According to the Ministry of Finance, following the adoption of the supplementary budget, next year's budget deficit is now expected to be around 4.8 percent. That is 0.3 percentage points above the level permitted under fiscal rules.

This means that, based on the latest information, the government will need to either reduce spending or increase revenue by €150 million during this fall's budget negotiations.

However, if the goal is to bring the deficit down to 4 percent, as the Reform Party's leadership recently proposed, the government would need to cut spending or raise revenue by €400 million for next year, the Ministry of Finance said.

According to Eesti 200 politicians, however, the Reform Party's target is not realistic. Interior Minister Igor Taro said, for example, that the Reform Party's statement on reducing the deficit amounts to little more than empty rhetoric and that people should not be given promises without a credible plan to back them up. Taro said that if such an ambitious target is set, politicians should also honestly explain where they intend to make cuts.

"If you want to send a truly responsible message, you also have to explain the other side of the equation. [...] The main problem in the last election was exactly the same: the other side of the equation wasn't explained. Politicians said we would strengthen national defense or do other things, but then society suddenly discovered that all of this comes with a price," the interior minister said.

Taro said it is, in fact, very difficult to talk about cutting €400 million without also reducing defense spending.

"Did they also decide that we should cut defense spending, for example? Without that decision, there is really no point in talking about a specific percentage, because our entire deficit is tied to enormous defense expenditures," Taro said.

Taro: The Ministry of Finance and Bank of Estonia often get it wrong

Both the Ministry of Finance and Bank of Estonia forecast before the supplementary budget was adopted that next year's budget deficit would be around 4.9 percent. The central bank published its forecast two weeks ago.

Based on those forecasts, the government would need to identify €150 million in spending cuts or additional revenue this fall to comply with fiscal rules.

Igor Taro said, however, that forecasts should not be treated as absolute fact.

"Having previously served on the supervisory board of the Bank of Estonia before becoming a minister, my concern has been that the Ministry of Finance has tended to overstate the negative. Its forecasts have been extremely conservative and at times we have squeezed society more than we should have," the interior minister said.

According to Taro, policymakers should remain realistic and continue their work but should not rely too heavily on forecasts. He said that taking a forecast too literally risks making excessive spending cuts.

"Looking back, we have seen through the rearview mirror that the situation turned out to be somewhat better than the forecasts suggested. Yes, it's good to know that our budget deficit in the past two years was significantly smaller than expected, but in the meantime we may have caused people more hardship than necessary. I don't think we should repeat that mistake by imposing too much pain again, only to find out afterward that the situation was not actually as bad as we feared," Taro said.

Taro was referring to the situation a year ago when the summer economic forecast showed that the budget deficit had fallen by €200 million compared with projections made in the spring.

Tsahkna: No point trying to be holier than the Pope

Foreign Minister Margus Tsahkna also said that the Reform Party has not explained how it would cut spending or increase revenue by €400 million.

Although the Reform Party has not proposed doing so, Tsahkna, like Taro, said Eesti 200 would not support reducing defense spending.

"I don't think we need to be more Catholic than the pope," Tsahkna said, referring to the European Union's fiscal rules, which allow a budget deficit of up to 4.5 percent — higher than the Reform Party's proposed target.

"As for the European Union's fiscal rules, Estonia's debt burden remains low compared with that of other EU member states," he added.

Toomas Uibo, head of Eesti 200's parliamentary group, likewise said he fears a 4 percent deficit target is not realistic.

"When people say the Estonian state is bloated, that simply isn't true," Uibo said.

Justice and Digital Affairs Minister Liisa Pakosta also said she first wants to see how the Reform Party would substantially reduce the deficit without cutting defense spending.

Pakosta said it is also critically important for Estonia to carry out a zero-based budgeting review, something the government has so far failed to do. While ministries have achieved some savings through their own zero-based budgeting projects, Pakosta said such a review cannot be conducted ministry by ministry.

"The idea behind zero-based budgeting is that the entire government examines at the same time where activities overlap or where programs have become outdated. Looking at a single ministry won't reveal functions that are actually being carried out simultaneously by two or three others. A zero-based budgeting review has to be conducted across the entire government at once and there is a well-established international methodology for doing so that has not been used at the national level in Estonia," she said.

Pakosta said the main reason such a review has not been carried out is that Finance Minister Jürgen Ligi (Reform) has opposed this kind of cross-ministerial approach.

"For example, oversight of local governments is handled by both the Ministry of Regional Affairs and Agriculture and the Ministry of Justice. Our proposal is that only the Ministry of Regional Affairs and Agriculture should be responsible for it. There are many cases where multiple government agencies are working on the same issue. Unfortunately, that doesn't just waste taxpayers' money — it also slows down other processes, because agencies end up arguing with one another while people are left waiting for results. That isn't reasonable," Pakosta said.

Prison rental agreement expected to yield €50 million next year

Asked how she believes the government could find €150 million in additional savings or revenue this fall if needed, Pakosta said she has already identified additional revenue within her own area of responsibility.

According to the minister, leasing out Tartu Prison is expected to generate about €50 million in additional revenue for the state budget next year.

"That is money coming into Estonia and because the salaries will be paid in Estonia, the tax revenue will also remain here," Pakosta added.

--

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