Unfortunately, issues with the state budget and budgeting have become a recurring theme in my annual speeches. A year ago, I gave an overview of the National Audit Office's annual report, which focused on the results of the performance-based state budget reform. Or more precisely its lackluster results. What has changed over the past year?

Recently, the government submitted a bill to amend the State Budget Act to the Riigikogu for discussion. Its aim is, among other things, to increase the budget's clarity and transparency and to make the use of state funds more efficient. The bill contains several amendments that address problems previously highlighted by the National Audit Office.

It is reasonable to tidy up the principles for distributing domestic subsidies by ministries and to clarify the rules concerning the financing of local governments.

For the sake of clarity, it is also a welcome move to remove non-cash expenses — i.e., the portion of the budget reflecting fixed asset depreciation — from the law and instead include it in the explanatory memorandum, thereby eliminating the unnecessary confusion this has caused in the budget framework. These changes are entirely necessary.

As you may recall, a year ago the Riigikogu was also processing an earlier bill to amend the State Budget Act. That effort, too, aimed to make the budget more understandable and transparent. At the time, I noted that the draft was a failure because the proposed changes were useless in achieving their stated goals and made no meaningful improvements over the previous system.

Now, a year later, the new bill proposes to scrap the budget annex introduced by last year's amendment — a document that is lengthy, difficult to use, uninformative, non-binding on the executive branch and has created a great deal of unnecessary work for ministries.

I recommend that we avoid busywork again this year and seriously consider whether all the proposed amendments are truly substantive and necessary. Is the budget moving toward greater clarity and comprehensibility? I don't think so.

Compared to the current setup, there is no qualitative improvement. The annex to the state budget is simply being eliminated and its contents will be brought into the main body of the law in more general terms. Everything else remains the same, including the fact that ministers can still change the sums of money behind the expenditure lines written into the law. Even amendments made by the Riigikogu are not binding on ministers when it comes to these budget lines.

Flexibility in the use of funds is certainly necessary, but when it becomes so total that it overrides the will of the Riigikogu, the decisions made by parliament become meaningless. There is change, but no real reform. So what's the point?

The very idea of a state budget is that, by adopting it, the Riigikogu gives the government permission to use taxpayers' money, thereby exercising oversight and setting boundaries. The proposed amendment to the law departs significantly from this principle. In many respects, it is just as far removed from reality as the level of decision-making power left to the Riigikogu in the current budgeting process. Why do I say that?

Undoubtedly, the Riigikogu's role in the budget process should be to handle financial allocations at a strategic level. Clearly, the Riigikogu needs a so-called helicopter view when making decisions. But too often, the objectives and indicators presented in the state budget launch the parliament and the public not to helicopter height, but into deep space — so far, in fact, that even a telescope would be of no help in establishing a meaningful connection between the allocated money and the stated goals.

A perfect illustration of this cosmic journey offered up to the Riigikogu came, in my view, from MP Aivar Sõerd's clearly tongue-in-cheek amendment to the 2026 draft state budget.

In it, the MP proposed increasing the budget line "Ensuring a Competitive Business Environment," under the program area "Rule of Law," by €5 million in order to prevent Estonia's decline in the Global Innovation Index from 16th to, in the worst case, 22nd place. That target ranking is actually listed as the performance indicator goal for ensuring a competitive business environment by 2026.

A strategic management decision, indeed — perfectly aligned with the so-called performance-based budgeting manual. But who exactly would receive this money? For the record, this budget line funds the Ministry of Justice, the Ministry of Economic Affairs and Communications (in its digital affairs capacity), the Patent Office, the Competition Authority and the courts. What are the actual chances that funding these institutions would improve our ranking in the index? What precisely is the money supposed to be used for?

How exactly would an additional €5 million improve Estonia's position in the Innovation Index? Maybe €1 million would be enough? Maybe no extra money is needed at all and we should instead reduce bureaucracy or cut funding to something that's actively undermining our competitiveness?

But under the logic of the so-called performance-based budget, all budget amendments proposed in the Riigikogu should look like this. Does anyone really want this kind of empty busywork? What for?

A more meaningful manual might help guide this budgetary space mission. I'm referring to the explanatory memorandum. While the explanatory notes have become somewhat more informative over time, there's still a long way to go. We need better alignment between the budget and the memorandum, as well as more precise figures showing what's behind each expenditure line in the budget. We also need a clearer statement of purpose for each expense and the ability to compare the proposed expenditure with similar spending in previous years. Making the explanatory memorandum more useful doesn't require a single legislative amendment, nor does it require more pages. On the contrary — it requires precision and clarity.

The one-pagers and budget dashboard developed by the Ministry of Finance are a welcome addition for getting a quick overview. After all, there are abridged and simplified versions of world literary classics. These are for those who don't have the time, energy or interest to delve deeper.

