It seems to me that our mood is now somewhat better and more optimistic than it was a year ago when we spoke at the "Tuulelohe lend 2025" conference and said that nothing much could be foreseen, planning was impossible, a tax circus was underway and the security situation was not good either.

At present, we feel safer in the Baltic Sea region, but geopolitical uncertainty and turbulence have increased because of the war in Iran.

Looking back at the past year, it began on a worrying note. Political indecision and erratic communication set off a tax circus. The economy contracted, inflation increased and foreign investment began looking for ways to leave the country. And when people were further frightened by talk of a state budget deficit and a lack of funds in the public sector, consumer confidence and willingness to invest fell to one of their lowest levels in years.

A positive turn came in the second half of the year. In government, common sense began to prevail. Thanks to the Economic Growth Council established alongside the government to reduce bureaucracy, constructive dialogue began between the government and employers. The tax circus was brought to an end and the announced tax truce had an immediate effect on the economy: in the third and fourth quarters we once again saw economic growth after a long time.

What can be concluded from this? That economic development likes peace and quiet. The more balanced the state's behavior, the better entrepreneurs feel and the more confident consumers become. When calm arrives — in other words, a tax truce — the economy also begins to grow.

But from the state's perspective, one could still ask whether new taxes and confusion were needed at all if stability brought economic growth and the state budget was filled on the basis of the existing tax burden. Last year, tax revenue was €1.5 billion higher than the year before.

The economy did return to growth, but we should not let that deceive us. Our structural problems remain, and they are:

1. Low productivity and weak GDP growth.
2. The growing share of the public sector in the economy, along with rising budget deficits and government debt.
3. A shrinking working-age population.

What should be done? What could be the first steps? How can Estonia's economy be guided into the top tier? I propose three directions.

State reform and reduced public sector role

Estonia's success is built on the enterprise of its people, the privatization carried out in the 1990s, respect for private ownership and economic and competitive freedom — not on subsidies. With each passing year, however, more and more businesses seek to operate at the expense of the state budget rather than on a market basis. This is not a sustainable model of development and creates market distortion.

If the economy is driven more by the state budget and less by exports and investment, this kind of a model cannot function in the long term because state budget expansion that outpaces economic growth cannot continue indefinitely. The number of public sector employees must be reduced and the functioning of the state must be made more efficient. The number of local governments could also be smaller.

In the early 1990s, the state sold 300 companies within just a few years. Over the past decades, the state has expanded and the number of state-owned companies has increased or their role has changed. At present, the state and local governments own more than 200 companies. Not just a few of them, but most could be privatized or listed on the stock exchange.

There is probably no need to revive the Privatization Agency again — ministries and investment banks are capable of handling the preparation and sale — but the second wave of privatization of state-owned companies could certainly be released. By this I mean companies or organizations in the economic, social, healthcare and education sectors — essentially across all fields. Rapid privatization of state-owned enterprises would give the economy new momentum.

The state's share of the economy must decrease, not increase. Unfortunately, we are seeing the opposite: Enefit Green has been nationalized and in the waste management sector there are attempts to take over the market through municipal ownership. We must clearly stand against this.

Secondly: strong capital market and foreign investments

A hallmark of a developed country is a functioning capital market. At present, the Nasdaq Tallinn Exchange belongs to the group of frontier markets and its capitalization is only about 12 percent of GDP. In developed countries, the figure is at least 50 percent. Imagine if Wise and Bolt were to list on Nasdaq Tallinn — that alone would increase capitalization to nearly €20 billion.

Companies owned by the state should be privatized either directly or through the stock exchange. This would bring capital, foreign investment and new growth to Estonia. Perhaps then Estonia's pension funds would also begin investing in the stock exchange and in the Estonian economy.

Third: Market-based economic policy and a conducive green transition

Electricity bills for February will arrive this week — not only for households but also for businesses. Not only in Estonia, but in other countries as well. It depends on the country, but the numbers on the final line of those bills can differ severalfold. Unfortunately, not in Estonia's favor.

Energy is not only an issue of economic competitiveness; it is a matter of national competitiveness, security and independence. Over the past 15 years, through our own decisions, we have reduced Estonia from an energy-exporting country to an energy-importing one. We have made ourselves energy-poor. The so-called green taxes — primarily ETS1 and ETS2 — have accelerated this energy hunger and are in essence little more than taxes determined on the market.

A month ago, I looked into the matter and saw that 90 percent of emissions allowance trading is in the hands of banks. This means financial speculators control the movement of allowance prices. That makes companies' cost bases unpredictable and reduces their willingness to invest.

My position is simple: the energy sector must operate on market principles while ensuring security of supply and a competitive price.

The next challenge to Estonia's competitiveness is already on the way — the European Union's nature restoration initiative. In practice, this means filling in land drainage ditches, flooding land and driving animals out of barns, eliminating high-tech large-scale farms. If energy policy has already led us to the point where we can no longer keep ourselves warm and supplied with electricity, it is not impossible that the same could soon happen with food if we are no longer able to feed ourselves. Food security is one of the most important components of real security.

Estonia's most important natural resources are food, timber and mineral resources. Our current and future economy rests on them. We do not have to import everything. We have our own natural advantages and we must put them to use. If we are able to combine science with agriculture, technology with food production, we will be the winners.

From the outside, it appears that we are moving from the status of a developed country toward becoming a periphery, even though our ambition should be the opposite — to belong among the world's developed and competitive economies. That is why I say clearly that Estonia's economic policy must be as bold, radical and pragmatic as it was in the 1990s. Fine-tuning will not take us forward.

I am convinced that reducing the role of the state and state capitalism, privatizing companies fully or through the stock exchange, strengthening the local capital market and applying market principles in energy, industry, agriculture and economic policy more broadly will create the conditions for a new phase of economic growth in Estonia.

We will soon begin drafting the employers' manifesto again, in which we will present political parties with specific proposals that should be implemented to strengthen Estonia's competitiveness.

A year and a half ago, we acquired a company operating in Poland. I was deeply impressed by how proud Polish entrepreneurs were of their country. I am equally proud of Estonia and I want us to have reason to feel that pride in the future as well.

The commentary is based on a speech delivered at the economic conference "Tuulelohe lend 2026."

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