OREANDA-NEWS. October 01, 2013. At session, the Government approved the state budget for next year, with the aim of encouraging a stable economic environment, ensuring the sustainability of public finances, and enhancing the welfare and standard of living of the people. The salary expenditure of governing areas will grow and the average pension will increase during the next year.

The situation in the global economy shows signs of stabilising, and the economic situation in Estonia remains moderately optimistic. The budget for 2014 permits an enhancement of welfare; however, the state has to be reasonable in increasing its expenditures. The current fiscal policy will continue to be followed, and the budget for next year will be kept at a 0.7 per cent structural surplus of GDP.

The volume of revenue for next year’s state budget is projected to be EUR 8 billion, which is EUR 333 million or 4.3 per cent more than is projected for the current year. Tax revenues will increase by 6.5 per cent in relation to the expected better proceeds; non-tax revenues will decrease by 8.3 per cent in relation to the decline of the volume of foreign funds.

The principles of the tax policy will remain unchanged – the tax system will remain stable, simple, and transparent, with as few exceptions as possible. The goal is to reduce the amount of tax revenue that remains uncollected and thereby improve the competitive environment. The tax burden will decrease by 0.3 per cent to 32.1 per cent in 2014, which is the lowest level over the last six years.

The debt burden of the public sector will be 10 per cent of GDP by the end of next year. This is significantly lower than the average debt load of the European Union.

State budget expenditures will increase by EUR 377 million or 4.9 per cent to EUR 8.06 billion. Budget expenditures will increase along with the expenditures of the RKAS by EUR 418 million to EUR 8.1 billion. Expenditures will increase in most areas of government.

Social and other benefits paid to natural persons will form 27.7 per cent or EUR 2.28 billion of the total volume of the state budget for 2014. Compared to 2013, the expenditure on benefits will increase by EUR 116 million, in particular with regard to pensions, II pillar pension contributions, education allowances, social tax paid for the recipients of social benefits, and the growth of the needs-based benefit for families. The state will pay a variety of social benefits at an average of EUR 1,768 per resident in 2014.

The faster-than-expected increase in average salary, on the one hand, and the decline in unemployment rate, on the other, enables pensions to be increased by 5.8 per cent, on average. It is the greatest increase in pension over the last six years. An average of EUR 240 will accrue in a year, which means that the pension will increase by EUR 20 each month. Additionally, the state will increase the income-tax-free minimum in such a way that the average pension will remain tax-free during the next year as well.

The Government will also raise the salary funds of all areas of government by 5.1 per cent. The ministers, in turn, can distribute funds for the salary increase in areas where the need is the greatest. In some areas it will be possible to exceed the salary increase as a result of the reforms undertaken.

For example, the structural reforms will enable the minimum salary for teachers to be raised by at least by 12 per cent, from the current EUR 715 to EUR 800. It is planned to implement the reform, which brings vocational education closer to the needs of the labour market, and to switch to such an arrangement of financing for vocational schools, where the employment of graduates, quality of teaching, and the schools’ efforts to reduce the drop-out rate are also taken into account. Also, the transition of universities to a new system of financing will continue.

The Ministry of Culture has the fastest-growing budget, which will increase by 21.1 per cent compared to the current year. The plan is to build a new hall for the Estonian State Puppet Theatre and update the stage equipment of the Vanemuise Theatre. The Ugala Theatre will be reconstructed, and this marks the point where the working conditions of all theatre houses will be modern. The Estonian National Museum is scheduled to be completed and opened by the summer of 2016. To support the art of words, the honoraria paid to Estonian authors, who write for the literary journals of SA Kultuurileht, will increase by 40 per cent, for example.

With the development of the network of Estonian foreign missions, the Government will continue to stand for Estonian interests, both in consular activities and promoting entrepreneurship. The priority in the development of the network of Estonian foreign missions in 2014 is opening an Estonian Embassy in Brazil. The creation of the embassy will contribute to more efficient activities by Estonia, both in this country and the wider region.

Steps will continue to be taken to reduce tax evasion. A total of EUR 3.2 million is planned for the development work on the information systems of the Estonian Tax and Customs Board, which are related to the reduction of tax fraud and the increasing of tax revenues.

More than half of the planned investments in the state budget belong to the administrative field of the Ministry of the Interior – this means rescue depots and police buildings, with new administrative buildings constructed in Parnu and Voru, for the Police and Border Guard Board, and the Rescue Board. The highest proportion of the total domestic security budget is intended for the salaries of people who ensure safety.

The defence budget will remain at the level of 2 per cent of GDP, to strengthen the defence capabilities of Estonia’s primary self-defence capability and NATO’s collective defence capability. Next year, three new barracks in Voru, Johvi and Amari, and one renovated building in Miinisadam, will be completed, with which the living conditions of all conscripts will be raised to a modern level. One rapid response infantry brigade will be fully armed, equipped, and manned, and the development of a second response infantry brigade will be continued.

The Government has set the goal of raising the quality of judicial proceedings and thereby also reducing the length of legal proceedings. The judicial reform, which was launched this year, will continue next year in the Tartu region. In 2014, the amount allocated for free legal advice will increase by approximately 20 per cent or to EUR 130 000.

All major cities will be supplied with clean drinking water by the end of 2014. Five million euros will be invested in the cleaning the seaside in Tallinn’s City Centre, Pirita, and Merivalja.

Also, the amendment to the Value Added Tax Act, aimed at reducing VAT fraud, was approved at today’s extraordinary session. Instead of the taxation of the self-consumption of passenger cars, it is planned to limit the deduction of the VAT paid when purchasing a passenger car, and goods and services for the car, as it is difficult to control the use of the self-consumption of passenger cars and it is used to reduce tax liability.

On 25 September, after the briefing, the Government shall deliver the state budget for 2014 to the Riigikogu. This will be followed by a political statement by the Prime Minister.
NOTE! A press briefing shall take place at the Ministry of Finance today at 12.00, where the Minister of Finance, Jurgen Ligi, will give an overview of the state budget and answer questions.