But dividing up €20 billion is not simple and it cannot be oversimplified. A rough overview is not enough for making decisions or offering meaningful opinions — those responsible are obligated to understand. Not through summaries, memos or quick briefings from officials, but through the actual documents themselves.

A well-structured state budget and explanatory memorandum — and the return of decision-making authority that has almost entirely been handed over to ministries — would allow for a meaningful debate during budget discussions on whether the proposed use of funds is reasonable and necessary.

This information isn't just important for the Riigikogu. It matters for the public too, for citizens and entrepreneurs who want to know how their taxes are being used and who may want to question those decisions when necessary. Without that, we won't fix the state's finances or get spending under control.

Transport and mobility

This year's annual report from the National Audit Office focuses on the field of transport and mobility — a sector we've audited nearly a dozen times in recent years. The current report serves to summarize those findings.

We examined how the state has progressed in fulfilling the commitments it has made and in reaching the objectives laid out in development documents since the time of the audits. These include, for example, completing the main road network to required standards by the end of 2030, reducing the number of traffic fatalities and serious injuries, surfacing high-use gravel roads owned by the state with dust-free coverings by 2030 and maintaining the condition of state roads at a "good" level. These are just a few examples.

We compared these goals and obligations to the funding allocated for them in the national budget strategy.

In short, we found that for the period 2026–2030, at least €1.35 billion will be missing to meet commitments and goals related to maintaining the condition of state roads, constructing state roads and railways and improving railway safety. This shortfall assumes that Estonia receives the hoped-for €1.2 billion from the EU's new funding period to complete the first stage of Rail Baltica. Every euro not received adds to the €1.35 billion gap.

Let me remind you that over the next two years, the state budget deficit is projected to reach the maximum allowed level of 4.5 percent of GDP and in 2029, it's expected to be 3.6 percent. It should be clear, then, that meeting the set objectives and fulfilling the state's obligations within the current timelines is not realistic given the limits of the national budget. Choosing between competing priorities will become even more important.

The situation is made more complicated by the fact that other sectors, too, require substantial funding — more by the ladle than by the spoon. Over the past year, we've conducted multiple audits in different areas of public life where we found cases in which the state is unable to fulfill its legal obligations due to a lack of funds.

For example, the Ministry of Social Affairs has failed to meet its legal obligation under the Social Welfare Act to ensure access to special care services. As a result, there is a severe shortage of placements and individuals often face a years-long, burdensome search for a suitable spot.

To illustrate: someone with an autism spectrum disorder waiting in the regular queue may, if the current situation continues, never receive a placement in their lifetime. I want to emphasize that providing the necessary support to those in need of special care is not something the state may do — it must do so. It's a legal requirement.

Here's another example, this time in the field of education. The Ministry of Education and Research, in its role as a school operator, has failed to ensure that all vocational students receive the support mandated by law. Ninety percent of vocational schools admitted they are unable to provide support measures or services to students with special educational needs, even though those students are legally entitled to them.

At the same time, the same ministry pushed through an extension of the mandatory school attendance age starting this fall, in an effort to reduce school dropouts after basic education. A new obligation for the public, even as the ministry fails to fulfill its old ones.

Many young people who need support services would gladly attend vocational school even without a legal obligation if the ministry would only fulfill its responsibility to make that possible.

It is becoming harder and harder to speak seriously about the state doing something new or offering more than it already does if doing so requires significantly more money. Increasingly, the central question is whether it's even possible to maintain infrastructure and public services at their current levels.

Some examples from the annual report. Keeping the condition of state roads at or near current levels would require more than €300 million in additional budget funds between 2026 and 2029 than what is currently planned in the national budget strategy.

Residents of rural areas complain that county public transportation schedules do not match their actual needs — departure times are inconvenient and routes are unsuitable. The funding allocated for county transport is increasing, from €72 million in 2024 to a projected €87 million in 2029, but that growth is merely enough to maintain the status quo.

Or consider traffic safety, where there's less and less money available each year to make dangerous road sections safer. In 2021, it was possible to rebuild 42 hazardous locations with the allocated funds, by 2025, only ten will be addressed.

Certainly, it's possible to ease some of these bottlenecks by finding savings within sectors or by adjusting current solutions to better meet people's needs. But even that doesn't always go well.

Take the example of the much-discussed nationwide unified public transport ticketing system and the coordination of train schedules with local and long-distance bus routes. That would help many people solve mobility issues. It wouldn't require a large financial investment, but it would require smart leadership. Yet nothing happens. The topic is rediscovered again and again, and the endless talk of how it should be done continues.

