TALLINN - The Estonian government has finally agreed to a balanced 2009 budget after months of political wrangling.
The government 's which is formed by a coalition of Prime Minister Andrus Ansip's Reform Party along with the Social Democratic Party and the Pro Patria/Res publica party 's said in a statement that spending and revenues would be set at 98.8 billion kroons (6.2 billion euros.)
"The budget has been basically agreed upon, the government will on Thursday hand the budget bill to parliament," a spokesperson told the Baltic News Service after the Cabinet meeting.
The full details of the budget will be published as The Baltic Times goes to press.
Ansip promised to keep general tax burden in the coming year at 2008's level, a press statement said.
However, what is still unclear is how much more the government proposes to raise stealth taxes.
The government has proposed plans to increase VAT on medicines and other essentials 's a move that has drawn fire from pensioner groups. The VAT rate on medicines, books and periodical publications will be increased to 9 percent from the current 5 percent.
Other different rates of tax on goods and services will be abolished and a unified 18 percent tax rate is going to be implemented.
According to Finance Minister Ivari Padar, the cabinet was discussing different possibilities to increase the budget revenues and starting from July next year, the excise duty on natural gas will be increased and the different rates of VAT will be abolished; except on books, periodical publications and medicines.
"The government's desire to increase the indirect taxation ratio and other additional expenses will decrease the income of those poor who are already poor and the elderly," said Rein Tolp, chairman of the elderly association for the Tegusad.
Tolp did not agree with the decision of the government, to decrease spending by 250 million kroons (16 million euro) on social security.
"This means many hospitals and elderly hospitals will not be renovated and meet standards, as well as worsening medical help quality and accessibility," Tolp said.
The central bank has urged the government to stick to a balanced budget in an effort to survive a period of stagflation and ensure Estonia qualifies for the euro in 2012.
The crisis over the budget has been dragging on for some time. Ivari Padar, the minister of finance, told Postimees in September that after cutting funding requests of government ministries by 12 billion kroons (767 million euro), further cuts are simply not possible.
"I personally would prefer to have a balanced budget, but in the current situation we are looking at a total of about 2 billion kroons (128 million euro)," said Padar.
"Our economy is slowing down very rapidly and it will not be a disaster to have a budget deficit for one year," added Padar.
Ansip has always emphasized that keeping a balanced budget is one of the most important government priorities.
Had a deficit been agreed on in Estonia it would have meant humiliation for the Ansip government, making him the first prime minister to have a budget deficit since 1991.
Meanwhile Latvia is also in the midst of 2009 budget talks. The government has said it plans a budget deficit of 1.85 percent of gross domestic product.
After several years of strong growth, the economies of Latvia and Estonia entered technical recession this year, with two consecutive quarters of seasonally adjusted economic decline.
Lithuania, meanwhile, saw growth of more than 5 percent in the second quarter.
The Lithuanian government is aiming for a balanced budget in 2009.