At the first reading of the State Budget for 2021 Bill (254 SE), initiated by the Government, the Minister of Finance Martin Helme gave a brief overview of the current economic situation and the background of the budget submitted.
“The forecast of the Ministry of Finance is based on the assumption that the spread of the virus will be contained during the next year. The forecast takes into account the worsening of economic conditions in the autumn and winter period. We forecast unemployment to increase to up to ten per cent at the end of this year and the beginning of the next,” Helme explained. He added that economic downturn would remain low in the second half of this year. “Economic growth will recover and the labour market situation will begin to improve and unemployment will begin to fall only in the second quarter of next year, according to our forecast. As regards 2021, forecasts vary widely, depending largely on assumptions about the duration of the restrictions related to the corona crisis and the moment of recovery of economy, as well as the situation of our main economic partners.”
“According to the main scenario of the forecast, Estonia’s GDP will shrink by 5.5 per cent this year and will grow by 4.5 per cent next year, falling short of the level of the end of 2019 by about one per cent at the end of 2021.“
“Due to the exceptional situation, the exemption clause in the State Budget Act will be applied and the national budget rules will not apply this year and the next,” Helme said.
Next year, the expenditure of the state budget will amount to nearly 13 billion euro and the revenue will amount to nearly 11 billion euro. The gap is due to necessary investments in the restoration of economic growth, due to which the amount of expenditure will exceed the revenue growth.
The volume of government sector investments will amount to approximately 1.9 billion euro next year. More than 1.4 billion euro of EU support is planned in the state budget for 2021.
Tax revenue will increase to 9.3 billion euro next year compared to the approximately nine billion euro this year. Tax burden will fall to 32.7 per cent of GDP next year compared to the 33.8 per cent this year.
According to the forecast, the state treasury will be able to assume additional obligations of 2.4 billion euro with loans and bonds as necessary in 2021. Thus, the Estonian government sector debt burden may grow to 6.6 billion euro, that is, 23.6 per cent of GDP next year.
The next year’s state budget is based on ordinary rules and takes account of the exceptions due to the crisis. Next year, the government sector budget is projected at a nominal deficit of 6.7 per cent of GDP and a structural deficit of 6.6 per cent.
The aim is that by 2024 the government sector structural budget deficit would decrease to the level permitted by the ordinary rules – 2.5 per cent of GDP nominally and 1.3 per cent structurally.
For the second year in a row, the state budget is activity-based in respect of the areas of government of ministries, because the state budget has a new structure from 2020. Aside from the earlier budget broken down by expenditure, the state budget consists of programmes managed by ministers. This means that the Government will set deliverables for the programmes and, to achieve them, state authorities will provide services the quality, volume and price of which has been determined in the state budget.
The representatives of factions took the floor during the debate. They analysed and evaluated the Bill on next year’s state budget.
Maris Lauri (Reform Party) said that no investments were shown in the budget. “We have been told that the nearly-two-billion-euro deficit arises from investments. It is a lie. Because there are no such investments. Investments amount to less than a billion in the state budget. This includes investment supports granted to local governments and various authorities. At the same time, a considerable part or around half of the investments planned in the state budget will be covered from the European funds of this financial period. That is, the loan has not been taken for investments as they are constantly trying to tell us.” The budget deficit arises from covering current expenses. The Government is lacking a vision of how to manage in the future. Borrowing money does not solve problems. There is no sense of responsibility in the budget. On behalf of the Reform Party Faction, Lauri moved to reject the Bill on next year’s state budget.
Indrek Saar (Social Democratic Party) said that the Government’s regional choices deepened the gap. “In the first place, care has been taken to see to it that the big and strong could strengthen their position in the crisis and only then have the smaller and weaker been thought about. The health insurance problems arising from coronavirus have not been solved. Unemployment is rising, which is aggravating social tensions, and poverty is increasing. Several allocations in the budget are questionable in the complex situation that has emerged. Elderly people who need help have been forgotten. The freezing of teachers’ salaries was like a cold shower. Farmers have been left without support. There are opportunities to make use of the situation that has emerged and to solve the problems that have arisen in society, but the opportunities have not been used. The Social Democratic Party Faction also moved to reject the Bill.
Kai Rimmel (Estonian Conservative People’s Party) pointed out a number of positive aspects of next year’s state budget. They concern the extraordinary pension rise for pensioners, as well as the construction of four-lane highways and the improvement of the condition of local roads and the improvement of the condition of the hospital network. Allocations have also been made to strengthen the national defence capability and internal security. She welcomed the increase of research funding and the allocations to improve the teaching of the Estonian language.