Other sectors have similar issues. At the beginning of this year, we completed an audit on the long-term care reform. The calculations showed that the goal of securing a nursing home placement at the cost of an average pension is clearly becoming unrealistic. It will be difficult even to avoid increasing the current cost share paid by the care recipient. That too will require significant funding.

My goal today is not to point out that there's a lack of money. That doesn't help and surprises no one. There is always a lack of money; needs and dreams exceed resources.

Unfortunately, many of the state's own development documents go along with the dreams and forget the limits. Choices are not made, priorities are not set and many are given hope, even though it's known that few will actually benefit.

Strategic documents and the goals they contain should not be a sweet lie. They should speak realistically about the state's priorities and present achievable choices. Without that, they're not worth drafting and only waste time. They breed disappointment and alienation. People have the right to dream, but the state has the duty to act, not to sell its people fantasies.

In discussions surrounding the performance-based state budget reform, a frequent claim is that our budget is now linked to strategic planning. I question both the depth of that link and its feasibility in light of current circumstances. It's a worthy aspiration, but far from reality.

The kind of state reflected in our strategy documents is one we could never afford to sustain or fit into our state budget. Never! Before we dream of integrating strategic planning with the national budget, we must first anchor our strategic goals in real life and actual capabilities.

The administrative area of the Ministry of Defense

A few weeks ago, auditors from the National Audit Office began work on the audit of the state's consolidated annual report for the 2025 fiscal year. Special attention will be paid to the Ministry of Defense and its area of governance — for obvious reasons.

During the previous fiscal year's audit, we uncovered serious issues in the operations of the Ministry of Defense, the Center for Defense Investment and the Estonian Defense Forces. There was a significant degree of confusion in both asset and expenditure accounting, not to mention the difficulty of locating documentation for economic transactions. This undermines trust at a time when defense spending is rapidly increasing and trust is exactly what should be reinforced.

The positive news is that both the Ministry of Defense and the Defense Forces have confirmed they are taking targeted steps to resolve these issues as swiftly as possible. That said, this will be a complex undertaking. We'll be able to report whether the problems have been resolved by early September next year. These were not isolated mistakes but rather deepening systemic issues that have remained unaddressed for years.

Let me emphasize that the problems we identified cannot be dismissed as mere accounting issues or as a matter of simply having "paperwork in order." We don't burden the public with technical details in our report — those are resolved as part of the audit itself. What we've highlighted is a structural disorder in operations that has financially measurable consequences.

One concrete example: a prepayment of €9.6 million made eight years ago to a contractual partner, which has since remained untouched. In effect, this has functioned like a long-term, interest-free loan at the Estonian taxpayer's expense. And all this while many sectors of public life are struggling with budget shortfalls.

While the problems related to the Ministry of Defense and its area of responsibility understandably drew broad attention, they were just one part of the audit. Once again, we had to note that it still takes government agencies about six months after the close of the fiscal year to determine how much unused budget money remains. Unfortunately, we also found that in transferring these funds into the next fiscal year, the requirements of the State Budget Act have been violated.

Under the law, unused budget funds may only be carried forward once. Yet, our audit found that three ministries transferred leftover funds into 2025 that had already been rolled over once from 2023. Moreover, the Ministry of Finance itself transferred €36.3 million more in government reserve funds than the limit set by the 2024 state budget allowed. That money is not authorized for use this year.

The National Audit Office made several recommendations in the report for the Ministry of Finance to ensure proper budget planning and implementation within its administrative area. In its response to the audit, however, the Ministry of Finance did not agree with this recommendation and stressed that while it must set regulations and provide guidance, the responsibility for accurate budget planning and execution lies with each administrative agency.

Yes, it is undeniably true that every ministry is responsible for the proper planning and use of its own budget. But the Ministry of Finance is tasked with overseeing and evaluating how state budget funds and resources are used. When problems arise, it is their duty to react and resolve them.

It is precisely the Ministry of Finance that is responsible for making the system work and that role cannot be watered down. Beyond setting rules and offering guidance, the ministry must also ensure rules are enforced and followed. Responsibility cannot be quietly brushed aside.

But as always, I also have good news to share with the Riigikogu. With the exception of the problems identified in the Ministry of Defense's area, bookkeeping across ministerial portfolios remains largely well-managed. This is reflected in the National Audit Office's overall assessment of the state's annual financial report. The audit confirmed that the state's 2024 financial statements fairly represent the government's financial position, the results of its operations and its cash flows for the reporting period in all material respects.

There is good reason to commend, among others, the work of the State Shared Service Center for its role in organizing public sector accounting.

Next year, the National Audit Office's annual report will once again focus on trends in Estonian healthcare, as it did three years ago. At that time, the minister of Health and Labor stated that we had reached a point where decisions could no longer be postponed. As we prepare next year's report, we will assess whether those so-called urgent decisions have indeed been made.

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