TALLINN - Tension around the upcoming budget talks can already be felt in the Estonian capital, as ministries jockey for position and openly declare their high financial needs.So far, the leading applicants for additional budget pork are the Agriculture and Interior ministries, with each having asked for about 27 million euros more for 2005 compared to this current fiscal year. About half of the extra money the Interior Ministry applied for will go toward the police department.
Together, all ministries have applied for about 223 million euros more next year.
However, the Finance Ministry has stated previously that there was little hope for receiving extra money, as budget resources would be tight.
Indeed, the coalition itself - Res Publica, the Reform Party and the People's Union - is bound by a treaty stating that government sector expenditures must not exceed 37.6 percent of GDP.
According to the Finance Ministry, during the first seven months of 2004 the state received about 25.5 billion kroons (1.6 billion euros) in budget revenues, of which EU funds made about 1.6 billion kroons. Total revenues planned in the 2004 state budget amount to 47.6 billion kroons, while expenses stand at 47.7 billion kroons.
In other words, the 2005 budget will likely amount to about 52.3 billion kroons, according to the Finance Ministry.
The Postimees daily wrote on Aug. 10 that the demands for extra funds, emanating from ministries run by the People's Union (Agriculture, Interior, Environment), could eventually lead to a government crisis similar to that of last November, when the People's Union demanded changes in the coalition agreement signed in April 2003.
At the time the party surprised its coalition partners by offering to postpone the income-tax-rate cut and borrow more money from abroad to finance the budget items it considered essential.
The dispute was ultimately settled after most of the People's Union's (a minority partner in the three-party coalition) demands, including postponing the income -tax rate cut, were satisfied.
Agu Uudelepp, spokesperson for the People's Union, called the information "misleading."
He explained that the party did not have anything against cutting public sector expenses, as long as the government machine could fulfill its duties. However, the public sector's work directly depends upon money from the budget.
During the previous crisis a number of analysts admitted that the People's Union could have been using Res Publica's promises and the Reform Party election platforms, such as cutting the income -tax rate from 26 percent to 20 percent in four years and increasing the minimum tax-free income, as a pain lever to bargain for its own political goals.
"An income tax cut must not lead to a situation in which relations between the state budget and GDP is negative," Jaak Allik, head of the People's Union Parliament faction, was quoted by the party's press office as saying. "If additional sources of budget revenue are to be found, the People's Union will have nothing against cutting the income tax rate. This is how the compromise was reached when the coalition treaty was complemented last autumn."
While the government will further discuss the budget issues this week, the Finance Ministry said the state may consider compensating shortfalls by raising the excise tax on tobacco and alcohol and casinos.
Annual losses from cutting the income-tax rate by 2 percent will amount to over 1 billion kroons.
