TALLINN - Estonia's ruling coalition has failed to agree on how to slash budget expenses now that revenues have begun to fall on the backdrop of a slowing economy.
The coalition's board met on April 7 to discuss the situation. The parties agreed on the necessity to map out an austerity plan to cover the anticipated budget shortfall but differed about whether a negative supplementary budget should be drawn up immediately.
The Finance Ministry proposed that ministries draft cuts of 7-9 percent from their budgets by April 17, secretary-general of Pro Patria and Res Publica Union, Margus Tsahkna, told the Baltic News Service.
Tsahkna said Prime Minister Andrus Ansip wants to put expenditures corresponding to the negative part of the state budget on hold until the autumn, when the government, armed with new forecasts, can make a decision on how to proceed.
But the IRL and Social Democrats said they wanted immediate clarity and suggested a negative supplementary budget be drawn up at once.
"IRL expressed the opinion that big cuts at the expense of education and innovation should not be made," Tsahkna said.
The Finance Ministry released a forecast on April 3, according to which the state budget deficit could reach 3.1 billion kroons (198 million euros) this year. To bridge the gap, the central government will have to cut expenditures, the ministry said.
Meanwhile, the Tax Board announced that first-quarter revenue from income tax and VAT was lower than in the same period last year.
VAT revenues in the first three months totaled 4.7 billion kroons, or 92 percent of the sum collected in Q1 of 2007 and 18 percent of this year's target, the board said.
Personal and corporate income tax revenues amounted to 698 million kroons, or 90 percent of last year's result and 8 percent of the sum planned for this year.
On the bright side, inflation has begun to recede in Estonia, falling to an annual rate of 10.9 percent in March, Statistics Estonia announced April 7. In February inflation had peaked at 11.3 percent.
Prices for goods increased 10.1 percent, while services were up 12.6 percent compared with March 2007. Food prices climbed 14.5 percent.
The Bank of Estonia pointed out that inflation is still driven by fuel and food prices and that wage growth is continuing to put pressure on consumer prices.
"The next few months will show whether the fast growth in outlays on essential consumer goods will diminish purchasing power as regards other goods and how for instance the prices of services will respond to this," Bank of Estonia economist Martin Lindpere said.