OREANDA-NEWS. September 19, 2011. At its meeting, the cabinet decided that in accordance with the state’s conservative budget policy, the budget for 2012 would be drafted with a deficit comprising 2.1% of GDP.

The deficit will primarily be the result of the use of revenue generated from the sale of Kyoto quota units during the year and the restoration of payments to second pillar pensions. “The deficit in next year’s budget is basically down to two things,” Prime Minister Andrus Ansip explained: “The Kyoto period comes to an end next year, but at the same time we have to spend a large amount of the money we raised last year in 2012. Investing it will affect the balance of the budget by 1.3% of GDP.”

According to the prime minister, the other factor amplifying the deficit is that the government is restoring state payments to second pillar pensions in full in 2012. Also, there has been a marked rise in the expenditure of the Health Insurance Fund and the cost of social benefits. The budget foresees total expenditure of 6.55 billion euros and total income of 6.1 billion euros. The state’s operating costs will only increase as a result of legislation or its international obligations. Personnel costs will not rise during the year. The government decided on principle last week that it would maintain the salaries of ministers and senior public officials at their current levels. Pensions, on the other hand, will increase during the year by 4.4%, with payments exceeding 70 million euros in total.

The level of investments made by public departments is set to rise in 2012. For example, the financing of roadworks will increase by 17.7 million euros, and 17.5 million euros will be allocated towards the purchasing of a multifunctional vessel for the state. In accordance with the existing agreement, spending on defence will remain at the level of 2% of GDP, which will enable a higher volume of defence-related investments. Almost 250 million euros will also be invested from revenue generated in the sale of emissions quotas and via Riigi Kinnisvara AS. The Ministry of Finance will forward the draft budget to ministries by 16 September. The government will continue to debate the budget at its session on 22 September, after which the budget is planned to be submitted to the Riigikogu.

The government was guided in the drafting of the budget by conservative budget principles and strove to ensure that the deficit would remain below 3% of GDP. It has announced its objective of achieving balance in the budget in 2013.