Today, Prime Minister Jüri Ratas made a political statement before the Riigikogu in connection with the submission of the State Budget for 2021 Bill.
Ratas said that the state budget Bill submitted reflected the Government’s comprehensive plan how we could overcome the corona crisis smartly, securely and feasibly. “Next year, we will continue the measures that will take us forward in four courses of action: we need to stay healthy, we must help those who need it the most, we must speed up the smart development and we must continue investments into the future,” Prime Minister explained.
Ratas noted that, with the next year’s budget, we would strive for structural budget balance, based on the economic situation and outlook. Therefore the state budget for 2021 is based on ordinary rules and it takes into consideration the exceptions due to the crisis. Next year, the government sector budget is projected at a nominal deficit of 6.7 per cent and a structural deficit of 6.6 per cent of GDP.
“Our aim is that by 2024 the government sector structural budget deficit would decrease to the level permitted by the ordinary rules – 2.5 per cent of GDP nominally and 1.3 per cent structurally,” Prime Minister said.
Next year, the expenditure of the state budget will amount to nearly 13 billion euro and the revenue will amount to nearly 11 billion euro. The gap is due to necessary investments into the restoration of economic growth, due to which the amount of expenditure will exceed the revenue growth.
The volume of government sector investments will amount to approximately 1.9 billion euro next year. More than 1.4 billion euro of EU support is planned in the state budget for 2021.
Tax revenue will increase to 9.3 billion euro next year compared to the approximately nine billion euro this year. Tax burden will fall to 32.7 per cent of GDP next year compared to the 33.8 per cent this year.
“According to the forecast, the state treasury will be able to assume additional obligations of 2.4 billion euro with loans and bonds as necessary in 2021. Thus the Estonian government sector debt burden may grow to 6.6 billion euro, that is 23.6 per cent of GDP next year, but even then it would remain the lowest in the European Union,” Ratas explained.
“However, the state budget is not merely revenue, expenditure and financial indicators, but we must see people and their welfare behind every figure,” Prime Minister underlined.
“Keeping this in mind, we are aiming to overcome the corona crisis in both the economy and healthcare smartly, securely and feasibly with the state budget for 2021, in order that the life of our people would only improve and economy would grow again,” Prime Minister said.
Ratas noted that the current crisis was different from the previous ones in that the economic outlook was surrounded by extreme uncertainty and at the same time there was unanimity that state intervention in it was vital. “It is clear that we will have to live with the virus at least for some time to come and to protect ourselves from it to the necessary extent. At a time like this, the state’s contribution in creating a sense of security for restoration is vital in order to ensure inclusive, sustainable and faster economic growth to us,” Prime Minister said.
Representatives of the factions took the floor during the debate.
Siim Pohlak (Estonian Conservative People’s Party) said that, in the situation that had emerged due to the corona crisis, there was a reason to be happy with the budget. He expressed his delight that the Government had not begun to make cuts. In Pohlak’s opinion, the budget created a basis for economic growth. He highlighted the increase in social costs and the investments in infrastructure. Pohlak also mentioned several allocations to ensuring both defence capability and internal security. “This budget has a local and not a globalist character; it prioritises Estonian people, Estonian entrepreneurs, Estonian pensioners, Estonian economy and Estonian culture.”
Kersti Sarapuu (Centre Party) noted that it was the most complicated budget that their party had compiled, because of the uncertainty due to the corona crisis. “The current crisis is different from the previous ones in that the economic outlook is surrounded by extreme uncertainty and at the same time there is near unanimity that state intervention is vital.” She expressed her delight that pensions would increase and she acknowledged the health care investments. In Sarapuu’s opinion, it is a human-centred budget that will ensure economic growth.
Kaja Kallas (Reform Party) underlined that the state budget should be focused on a strategic view and the use of the crisis for reforms. In her opinion, the budget submitted today unfortunately fell short of that. “When Prime Minister spoke here today, he focused mainly on the list of expenditures the Government was going make. A list of expenditure is not a budget.” She explained that the state did not operate for just one year, it had to operate for a longer period and it had to operate sustainably. “The national revenue will be 11 billion while expenditure will be 13 billion. The actual deficit in a year will be two billion, which is 15.3 per cent of the gross domestic product.” Kallas listed proposals to amend the Bill.