Kersti Sarapuu (Centre Party) said that it had become a practice for the opposition to criticise the state budget in the course of the deliberation. She considered it expedient and necessary to use the loan money to stimulate the economy and to improve the people’s standard of living regardless of the increase in the debt burden. Sarapuu also welcomed the extraordinary pension rise. Research funding as one per cent of GDP has been planned not only for next year but also for years to come. In her opinion, unfortunately, not everyone’s problems can be solved in a complicated economic situation.
Sven Sester (Isamaa) thinks that next year’s budget prioritises tax peace, and responsible budget policy, which helps move towards a balanced budget. He said that fixed costs were not going to be covered from loan money. He noted that it was important to increase economic competitiveness in order thereby to ensure the covering of daily expenses through economic rise. Sester attached importance to the investments to be made in defence and security. He specifically pointed out maternal pension in the pension rise. In Sester’s opinion, it is also important to improve the teaching of the Estonian language in Russian-speaking schools.
The Estonian Reform Party Faction and the Social Democratic Party Faction moved to reject the Bill on the coming year’s state budget at the first reading. The result of voting: 40 votes in favour and 53 against. The motion was not supported. The first reading was concluded. The deadline for submission of motions to amend is 5.15 p.m. on 2 November.
Three more Bills passed the first reading
The Bill on Amendments to the State Budget for 2020 Act (252 SE), initiated by the Government.
According to § 43 of the State Budget Act, in order to amend the state budget without amending the total amount of funds, the Government of the Republic may initiate a draft State Budget Amendment Act not later than two months before the end of the budgetary year.
Considering that the State Budget for 2020 Act was prepared in the autumn of the preceding year and some of the funding needs have changed, it is expedient to initiate an amendment of the state budget to achieve more effectively the aims set by state agencies. The Bill reflects 85 amendments in total.
The Bill on Amendments to the Money Laundering and Terrorist Financing Prevention Act and Other Acts (restructuring of the Estonian Financial Intelligence Unit into a governmental authority) (259 SE), initiated by the Government.
The Bill will make the necessary amendments to the legislation, so that the Financial Intelligence Unit operating as a structural unit of the Police and Border Guard Board will be transferred to the area of government of the Ministry of Finance as an independent governmental authority from 1 January 2021.
The legislative amendments provided for in the Bill concern the status of the Financial Intelligence Unit as a governmental authority and in particular the availability of the information necessary to prevent money laundering and the financing of terrorism and the ensuring of legal certainty upon the distribution of information to other authorities. In addition, the Bill specifies the right to sign the agreements concluded before 1 January 2021 and administrative acts.
The purpose of the Bill is to ensure that the Estonian Financial Intelligence Unit as a governmental authority can exchange information and cooperate with other authorities in Estonia and abroad largely on the same bases as it has been doing until now while the Financial Intelligence Unit has been a structural unit of the Police and Border Guard Board.
The Bill on Amendments to the State Pension Insurance Act (253 SE), initiated by the Government.
The Bill concerns an increase of pensions through the base amount and the pension supplement granted for rearing children, and the rate of national pension will be increased as well. The purpose of the amendment is to decrease poverty among the elderly and to raise their subsistence and welfare.
According to the Bill, the base amount of the national first pillar pension will be increased by additional 16 euro on 1 April 2021 and at the same time the pension supplement for rearing children will be increased from the amount of one time the value of a year of pensionable service to the amount of 1.5 times the value.
The explanatory memorandum notes that the raising of the base amount of pensions will concern about 320,000 people. According to the data of the Social Insurance Board, in 2019, approximately 203,300 pensioners received parental pension (pension supplement for children) for 428,600 children, thus a person receiving parental pension has 2.11 children on the average. The Bill will increase the rate of national pension by 30 euro and this will concern more than 3000 people.
During the debate, Helmen Kütt (Social Democratic Party), Aivar Kokk (Isamaa), Marika Tuus-Laul (Centre Party) and Urmas Espenberg (Estonian Conservative People’s Party) took the floor.
Justice of the Supreme Court Urmas Volens took his oath of office.
The sitting ended at 8.53 p.m.
Photos of the sitting (Author: Erik Peinar, Chancellery of the Riigikogu)
Video recordings of the sittings of the Riigikogu can be viewed at https://www.youtube.com/riigikogu.
(Please note that the recording will be uploaded with a delay.)
Riigikogu Press Service
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