How do you view what the government is planning with the new state budget, based on the messages that have been made public?

I have to admit, it's really unfortunate that budget preparation falls into the period before local government elections. Populist messaging should not be tied to drafting the state budget, because we're talking about how things will go in Estonia, for our people, and filling that discussion with speculation is wrong.

When we talk about what needs to be done, Estonians need to regain a sense of security. Tax hikes, the overall geopolitical situation and the struggle to get by have created tremendous uncertainty. If we look at Lithuania, where the geopolitical situation is exactly the same, people's belief that things will get better and that they can manage has a huge impact on how the country is doing. We shouldn't underestimate the need to encourage people, to give them confidence and to show them that the government is making clear, realistic and well-thought-out decisions — not just throwing cash out of a helicopter.

What are the populist messages that you believe do not serve the state's long-term interests or the economy, but are directly tied to elections?

We've all heard discussions about whether some taxes could be scrapped or changed. The reality is that taxes are essential for covering state expenses. But the taxes being discussed right now do not significantly affect Estonia's ability to cope.

Where the state's spending has grown much faster than the economy is in social benefits and healthcare costs. If we don't address whether we can cover those expenses next year, the year after or in five years — in a situation where birth rates are low, the population is aging and the working-age population is shrinking — then we are ignoring structural problems that should be dealt with in every budget. We can't just think, "we'll manage this year and deal with it someday later." These are the crucial issues that should be addressed, not whether or not to have a car tax.

Should the car tax be scrapped? Should next year's income tax hike be canceled? Should value-added tax be lowered on food products?

We should always think about why a tax is being introduced in the first place. Perhaps the biggest problem lately has been that there wasn't a clear understanding, for example, of what the car tax was meant for. Is it a wealth tax, where more expensive cars are taxed more heavily? Or is it an environmental tax, where more polluting cars are taxed more? Since an unclear compromise was made, it has been very difficult to justify the tax to the target groups.

As for whether more taxes should be raised, I would argue that in a situation where Estonians' purchasing power has fallen sharply, where insecurity is high and where people are dipping into their savings just to get by, raising taxes definitely does not support the economy or local production. We cannot influence international markets or the geopolitical situation. But we can influence how our people manage — and in that sense, adding more tax burdens right now would certainly be harmful.

What about the question of lowering value-added tax on food, where opinions are very divided?

Both sides of the argument have some merit, since practices differ across countries. But I'd point out that Estonia is one of the few countries where food products are taxed exactly the same as all other goods. In Sweden and Finland, where the standard of living is much higher, not only the overall grocery basket but even the price of a pack of butter is significantly different, and always to Estonia's disadvantage. We should seriously consider how to make essential food more affordable for everyone.

So, a VAT reduction on food should be implemented?

I think it's something worth considering, yes.

What is the one thing you would expect or recommend the government to definitely do in preparing the new state budget?

I actually believe the state needs to return to the classical budgeting model and scrap activity-based budgeting. That system is one of the root problems that makes the entire budgeting process nontransparent. It's unclear who is spending what and how much. That's why we keep having debates about why there are such big surpluses in some areas and where they come from.

Estonia is a small country and is fully capable of managing its state budget on a cost-revenue basis, the classical way. Activity-based budgeting should be left behind. It would also give citizens a clearer understanding of where the money actually goes and what it is being spent on. That's my main expectation and it shouldn't be postponed every year with the excuse that "it's a difficult year." Reform needs to start at the right time — not during budget negotiations — but it must be done.

Another issue is that people need to understand what it means when the state increases borrowing, even borrowing literally to pay pensions. That's like taking out a payday loan to balance a household budget. Loans have to be repaid, with interest, and people need to understand what that entails. Populism has led us to a point where the average citizen finds it very difficult to understand what the state budget even means or what the largest spending areas are.

I believe no budget should be passed without addressing the fastest-growing expenses. For example, how do we ensure that healthcare in Estonia does not reach a point where, due to lack of funding, we can no longer provide it in its current form? That will happen if spending continues as it is now, with an aging population. Solving this must already be built into next year's budget.

Where is the balance then? On the one hand, you say the tax burden should not be increased, but on the other hand, we need more funding for healthcare and social spending, which is hard to cut back.

That brings us to the conclusion that state revenues cannot grow by tax increases alone. We need to think about what drives economic growth. What is slowing growth most right now is the very high cost base. Entrepreneurs admit they cannot compete with companies in other countries because Estonia's energy costs are several times higher than in nearby countries, such as Scandinavia.

The labor shortage is also severe — not just for the simplest jobs but also for professionals who can work with modern technology in industry and manufacturing. For example, even in a [waste management] company like Ragn-Sells, the equipment is no longer just a sledgehammer; it requires engineering expertise. Training such specialists takes time. The question is how to manage in the short term while we are still educating the younger generation.

And if we talk about restarting growth, we also need to restore people's belief in the future — that life goes on, that people can dare to spend and live. Not everyone in Estonia is struggling; wealth inequality is already emerging. But those who could afford to spend feel insecure, so they don't. That means the state can take steps to stimulate the economy. It's not only about raising taxes.

Looking at aging-related costs in healthcare and social benefits, we also need to reconsider whether pensions should continue to be indexed the way they are. Should pensions be tied to economic growth or to inflation? Unfortunately, inflation is being driven by other factors, especially the labor shortage, which pushes prices up. Service prices in Estonia are rising at an accelerated pace, largely because for the past decade, wages for entry-level workers have grown by about 10 percent each year. It's positive that wages are rising, but inevitably this drives service prices higher and that feeds inflation.

So the question is, what matters more to an elderly person — that their pension keeps pace with inflation or that today's healthcare support is preserved? I would argue that many people would say healthcare is more important, and if compromises must be made, they would choose access to healthcare in its current form, or even improved. These are the kinds of debates we need, but unfortunately, we aren't having them.

The pension issue is a very sensitive one, though.

Yes, but when we think about pensions, we also need to think just as much about the ability of young families to cope. Do we want to live in the past or in the future? We should be looking at how to meet the real needs of all social groups. If we think about whether a young family today can afford food for three or four children, plus everything needed for school, I would argue that their situation may actually be tougher than that of pensioners.

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