The Riigikogu passed next year’s state budget with 55 votes in favour and 40 against. The expenditure of the state budget for 2017 is 9.66 billion euro, which is 7.6 percent or 734 million euro more than in 2016.
Under the State Budget for 2017 Act (303 SE), initiated by the Government, state investments and the use of the European Union funds increase significantly, which supports economic growth. 961 million euro of the EU and other foreign support are planned in the state budget for 2017, and 81 million euro is planned for their national co-financing. The structural fund resources for 2014–2020 account for 60 percent, and agriculture and fisheries funds for 30 percent of the foreign support.
Altogether 1.67 billion euro have been planned for pensions in the budget. The average old age pension will increase by 20 euro, to 416 euro, and will remain exempt from tax also in the future. Next year, the state will pay additional support of 115 euro to pensioners who are living alone.
National defence expenses amount to 477 million euro in 2017. Additional 26 million euro have been planned in the budget for receiving the allied forces. In 2017, finances will also be assigned to the area of government of the Ministry of the Interior for developing the rapid reaction capability and for construction of the eastern border.
A number of proposals to allocate additional supports in several sectors had been submitted for review in the plenary for the third reading. Funds for raising the salaries of teachers and the salaries of kindergarten teachers were increased in the budget. As were funds for owners of school for the labour expenses of teachers, heads of school and head teachers, and for in-service training, school lunch and teaching aids. A significant support goes to the Estonian Agricultural Registers and Information Board. It is 22.4 million euro, the lion’s share of which accounts for transitional aid for farmers – 19.9 million euro. There are also additional allocations to families with many children, the health insurance fund, and a number of projects that need support. On the proposal of the factions, 4.1 million euro was distributed for local investments and supports.
The volume of these amendments is nearly 70 million euro. They will be covered from abandonment of the lowering of social tax, charging of additional excise duty on low-alcohol beverages, cancellation of the diesel duty rise, postponement of the fuel duty rise and abandonment of the rise in the VAT rate on accommodation services, additional dividends from Eesti Energia, and income tax on dividends 9.1 million euro.
A detailed survey of the revenue and expenditure of next year’s state budget is available on the web (303 SE).
Representatives of factions who took the floor during the debate characterised and evaluated the coming year’s state budget.
Representative of the Estonian Free Party Faction Andres Ammas said that next year’s budget was a strange, unprecedented case. “It has been patched together like a quilt – nice strips have been discovered and tacked together one after another. One likes the dotted pattern, the other the striped one, but everybody needs to be pleased. And so the budget has kept swelling, although this budget has been over-optimistic from the start, in the opinion of the Free Party.”
Representative of the Estonian Reform Party Faction Aivar Sõerd said that, undoubtedly, for the main part, the budget drawn up by the previous Government contains good things, the priorities have been set correctly. “Let us mention here for example the priority of military defence capability where defence spending will grow to 2.19 per cent of GDP. It is clear that the budget contributes to the subsistence of people, the economic security of families with children will improve, and the elderly will not be forgotten,” Sõerd said. He also mentioned the large-scale infrastructure investments in Tallinn, and road construction works and various projects in various places across in Estonia that will be launched next year. Activities related to carrying out the administrative reform are given priority in the budget. Money for increasing pensions, benefits and other state budget expenditures can only come from a growing economy. The growth of salaries cannot forever diverge from the development of the basic economic indicators and the growth of productivity. “One possibility of state intervention is to reduce the labour tax burden for undertakings,” Sõerd stressed. “However, the Reform Party Faction definitely cannot support a draft budgetary plan that projects growth in expenditure at the expense of a rise in the social tax rate.”
Representative of the Estonian Conservative People’s Party Faction Martin Helme noted that a number of things in next year’s state budget were very agreeable to the Conservative People’s Party. “I would particularly point out the increase of the subsidies to agriculture,” Helme said. He also highlighted the better funding of local governments, and the pay rise for teachers and rescuers. In Helme’s opinion, the expenditures are extraordinarily ill-considered and economically harmful to Estonia. “And in fact, I very much suspect that they will not bring in the revenues that are hoped for.” “All things considered, we cannot support this budget.”
Representative of the Pro Patria and Res Publica Union Faction Siim Kiisler said that two keywords of the debate over this budget have clearly been, on the one hand, economic growth and, on the other hand, taxes. “We are speaking of economic growth in terms of absolute growth; then we speak of this 1%, and in this context we sometimes do not notice that our gross domestic product per capita has grown fairly well in previous years.” In Kiisler’s opinion, next year will be groundbreaking in terms of the budget where family allowances will grow as of 1 July. “Many people may not yet perceive that if a family with three children will receive additional 500 euro per month, a family with four children 600 euro per month, but for example a family with seven children will receive an allowance of 1000 euro per month, then it is a totally new situation,” Kiisler noted. He attached importance to creating a sense of confidence for families so that they can afford a third child, a fourth child and so on. “When families have more children, then this in turn contributes to economic growth.”
Representative of the Social Democratic Party Faction Kalvi Kõva stressed that the aim of next year’s budget is to make Estonia more united, stronger and economically more successful, and to reduce inequality both between people and between regions. It also means a well-defended state with strong alliance relationships with NATO and the European Union, as well as equally strong internal security. ““Caring” is definitely an important keyword of next year’s budget. The coalition will increase the income of low-earning people and support families with children. Families with children and children are crucial for ensuring economic growth for us in a long-term perspective.”