Indrek Saar (Social Democratic Party) said that the volume of the state budget was impressive. The expenditure of the Estonian state will exceed this year’s expenditure by nearly 2.4 billion in the coming year. “We all know that such powerful growth will come at the expense of extensive borrowing as well as European funds.” Saar acknowledged the social benefits proposed by the budget. At the same time, in his opinion, there was no major ambitious future-oriented vision in that budget, at least not at the first glance. “Various sectors are allocated insignificant additional amounts here and there: to construct some more roads and to pour more concrete. This is what the budget is about in general lines. The loudly advertised green transition seems to lack any detail.”
Helir-Valdor Seeder (Isamaa) believed that a responsible crisis budget had been compiled in the highly complicated and indeterminate situation. “The general tax burden will decrease in the next year’s budget, which is definitely good news to all Estonian citizens and people. We need not be so afraid of borrowing and the loan burden in the current situation,” Seeder explained. “This means in fact that the Government has a very clear aim for the next year as well as following years – the state will have to become more effective and sustainable.” The next year’s state budget contains 1.9 billion worth of investments, supplemented by measures to support business, and a loan of around two billion euro that will all be spent in particular on investments and one-off expenditures to raise entrepreneurship and competitiveness. Seeder outlined the major allocations proposed in the budget.
The Riigikogu harmonised the bases for the establishment of unique addresses
The Riigikogu approved with 78 votes in favour the Act on Amendments to the Spatial Data Act and the Apartment Ownership and Apartment Associations Act (196 SE), initiated by the Government, which harmonises the bases for the establishment of unique addresses, simplifies the communication with owners of address objects and ensures better interoperability between the state information systems.
The Land Board is given the right to establish areas that have a unique address. Under the current procedure, densely populated areas and built up areas determined by a comprehensive plan are areas requiring a unique address. Since the abovementioned areas have not been defined in legislation, local governments determine them very variedly by plans. This involves the problem that buildings may be difficult to find.
Areas requiring a unique address that can be determined on uniform bases ensure uniform address organisation in the country, and at the same time involve no additional obligations or restrictions on construction or other activities.
In addition, the communication with owners of address objects is simplified, and the possibility to notify of changes to addresses by e-mail and, in the case of apartment buildings, through the apartment association, is included.
With the amendments to the Apartment Ownership and Apartment Associations Act, better interoperability between the state information systems, in particular the land register and the address data information system will be ensured. When an apartment ownership is established in the land register, each apartment that is registered as an apartment ownership is also assigned a corresponding address object in the address data system.
The Riigikogu concluded the first reading of eight drafts
The Bill on Amendments to the Labour Dispute Resolution Act (214 SE), initiated by the Government, will amend the principles for the remuneration of lay assessors of labour dispute committees.
Under the Bill, the remuneration of a lay assessor will be equal to the minimum hourly wage rate, which is 3.48 euro this year. At present, the remuneration of lay assessors is calculated on the basis of the Salaries of Higher state Servants Act according to which the hourly wage is 3.07 euro. In the future, the work of lay assessors of labour dispute committees in preparation for sessions will be remunerated. At present, remuneration is paid only for the time spent on attending the sessions of a labour dispute committee.
The explanatory memorandum notes that two lay assessors must attend a session of a labour resolution committee: a representative of employees and a representative of employers. Similarly to lay judges, the purpose of lay assessors’ attendance is to view the labour dispute matter from a human rather than juridical aspect in the resolution of a labour dispute, taking into account the particularities of the views of the employees and the employers where they are of importance in the resolution of the labour dispute matter. The bases for the calculation of the remuneration paid to lay assessors have not been changed since 2013, and, under the current procedure, the remuneration paid to lay assessors is lower than the minimum hourly wage rate. This restrains employees and employers’ willingness to contribute to the work of labour dispute committees in the resolution of labour disputes.
In addition, the Bill introduces amendments aiming at specification and amendment of the current procedure in the interests of legal clarity. For example, it will be specified how many people can have recourse to a labour dispute committee with a joint petition, and the additional option of conducting sessions via a video bridge will be provided.
