"Drafting the state budget is starting to resemble a game of hide-and-seek," said Auditor General Janar Holm. "Ministries are disguising their budgets due to government cuts, and in these curtain-shrouded conditions, the government's only real way to manage the budget and the deficit appears to be across-the-board cuts. At times, it seems that for the Riigikogu and the government, it's easier to increase state revenue, partly through taxes, than to continuously and critically evaluate which expenses are truly necessary and affordable."

According to the National Audit Office, the state budget and its public reporting do not allow for a reasonable effort to determine which specific planned expenditures or investments were left undone or postponed. This can only be viewed in generalized terms at the level of budget program activities.

Between 2019 and 2024, unused funds from the annual state budgets ranged from €600 million to €2.2 billion each year, with most of that spending pushed to future periods.

More than half of the funds left unused last year were foreign aid, primarily from the European Union, and revenue from the sale of CO2 quotas. Still, nearly €600 million in state tax revenue designated for use in 2024 also went unspent. Almost all of it was carried over to be used in 2025.

While rolling expenditures forward and shifting funds between years is permitted, it further obscures an already opaque performance-based state budget and makes it nearly impossible for the Riigikogu to independently amend it without relying on government officials. The chancellor of justice has previously raised concerns about this issue as well.

Ministries do not see a problem

In 2024, the largest amounts of unused funds were in the areas of climate, transport, national defense and education. Notably, a significant share of the money allocated for the transition to Estonian-language education — €43 million — went unspent, along with funds intended to support businesses, research and development and digital advancement.

According to the ministries, the unused or deferred funds have no visible impact on the objectives or outcomes of their respective areas of governance.

Ministries cited several main reasons for why some of the budgeted funds remain unused:

• Some of the money is tied to obligations and awaits disbursement or accounting as an expense in the following year;
• Substantial one-time allocations were made to ministries, with it already being clear at the time of allocation that using the funds within a single budget year would be unrealistic;
• Many projects and activities span several years and do not fit well within the framework of an annual state budget;
• Allocating funds late in the year increases the risk they will go unused (for example, when money is distributed from government reserves);
• Procurements fail or deliveries are delayed due to issues within the ministries themselves or with third parties;
• When it comes to foreign aid, there remains a prevailing mindset that there's no rush to put it to use. In addition, money may go unused not because of the funding provider, but due to a lack of interest or slow processing of applications and documentation on the recipient's side.

"A clear example of how state budget allocations don't always align with actual implementation is the Ministry of the Interior's emergency siren project," said Auditor General Janar Holm. "In 2022, funding for the installation of warning sirens was granted through a supplementary budget, even though it was already known at the time that the money couldn't realistically be used within that year. The initiative started with political fanfare, but a functioning solution is still being worked on."

Desire to accumulate reserves one reason for unallocated funds

In response to the government's call to cut public spending, ministries have been intentionally leaving part of their state budget funds unused and rolling them over into the next year to maintain a financial buffer. The impact of this practice on the ministries' activities and outcomes is not being monitored, the National Audit Office noted.

"A key reason for unused funds has increasingly become the ministries' desire to build up reserves to cope with ongoing austerity measures, prepare for future spending cuts and maintain a financial cushion for unexpected costs and additional tasks for which no budget funding is provided," the audit office explained.

While a portion of the surplus arises from multi-year or delayed projects, there is no clear overview of these obligations.

Some of the funds left unused within a budget year are, according to ministries, already committed to various obligations and are simply awaiting disbursement or accounting in the following year. However, there is no unified data system that would allow for an accurate assessment of how much of the unused money actually falls into this category, the National Audit Office found.

"It's as if the state both lacks and has surplus money at the same time — and in fact, that's true. But right now, we don't know where there's a surplus and where there's a shortfall and this isn't being considered when drafting new state budgets," said Auditor General Holm. "In a situation where we are increasing investment in Estonia's security, the rest of the state's expenditures can't remain as inert as before. One option is to reassess critically whether all budgeted expenses should be locked in or whether some of them could remain flexible. According to the current state budget strategy, government sector spending over the next four years will exceed revenue by nearly €8 billion. There is no reason to believe this pressure will ease after 2030."

At the same time, state budget funds are being distributed too rigidly, both between ministries and within their sub-agencies. A large portion of state budget spending simply rolls forward from year to year without ministries or the Ministry of Finance critically evaluating whether the expenditures remain relevant or initiating a discussion, for example, on whether all fixed or indexed budget lines should continue as such.

According to the National Audit Office, budget allocations within ministries are largely automatic and previous spending patterns and monitoring generally play no visible role in that process.

While ministries' budget departments usually have a fairly good understanding of their spending, the National Audit Office stated that this knowledge appears to have little influence on how budgets are actually planned.

Ministry of Finance consciously minimizing its state budget role

The National Audit Office believes that excessive inertia in how state budget funds are requested, used and carried over has been encouraged by a deliberate decision made years ago by the Ministry of Finance to reduce its role in overseeing the substance of the state budget.

"The idea was to give ministries more responsibility and flexibility in planning and using their budgets, but in practice this has pushed the budgeting process further onto a well-worn path and reduced critical assessment of spending necessity," the audit office noted. "Altogether, this has deepened the trend of so-called defensive budgeting, which undermines the goal shared by the government and the Ministry of Finance to implement Estonia's performance-based budgeting model not just formally, but substantively, and use state funds effectively, strategically and without siloed thinking among government agencies."

The National Audit Office recommends that ministers adopt or strengthen the practice of requiring a substantive request before carrying over unused budget funds to the next year. Such requests should be guided by the ministry leadership's priorities and the goals of the ministry or subordinate agency.

For the minister of finance, the audit office recommends more clearly defining the Ministry of Finance's role in coordinating with ministries the amount of unused budget funds to be carried over into the next fiscal year. If necessary, the office advises initiating changes that would give the finance minister the authority to make the final decision on whether unused funds can be transferred forward.

The National Audit Office also recommends improving the analysis of budget surpluses — their scale, causes and impact — and using this information when making future budget decisions. To do so, it's necessary to determine how much of the unused funds are actually tied to obligations and how much represents money that was never intended to be used within the current fiscal year. This information should be collected and presented using a standardized methodology across all ministries.

"We recommend integrating this data into budget execution monitoring and using it to inform future budget decisions, including providing the information to the government during the budgeting process and, if necessary, to the Riigikogu," the audit office added.

--

Follow ERR News on Facebook and X and never miss an update!