination of health insurance for stay-at-home mothers. Yet for some reason, the ministry's study offered no analytical assessment of these already enacted or soon-to-be-enacted measures that have harmed families' sense of security — even though former minister Signe Riisalo (Reform) promised such analysis with every measure pushed through parliament," the Isamaa chair said.

Reinsalu's proposal to the government is that any such analysis should begin with the reversal of those measures that have undermined families' sense of security.

SDE: Government must end 'irresponsible' budget policy

Meanwhile, the Social Democratic Party's (SDE) board said the government's statements about "fixing" the state budget are populist, and are not reflected in the new economic forecast.

The SDE board adopted a political statement at a meeting on Tuesday evening.

"We call on the government to abandon [its] irresponsible and populist budget policy. Constantly boosting inequality, covering fixed costs with ever greater borrowed money, makes Estonia poor and hampers economic growth," the statement read.

"The Reform Party has lost the ability to manage Estonia's public finances responsibly. The messages voiced by the prime minister and the finance minister, that there is surplus money and the government can reduce state budget revenues, are populist and stem from the wish to improve the Reform Party's low rating. We draw attention to the fact that the higher tax receipts in the first half of the year are temporary and preceded the increases in income and value-added taxes," the statement added.

The statement noted that national defense expenditures will increase by more than €700 million next year while "at the same time, the budget deficit will grow to four percent, or nearly two billion euros," on top of which come wage increases and other spending decisions, SDE said.

The party criticized the prime minister's claim that the budget is in order, calling it untrue and warning of lasting consequences. They note that using borrowed money for fixed costs like wages and pensions will increase Estonia's debt by a quarter over the next four years, till it reaches 31.4 percent.

The government's plan to retain only the VAT increase from the security tax shifts the defense burden onto low-income earners while reducing taxes for the wealthiest, SDE said, noting that Estonia has become Europe's leader in wealth inequality, with 59 percent of the nation's wealth concentrated in the hands of 10 percent of the population.

This weakens the middle class and harms economic growth, SDE said, citing IMF and OECD reports that rising inequality limits access to education and healthcare, reducing labor market effectiveness.

Rising costs in healthcare and education will worsen the impact of regressive taxes, burdening low and middle wage earners, the party added.

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