The Bill on Amendments to § 28 the Citizenship Act (217 SE), initiated by the Government, will amend the Act by including commission of serious criminal offences against the state as a new ground for deprivation of citizenship.
Section 28 of the Act will be amended by adding a new subsection under which the Government of the Republic may deprive a person of Estonian citizenship if a judgment of conviction in treason, intelligence activities or terrorist offence has entered into force with regard to him or her.
The Bill on Amendments to the Tourism Act and the Consumer Protection Act (234 SE), initiated by the Government, will update the requirements for the provision of the accommodation service. Self-service accommodation establishments (“automated hotels”) are gaining increasing popularity, which has diversified the supply and which must also be taken into account when establishing requirements. Therefore, requirements are reduced where they are not directly necessary or where self-regulation works well, e.g. in terms of quality requirements. As a result of the amendments, the rules for the provision of the accommodation service will become more flexible, and the number of claims and the costs to meet the requirements will decrease.
The definition of the accommodation service and the description of the types of accommodation establishments will be renewed. The offering of temporary sleeping accommodation by an undertaking will be deemed to be accommodation service. Accommodation service is a tourist service which is not for residential purposes but which is intended for temporary accommodation of visitors for holiday or business or other purposes and which is offered for example by day, week or month. The introduction of the short-term (temporary) service will help differentiate the accommodation service more clearly from residential lease contracts. In the case of accommodation for a period longer than three months, the special rules for residential lease contracts already set out in the Law of Obligations Act apply.
The main types of accommodation establishments are a hotel, motel, guesthouse, hostel, holiday village and camp, holiday home, visitor’s apartment and bed-and-breakfast. The descriptions of the types of accommodation establishments will change and requirements will be relaxed. For example, at present, a hotel or motel must have at least ten guestrooms, but in the future five guestrooms will be enough, and the current requirement of five guestrooms for guesthouse will be eliminated. They will also be released from the obligation to provide catering services, which will remain an option for service providers.
New digital solutions and the changed expectations of clients are phasing out the need for separate reception rooms (“table service”) and several other services, and therefore other requirements of the Regulation of the Minister will be reduced as well. No special rules are established for the sharing economy, but the principle is that requirements apply uniformly to all undertakings.
Another major amendment is that the issues relating to the categories of accommodation establishments will remain for the sector to be arranged. In the future, in order to assign categories (stars of hotels) to accommodation establishments, it will not be necessary to apply for the approval of the minister, and the accommodation sector will be able to continue quality development without state restrictions. The international star system of the HotelStars Union, which has been working successfully in Estonia for more than ten years already, will remain in place, and the categories assigned to hotels will remain in place, too. At the same time, there is also the possibility to establish star systems for other types of accommodation establishments. Application for categories has always been voluntary for accommodation establishments.
In the future, the reporting by travel undertakings will take place only electronically via the supervision information system of the Consumer Protection and Technical Regulatory Authority.
The Bill on the Repeal of the Trading Act and Amendments to Other Acts arising therefrom (235 SE), initiated by the Government, will update, organise and simplify the legal regulation of the trade sector in order to thereby reduce over-regulation, duplication and the volume of legal regulation as well as administrative burden.
The Bill will repeal the Trading Act and amend Acts that have a connection with it. The Trading Act no longer gives added value in the regulation of the activities of the undertakings operating in the trade sector, including in ensuring conformity of products and services or in relations with the consumer, but it duplicates the rules that have been established for economic activities with other Acts.
The Bill will set no new restrictions on engaging in business in the trade sector. The legal framework necessary to exercise the freedom of enterprise will remain in place.
Under the Bill on Amendments to the Government of the Republic Act and Other Acts (merger of the Civil Aviation Administration, the Road Administration and the Maritime Administration) (236 SE), initiated by the Government, the civil aviation, road and maritime administrations will be merged. According to the Bill, the name of the new merged agency will be the Mobility Agency. The final decision on this will be for the Riigikogu to make. The merger of the authorities proceeds from a general principle of the state reform to reduce the number and duplication of administrative agencies and to improve the quality and availability of public services.
The new agency is intended to establish a centre of excellence covering different types of transport that will have the capability to plan smart mobility solutions and to implement projects covering different types of transport.
