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Today, the Riigikogu discussed “Estonia in economic downturn. What to do?“

During the deliberation of the matter of significant national importance “Estonia in economic downturn. What to do?”, initiated by Isamaa Parliamentary Group, presentations were made by Member of the Riigikogu Urmas Reinsalu, Head of the Estonian Food Industry Association Sirje Potisepp, and Director of the Estonian Institute of Economic Research Peeter Raudsepp.

Member of the Riigikogu Urmas Reinsalu described the state of Estonia’s economy as distressing. “The December forecast of Eesti Pank (Bank of Estonia) predicts economic downturn for this year, with the volume of economy decreasing by EUR 2.5 billion compared to the forecast that was taken as the basis for the state budget,” he said. According to the Estonian Institute of Economic Research barometer, the economic trust indicators of businesses have dropped into negative in fields of construction, trade, services, as well as industry. “Outlook for investments is negative. The volume of Estonian industry dropped last year by over ten per cent; in real prices we have reached the level of 14 years ago.

Reinsalu sees Estonia in the grips of economic stagnation, with unemployment having grown to 8.4 percent and prices continuing to rise. January also brought us news that our power stock market prices were the highest in Europe. “Consumers also feel insecure, nearly half of the families feel that they struggled last year and expect the same this year,” he remarked.

Reinsalu believes that the government’s attempts to improve national finances have fallen short. “The government fails to understand the core of the issue. They have the obligation to take the initiative. Nobody expects some kind of super miracle; however, we do expect the government to realise that they need to encourage the citizens and the businesses to act freely and creatively. This makes them the ones who will be able to carry out miracles. Isamaa has repeatedly offered its assistance. In June we recommended abandoning the thoughtless tax rises – No! we were steamrolled; in August we recommended directing the whole of 2024 budget and the budgeting strategy into restoring the competitiveness of the economy – No! we met with arrogance from Vihula Manor and a bluffed budget and budgeting strategy; in October we made a proposal from this very rostrum to sign a broad-based economic growth pact with parties, businesses, NGOs, universities – we were met with ear-deafening silence and a steamroll,” Reinsalu complained and listed a number of points on how Isamaa would ensure Estonia’s competitiveness. These concerned making competitiveness a priority, sorting out public finances, not playing around with taxes, a well-considered green transition, a long-term energy plan, partnership between economic sectors and the state, and a quicker implementation of funds. “We must first concentrate on a long-term energy solution. Estonia needs a detailed and realistic plan on how to ensure sufficient, permanent, and affordable power for household and business consumers in the future,” Reinsalu declared.

The second presenter was the Head of the Estonian Food Industry Association Sirje Potisepp. “Food industries are very simple in a way: food industries live exactly as well as do our consumers, depending on the confidence had and the choices made by our consumers. And in this moment, we can indeed say that we sense our consumers being very insecure,” Potisepp said. She sees the consumers making rational choices, meaning that they are saving and looking for campaign prices.

Potisepp referred to the reduced competitiveness and export capability of the food industry, as well as the relatively low investment capability. “In 2022, there were indeed sectors that made a loss. Last year, the situation improved slightly. However, during some quarters, the whole industry made only 4 million in profit, which is a very lean result. This is the state of affairs today. And what we are seeing is still price hikes in almost all sectors, which has undoubtedly been reinforced by the rise in the value-added tax. And in food, we have one of the highest VATs in the European Union. That is sadly the case,” she deplored.

Potisepp called for a predictable tax policy and looking at the effect of the tax rise cumulatively. “I wrote in large red letters “No indirect taxes!” We have barely been able to keep our noses above the water, as the CEO of a large company has said, and yet we are already hearing talk about soda drink tax, which is not really a soda drink tax, and we already hear talk about a tax package for packaging companies linked to a waste management reform. All this significantly weakens our competitiveness,” she explained, adding that consumers simply could not afford to take on any more duties. “All the decisions you make on tax rises are reflected in the end price of goods, which is why these should be thoroughly considered.”

Potisepp also thinks that we need to follow the pace of other countries in the green transition. “If someone has a huge advantage and they can sell all the investments they’ve made – that anyone who wants can always make more – they can definitely do it. But in any case, we should be in the same position as others and not demand more from our businesses than the EU minimum requirements do.”

Director of the Estonian Institute of Economic Research Peeter Raudsepp described the situation in our economy as bad and could foresee no signs of improvement over the next six months. “Did it come as a surprise? – No. This trend has been clear as day for several quarters, it has been highlighted by our research over the past quarters. We have been in the same economic state before – during the recession,” he said. “But during the recession, there was hope that it would eventually end thanks to the cyclical nature of economy, but we have nothing like this to look forward to right now because this crisis was generated through the combined effects of green, financial, and geopolicies; as a result, the whole economic environment has changed over the last couple of years significantly and irrevocably.”

“We came out of the Covid crisis largely thanks to the society being released from the lockdowns and businesses also received the crisis aid they needed. Today’s crisis is different from the earlier ones in many respects. But it is by far not short in duration,” he warned. Raudsepp quoted experts saying that the biggest problems were insufficient domestic and foreign demand, lack of international competitiveness, unfavourable environment for foreign investors, and lack of trust in government’s economic policy.

Raudsepp described economy as adaptable in nature and with the businesses holding the key to getting out of the current state. “The current situation is not going to revert to the so-called “normality” by itself, and it can also not be turned back enough through intervention. The government cannot be the one to solve this crisis and take the economy to a new level. This is the role of the businesses,” he explained. What is mostly expected of the government is to shape the economic environment in a way to improve the sense of security. “The latest economic study highlighted the growing problem of businesses not knowing and not being able to take onboard the policies, legislation, or regulations that would shape their future, and this creates insecurity. This is why there is hesitance to act. The investments that are not made today or are made on the long premises are the missing economic growth of the future. This is why we need clarity and a sense of security here.”

Raudsepp also referred to the increasing talk of helping the business environment reach a new level – achieving a higher added value by applying innovation process and scientific achievements in production or providing services. “Achieving this is the only way to exit the current crisis. However, this is a long-term process, and we need consistency here,” he admitted.

Jürgen Ligi (Reform Party), Aivar Kokk (Isamaa), Martin Helme (Estonian Conservative People’s Party), Mart Helme (Estonian Conservative People’s Party), Toomas Uibo (Estonia 200), Jevgeni Ossinovski (Social Democratic Party), Vadim Belobrovtsev (Centre Party), and Priit Lomp (Social Democratic Party) took part in the debate.

Due to the end of the working hours of the sitting, the first reading of the Draft Resolution of the Riigikogu “Making a proposal to the Government of the Republic to make preparations for holding a referendum to define the concept of marriage” (261 OE), initiated by the Estonian Conservative People’s Party Group.

Verbatim record of the sitting (in Estonian)

Photos (Author: Erik Peinar / Chancellery of the Riigikogu)

Video recording will be available to watch later on the Riigikogu YouTube channel.

Riigikogu Press Service
Maris Meiessaar
+372 631 6353, +372 5558 3993
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Questions: [email protected]