TALLINN - Prime Minister Andrus Ansip has urged the ruling coalition to adhere to a conservative budget which he says has helped Estonia escape the worst ravages of the global economic crisis.
Ansip told parliament it remained in Estonia's best interests to continue with a conservative budget policy.
"Due to the conservative budget policy, we have collected reserves, paid back state loans, kept the loan burden of the state low for future generations and preserved the low tax burden that supports economic growth," Ansip said.
"In the crisis situation, it is not reasonable to abandon the policy that has served Estonia well. On the contrary, we must definitely continue with it," he said.
Ansip recently outlined his forecast for the current budgetary deficit and how much more action was required to achieve this target.
"Based on the information at our disposal we must improve the budget position of the government sector by 6 billion kroons to fit in the framework of the three per cent budget deficit," said Ansip.
The government has managed to reach agreement on 3.4 billion kroons in regard to improving the budget position, with 2.6 billion kroons still to be decided on.
The target the Estonian government has set is not an arbitrary one.
As part of the so-called Maastricht criterion, which sets the benchmark requirements for entrance to the euro zone, Estonia must adhere to a maximum budgetary deficit of 3 percent.
"We cannot stop here. We must continue to keep the budget deficit below three per cent of gross domestic product. We must do this in the name of the reliability of the public finances, on which the housing loan interest of the citizens of Estonia and the cheapness and availability of the capital essential for entrepreneurs depends. The euro is a bonus that we will get when we can keep Estonian finance reliable," Ansip said.
HARD QUESTIONS
In a recent visit the International Monetary Fund (IMF) agreed a maximum budget deficit of 3 percent was appropriate. However they also recommended that all methods should be used to achieve this target, including revenue increases, effectively meaning tax rises in conjunction with expenditure cuts.
In an interview with Bloomberg the prime minister conceded that: "Raising taxes in the crisis isn't good, but at the same time a very sharp cut in spending isn't good either, and it is unthinkable to achieve all the needed improvements in a fiscal deficit."
While Ansip ruled out raising personal income taxes, he conceded the government needs to raise taxes on retail goods and reduce spending in order to close the burgeoning budget deficit.
One of the prime minister's biggest critics, Mayor of Tallinn Edgar Savisaar, was skeptical in his assessment.
"My question is whether the transition to the euro is realistic or is it only a pretext to justify budget cuts?," he told Eesti Ekspress.
"If you cut the budget you will affect consumption. This in turn will bring less revenue into the budget and that causes a new need to cut the budget. So it's a vicious never-ending cycle that Ansip is in," he said.
Part of the problem said Savisaar was that unlike many other countries Estonia was still without an economic stimulus plan.
"We are patching budget holes, not investing for the future," he said.
