Andrus Kaarelson: Sooner or later, cuts are inevitable

Over the past two weeks, we have seen that it is not the politicians of parliamentary parties — whose job it is — who are worried about a looming collapse in state finances, but rather civil servants from Eesti Pank and the Ministry of Finance, who are debating the sustainability of Estonia's public finances in the media. Something is very wrong with this picture, says Andrus Kaarelson.

Tax increases have not solved a lack of money in any country. Not even in countries richer than Estonia, where there is also constantly a shortage of funds to cover state expenditures. This is demonstrated by the "tax festival" carried out by the government over the past three years, during which new taxes were introduced and nearly 30 taxes and charges were raised. Has this reduced state spending or the budget deficit? Clearly not, as we are facing the deepest structural deficit in history in both this year's and next year's state budget.

At a recent meeting of party leaders, it became clear that parliamentary parties are not ready to make painful cuts that would put Estonia's crisis‑stricken public finances on a path to improvement. Unfortunately, several party chairs were still talking about lowering taxes while simultaneously increasing benefits. This is nonsense that will actually lead to even higher taxes. Prime Minister Kristen Michal did not even find time to attend the meeting of party leaders. This shows that Michal's talk of wanting to reduce the budget deficit is not credible — especially given that his government had sent to the Riigikogu a supplementary budget that increased state spending, a budget not supported even by former Reform Party finance ministers.

Deep concern over the unsustainable state of Estonia's public finances has been expressed by delegations from the OECD and IMF, the president of Eesti Pank, the Fiscal Council, and conscientious civil servants. The reason is that Estonia's national debt has grown very rapidly over the past seven years — from 9 percent of GDP in 2019 to 25.9 percent this year. Regrettably, we are on a trajectory where Estonia's national debt could double by 2030 and exceed 20 billion euros. That would be an alarming 39 percent of GDP.

In early June, two international organizations — the OECD and IMF — told us quite directly that Estonia's public finances are unsustainable. Yet we still have a chance to turn away from this path of decline and move toward a balanced state budget.

Regrettably, Estonia's public finances have turned toward ruin, and our former success story is fading into the annals of history. We have s