Ansip: property bubble has burst
TALLINN - Prime Minister Andrus Ansip has said that the current revenue shortfall is the result of the property bubble bursting in Estonia and that, contrary to what many politicians are saying, there was no need to rush in agreeing on expenditure cuts.
"The real estate bubble has popped," the prime minister told journalists on April 10. He said that for some time it was clear to all that the air would come out of the real estate bubble, only it was unclear how quickly.
According to Ansip, property prices have fallen more precipitously than the government had forecast, resulting in a sharp decrease in budget revenues.
"The largest factor behind the shortfall in VAT collection is the small number of transactions in the field of real estate," he said.
Ansip explained that the bubble's bursting will also bring structural changes in the economy, including job cuts in the overblown construction sector. He expressed hope that these redundancies would be picked up in the manufacturing sector and help raise the current export growth of 15 percent to 25 's 30 percent.
"You can dream, can't you?" he asked journalists.
The prime minister said the government should not hurry in drawing up a negative supplementary budget since, in his opinion, the economic situation may change. Altering the budget twice in one year would be unprofessional, Ansip suggested.
"It may happen that we'll have to make a new supplementary budget in the fall. To make supplementary budgets twice in one year is not something you'd expect from someone who wants to be taken seriously. This is not how countries normally behave," Ansip said.
As the prime minister explained, it is important to decide now where cuts will be made.
What's more, the government cannot be sure that this first round of cuts will be the last. As a result, ministers may find that slashing 3.1 billion kroons (198 million euros) 's which some lawmakers have proposed 's is too little, Ansip said, adding that cuts that look necessary now may not have to be carried out in the future.
If in the past few years Estonia's economy was driven by credit-based domestic demand, currently growth is driven by export, said Ansip. However, any optimism for a favorable outcome is undermined by the fact that export markets are in turbulence.
Efforts to boost the manufacturing sector 's and therefore industrial output 's in recent years have fallen short of expectations.
Ansip said that allowing different rates of cuts by different ministries was possible. In short, an individual approach was needed. "Measuring [ministers] with the same yardstick is not a solution. But it's clear that everyone must make their contribution to budget cuts," he said.
The prime minister also said that wages in the public sector have risen rapidly in recent years, a trend repeating this year. He reiterated the position that it was time to freeze the size of the government payroll. In upcoming years, pay hikes for public sector workers will be possible by rolling over vacant positions.