Representative of the Estonian Centre Party Faction Kersti Sarapuu highlighted that next year’s state budget contains funds for payment of transitional national aid to farmers to the extent of 19.9 million euro. Besides, 2 million euro are provided for breeding to pig breeders, and 0.5 million for increasing state participation in extraordinary crisis aid. “I also consider finding additional funds for the teachers’ salary fund a very important and fundamental step. In the support fund of the Government, education expenditure will be increased by 8.6 million euro. This amount contains nearly 7 million euro additional funds for this sector,” Sarapuu said. “Only if we bring additional money to the education sector will we achieve the target of the average salary of teachers amounting to 120 per cent of the average salary in Estonia in 2019.” She added that the coalition agreement provided for motivation of local governments to raise the wages of kindergarten teachers to the minimum wage rate for school teachers, and four million euro are planned for that in next year’s state budget.
The Riigikogu approved with 55 votes in favour (37 against) the Act on Amendments to the Income Tax Act, the Social Tax Act and Other Acts (302 SE), initiated by the Government.
Under the Act, employers will have the possibility to compensate the costs incurred for the promotion of employees’ health to the extent of 100 euro in a quarter without it being taxed as a fringe benefit. The amendment enters into force in 2018, and it is established for a term of five years. The Act also ensures that the average pension is exempt from income tax in 2017. For that, the increased basic exemption for pensions is raised to 2832 euro per year. According to the Act, the social tax exemption for sickness benefit paid for the second and third day of sick leave enters into force as of 1 January next year. For the purposes of equal treatment, the Act extends the range of persons who are entitled to income tax exemption in the case of allowances and benefits paid when a regular official, assistant police officer, volunteer rescuer or person engaged in emergency situation work is killed or dies, or his or her work ability decreases.
In the course of the proceedings on the Act, several amendments had been introduced. The most important of them are the reform relating to the income tax, keeping the VAT rate on accommodation services at nine per cent, the raising of the excise duty rates for low-alcohol beverages, and the changes in fuel duty rates. The Act keeps the social tax rate at 33 per cent.
Representatives of factions who took the floor during the debate presented their positions on the “cluster Act” on tax changes.
Representative of the Social Democratic Party Faction Kalvi Kõva presented his positions on the reasons as to why hasty amendments concerning taxes had been made to the Bill during the proceedings. “We were in a hurry, and the reason why we were in a hurry was that the new coalition agreement was signed less than a month ago. And if we had not made these amendments at a quick pace, we would have received different criticism today: “They are in power but they do nothing,”” Kõva said.
Representative of the Pro Patria and Res Publica Union Faction Priit Sibul said that within the framework of this Act they wished to realise the reform of basic exemption, that is, to significantly increase the basic exemption limit for the low and medium salaried people. “This reform will reduce the tax burden on labour particularly for low and medium salaried people who are too highly taxed in Estonia compared with other countries, and who struggle to make ends meet and stay in competition,” Sibul noted. He added that raising the basic exemption to 500 euro for people who earn up to the average salary would help working people to manage with their salary and not have to depend on state benefits.
Representative of the Estonian Conservative People’s Party Faction Martin Helme continued where the previous speaker had spoken of the basic exemption. “I would draw attention to the point that the basic exemption will not rise next year in the way that is being conjured up for us here. All that is being spoken of, the great incentives, will remain in 2018. The tax rises that have been fervently proposed to us here in a hurry, at a few hours’ notice and in violation of procedures, have been planned exactly in the same way. The majority of them will remain in 2018, be it alcohol or fuel duty,” Helme said. He said that it is totally incomprehensible why it is necessary to push them through in December 2016, why normal proceedings could not be conducted on them in the first months of next year.
Representative of the Estonian Free Party Faction Andres Herkel said that this Act was indeed the greatest disappointment of the new Government, and the Free Party Faction would also vote against it. “We find it difficult to trust tax changes that have been made in such haste, with so poor analysis and with such a sloppy procedure,” Herkel said.
In the opinion of representative of the Estonian Reform Party Faction Remo Holsmer, this Act would definitely make the Estonian tax system more graded and more complicated. Materials submitted to the Finance Committee previous week had revealed that the labour tax burden would also rise in Estonia. “The raising of labour taxes, the increasing of gas duties, and progressive income tax proposed in this Bill will definitely not contribute to economic growth,” Holsmer said. He explained that the Government had declared economic growth to be one of its most important priorities, but if we add here at least three new taxes which are not yet included in this budget – the tax on banks, the tax on automobiles and the sugar tax – then all these changes as a whole will definitely not benefit the competitiveness of Estonia. “In view of the above, the Reform Party Faction does not support this Bill, and we have an opportunity not to pass this Act which is the worst of the year,” Holsmer said.
Representative of the Estonian Centre Party Faction Mihhail Stalnuhhin justified the facts related to the budget. “If you want progress then willy-nilly you must change one thing or another. We did not have the opportunity to wait. We could not have let everything come to a standstill by next year. Complaints are justified of course, this is clear, and I understand it. But the question is: what is the price of the other way? I think that it is much harsher,” Stalnuhhin said.
The Riigikogu passed with 78 votes in favour (5 against) the Resolution of the Riigikogu “Removal of Members and Appointment of New Members of the Supervisory Board of the Foundation Environmental Investment Centre”” (352 OE), submitted by the Environment Committee.
The Resolution provides for removal of Aivar Kokk, Kalvi Kõva and Mati Raidma from the Supervisory Board, and the appointment of Kalle Muuli, Rainer Vakra and Meelis Mälberg as members of the Supervisory Board.
Substitute member Tiina Kangro took her oath of office before the Riigikogu.
Video recordings of the sittings of the Riigikogu can be viewed at https://www.youtube.com/riigikogu
(NB! The recording will be uploaded with a delay.)
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