The merger will not simply reorganise the work between the agencies. With the merger, the position of the deputy secretary general for maritime affairs will be established in the Ministry of Economic Affairs and Communications. At the same time, with the merger, the marketing activities of the project to bring ships under the Estonian flag will be transferred to the ministry.
The Bill on Amendments to the Value Added Tax Act and the Customs Act (239 SE), initiated by the Government, will transpose the amendments to the EU Value-Added Tax Act Directive that change the taxation of electronic commerce between Member States and eliminate the tax exemption established for imports of small consignments of a value of up to 22 euro.
According to the Bill, the tax exemption for goods of negligible value, that is, up to 22 euro, imported from outside the European Union, for example from China, will be eliminated. Consignments of a value of up to 150 euro will be taxed either at the time of import or under a special scheme. If a transferor of goods who is a business chooses the implementation of a special scheme, upon the payment for the order of goods, the person who places the order will also pay the VAT due upon the importation of goods, and the seller of the goods will declare such VAT to the tax authority on a monthly basis.
Under the Bill, in the case of distance sales (sale of goods by a business to a final customer established in another Member State), 10,000 euro per calendar year will be the uniform threshold across the European Union at which a tax obligation will arise in the other country. This means that if the supply exceeds 10,000 euro, the business of the other Member State will have to pay VAT on distance sales in the country of the consignee. Under the current procedure, every Member State establishes a limit and the limits vary by country – it is 35,000 euro in the majority of countries, including Estonia.
In addition, the Bill will provide for the possibility to adjust the VAT obligation in the case of “hopeless loans”. Under current procedure, unpaid invoices (“hopeless loans”) do not affect the amount of the seller’s supply or VAT accounting. According to an amendment, a business will have the right, upon compliance with certain requirements, to reduce its tax obligation to the extent to which buyers fail to pay for goods or services totally or partially. This will ensure more equal treatment of businesses.
The purpose of the amendment of the Customs Act is to ensure legal clarity. The right of the customs to obtain data from state databases and businesses has been provided variably in the sections of the Customs Act, which may bring about problems in the interpretation of provisions. Therefore it is necessary to harmonise the wording.
The Draft Resolution of the Riigikogu “Increasing the Holding of the Republic of Estonia in the International Finance Corporation” (237 OE), submitted by the Government.
With the Resolution, the Riigikogu will grant its consent to increasing the holding of the Republic of Estonia in the International Finance Corporation (hereinafter IFC) by 3102 shares totalling 3 102 000 USD (approximate cost 2 872 222.22 euro). It will be a financing transaction. The obligations will be assumed in USA dollars (USD). Contributions will be made within the period 2021-2025.
The International Finance Corporation is an organisation focusing on private sector investments. For example, in 2019, it invested 19.1 billion USD in 65 countries into the businesses of developing countries. The IFC, which is a member of the World Bank Group, was established by 31 countries in 1956. The authorised capital stock of the IFC was 100 million USD. The IFC has 185 members by today. Although the IFC is an institution that is a member of the World Bank Group, it has its Articles of Agreement and separate share capital, financial structure, management and employees.
The Bill on Amendments to the Tax Information Exchange Act (238 SE), initiated by the Government.
In order to facilitate the overcoming of the economic difficulties accompanying the emergency situation due to the coronavirus, the European Union member states have agreed by a relevant Council directive that member states can defer the beginning of the exchange of information on cross-border arrangements by six months. In view of this, the Bill will make amendments to the time limits for filing the arrangements, while no substantial amendments will be made.
The exchange of information concerns cross-border arrangements that enable aggressive tax-planning and the concealment of the beneficial owner of assets or complicate the exchange of bank account information. Under the current law, providers of tax advice, banks and taxpayers would have to begin to communicate the information on the arrangements to tax authorities from 31 July 2021. According to the Bill, 31 January 2021 will be the new deadline.
Photos of the sitting (Author: Erik Peinar, Chancellery of the Riigikogu)
Video recordings of the sittings of the Riigikogu can be viewed at https://www.youtube.com/riigikogu.
(Please note that the recording will be uploaded with a delay.)
Riigikogu Press Service
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