Although nothing has been finalized yet in the state budget talks, by Thursday agreements on the main issues should be in place, Education Minister Kristina Kallas (Eesti 200) said.

"At the moment, neither the income tax cut, the question of pay raises nor other expenses have been settled. The only thing we have calculated and locked in is raising defense spending to 5 percent of GDP," she said.

"Since increasing defense spending next year will keep the budget in deficit — adding an additional 2 percent of GDP to the deficit — the rest of the spending comes down to how far we allow the deficit to go. How much we are ready to borrow next year and how deep we let the deficit run, those have been very tense debates," she added.

A 4.5 percent deficit is the limit beyond which the government is not prepared to go, Kallas said.

"In that case, Estonia's debt burden would not grow significantly, but going beyond that would simply not be responsible. Right now the main dispute is that if we raise defense spending to 5 percent, we are already practically at a 3 percent deficit," she explained.

"The question now is whether we use the European Union's budget deficit exemption — adding 1.5 percentage points on top of that — and what exactly we fit within it. Does it include a tax cut, meaning lowering the burden on people, and wage hikes in sensitive sectors where salaries have not increased for many years?" Kallas said.

On teacher salaries, Kallas emphasized that the goal of raising the average teacher's pay to 120 percent of the national average by 2027 has not been abandoned.

"I have not given up on that goal. That would mean a little over a 10 percent raise next year and another slightly over 10 percent the year after. Within the budget framework, we are having very intense debates with our coalition partner, whose position is that such pay raises cannot be that large," Kallas said.

She added that police officers, rescuers and cultural workers should also get raises, since their pay has not increased in three years.

Asked whether she would prioritize higher wages for public-sector workers over scrapping Reform's proposed income tax hike, Kallas said Eesti 200's priority is salaries for teachers, cultural workers, police and rescuers.

"If that is the choice, then our priority is investment in those sectors, meaning wages. We simply have a different view from Reform about what the priority should be, about what gives the state long-term viability. That's where our dispute lies," she said.

According to Kallas, the aim is for pay raises in those sectors to fall between 7 and 10 percent.

Although the two coalition partners have not yet reached firm agreements, deals on the bigger issues should be struck in the coming days, Kallas said.

"I believe we will finalize the main agreements in the budget at this Thursday's Cabinet meeting. We are constantly going through the details anyway, so my sense is that by Thursday the big pieces of the budget will have been agreed on," she said.

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