Estonia should introduce a property tax, improve spending efficiency and reduce child benefits for high-income earners while preparing for aging costs and defense needs, the report found.

The OECD also urged faster investment in AI, green transition measures, climate resilience and energy security, including grid and storage upgrades.

Estonia's economic recovery is expected to continue despite uncertainty stemming from geopolitical shocks, the OECD said.

The OECD report, which assesses the country's current economic situation and outlook, cited sharp increases in energy prices, supply chain disruptions and weaker exports as challenges Estonia must weather during its recovery.

Estonia should gradually consolidate its budget, the report said. This will help finance future healthcare, an aging population and national defense.

Measures to stabilize public debt could include greater spending efficiency and tax reforms, the report said. Adjustments to non-defense-related spending should begin as early as next year, the OECD found.

While planned hikes in excise duties and environmental taxes will help boost revenue, they will not be sufficient to fund defense and social spending, the report found, recommending a property tax.

Estonia currently levies only a land tax, subject to broad exemptions, generating relatively modest revenue. The OECD also highlighted the absence of a conventional corporate income tax, noting that only distributed profits are taxed.

Economic growth projected to reach 2.7 percent next year

The review recommended improving the efficiency of family benefits, meaning family policy should be less generous. Social spending has risen in recent years, family benefits are relatively high, and the OECD recommends ending child benefits for high-income earners.

Economic growth has resumed and is expected to accelerate from 0.5 percent in 2025 to 1.8 percent this year and 2.7 percent in 2027, supported by looser fiscal policy and investment. Although higher energy prices are adding to inflationary pressures, inflation is forecast to fall from 4.8 percent in 2025 to 4.1 percent this year and 2.6 percent next year.

The review noted that while artificial intelligence, or AI, uptake is high in Estonia's knowledge-intensive sectors, traditional sectors lag behind. Estonia should expand AI use in manufacturing and logistics while investing in workforce up-skilling and retraining, with a focus on practical AI skills, the OECD said.

According to the OECD, Estonia must do more to manage the green transition, adapt to climate change and capitalize on AI and digital technologies. The review says Estonia remains one of the OECD's most carbon-intensive economies and calls for a climate law, along with faster investment in grid resilience, energy storage and energy security.

Formed in 1961 to stimulate economic progress and world trade and headquartered in France, the OECD has 38 member countries, generally advanced, high-income, highly developed economies. Estonia joined in 2010.

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