The Fiscal Council says that current defense targets can be achieved with a smaller deficit than 4.5% of GDP. Therefore, increasing the deficit is not justified.
The summer forecast from the Ministry of Finance shows that the 2025 deficit will be smaller than expected. However, this does not mean that the state's finances will improve. According to the forecast, the deficit will grow to 4% in 2026 and 3.8% in 2027. The deficit is growing because defense expenditures are increasing rapidly.
The Fiscal Council says that if the deficit grows larger, significant changes will have to be made later. "If the deficit is smaller than 4.5%, increasing other expenditures is not justified," says the council.
A larger deficit also increases debt and interest costs. By 2028, Estonia's debt will reach nearly 30% of GDP.
The Fiscal Council must provide an assessment of the state's finances. The council consists of six members. The chairman is Peter Lõhmus.
Peter Lõhmus says that increasing the deficit is only allowed for defense expenditures. Otherwise, the deficit should be kept lower.
The Fiscal Council says that Estonia's economy is growing slowly. The Ministry of Finance believes the economy should grow faster.
Lõhmus says that Estonia's economy is already close to its potential. Therefore, fiscal stimulus will not boost the economy.
The Ministry of Finance follows the rules of the European Commission. Fiscal Policy Director Raoul Lättemäe says the Fiscal Council's assessment may be correct.
In 2029, major changes will have to be made because the deficit must not exceed 3% of GDP. This is difficult because defense expenditures must come from revenues.
Deputy Chairman of the Fiscal Council Viljar Arakas says that then either spending must be reduced or taxes increased. The main question is how to direct defense expenditures to Estonian industry.