Madis Müller: why is Estonia's budget deficit a problem?

Madis Müller, President of the Bank of Estonia

According to the Ministry of Finance’s latest forecast, Estonia’s state expenditures will exceed revenues in the next four years to such an extent that the government will have to borrow more than two billion euros each year. This is if we continue with the taxes and tax rates that have been agreed upon so far and based on the expected increase in costs.

The expenses of the Estonian state are expected to reach 18.5 billion euros next year, and about every eighth euro spent will have to be covered with new loan money. This is clearly too much in a situation where, according to all assumptions, the economy is already recovering from the slump of the last two years. We have to admit that as a country we are conditionally living beyond our means.

Based on the spring forecast of the Ministry of Finance, the state’s revenues in 2024 are expected to be slightly more than 50% higher compared to five years ago. However, costs have increased by nearly 63% at the same time. Government sector expenses have already increased from 39% to more than 45% of GDP in five years. In terms of sector, the largest contribution to this growth has been spending on health care, national defense and the social sector, which have grown at a faster pace.