The Ministry of Finance predicts that next year the state budget deficit could reach 4.9 percent. A deficit means that the state spends more money than it receives. The deficit is usually covered by borrowing. According to European Union rules, the deficit must not exceed 4.5 percent.
If the deficit remains high, there are two options: either raise taxes or reduce expenditures. Borrowing more is not possible because the limit is already full. Annely Akkermann says that if the situation in the Middle East does not change, we must proceed with expenditure reductions.
Estonia's gross domestic product is approximately 44 billion euros. If the deficit remains at 4.9 percent, expenditures will need to be reduced by nearly 200 million euros. Akkermann emphasizes that the discussion is more about reducing expenditures rather than raising taxes.
Akkermann adds that raising taxes in the autumn is not possible for two reasons. Firstly, economic growth is very fragile, and due to the war, growth may worsen further. Secondly, no one wants to introduce significant tax increases before elections.
The Minister of Finance, Jürgen Ligi, says that a negative supplementary budget is currently not necessary. He states that defense expenditures are increasing and the tax burden is decreasing, which makes the budget very tense. Ligi stresses that tax increases are ruled out for the government.
However, Finance Committee member Aivar Sõerd says that the government should consider a negative supplementary budget. He says that the global situation may worsen and oil prices may rise. A negative supplementary budget means expenditure reductions.
The Ministry of Finance predicts that high energy prices will increase the state budget deficit. If energy prices remain high, economic growth will decrease and tax revenues will decline. If the risk scenario materializes, the deficit could increase to 5.5 percent next year.
However, the Bank of Estonia says that high energy prices could instead reduce the state budget deficit. Higher prices would increase tax revenues. The Bank of Estonia predicts that next year's deficit will be 4.4 percent.