TALLINN - The Estonian government has come to an agreement on a package of budget cuts that will slash spending this year by 8 billion kroons (511 million euros).
As The Baltic Times went to press on Feb. 18, the Finance Ministry was slated to submit the government's proposed bill to lawmakers for review. About 10 legal amendments will also have to be adopted in order for the budget cuts to pass.
The Finance Ministry said on Feb. 13 that all of the country's ministries had already submitted new draft budget proposals outlining cuts in each sphere of governance so that the institution could continue work on the bill.
The proposed budget cuts come amid fresh estimates from the Bank of Estonia predicting a worse than expected decline this year.
In a Feb. 13 report, Estonia's national statistics agency said that the country saw a 9.4 percent drop in GDP year-on-year in the last quarter of 2008, the largest drop in at least 14 years. The agency said the decline was the largest since record keeping using the current harmonized system began in 1995.
Compared to the third quarter, the seasonally and working-day adjusted GDP decreased by 4.2 percent in the final quarter of last year, a flash estimate by the statistics office shows. Statistics Estonia will publish the final fourth-quarter GDP figure on March 11.
The statistics prompted the Bank of Estonia to say that the economy may shrink even more than the 5.5 percent estimate given earlier this month.
The Central Bank also said the economy would begin its recovery next year.
"By current estimates, the first signs of economic recovery can be expected in 2010," Bank of Estonia representatives were reported as saying by the Baltic News Service.
In another bid to reduce spending, the Estonian Justice Ministry has drafted amendments providing the legal basis for lowering salaries at government financed institutions by 7 percent from March 1 this year.
An explanatory letter that reportedly accompanied the bill said that the cuts would be based on the wages employees received as of Jan. 31 in an effort to block institutions from doling out pay hikes ahead of the reform.
The bill also calls for the addition of a provision into the new labor contracts law slated to come into effect in July that would allow private businesses to unilaterally change the terms of labor contracts by cutting up to 7 percent off the wages of employees.
THE CHOPPING BLOCK
The Cabinet has thrown its own fate in with that of the proposed cuts, as voting on the bill will be linked to a no-confidence vote in the government.
The parliament is expected to debate the bills in its Feb. 20 sitting.
"[It will] happen next Friday, Feb. 20, in Riigikogu [parliament]. The budget cuts will most probably be presented with a confidence vote," Silver Pukk, the Reform Party's head of public relations, told TBT earlier.
The spokesman also said that he was sure the proposed cuts would pass and the government would survive the vote.
"The Reform Party supports this idea. The bill would be passed, we are more than sure, because there is political consensus on the coalition side for it," Pukk said.
Similarly, Reform Party MP Igor Grazin told TBT that the budget amendments benefit to free market capitalism will give the bill the support it needs.
"Have you seen a truly confident politician? Neither have I. But the package is reasonable and the best possible one, I think. Estonia is among the leading economies in the area and has a stable and sound economic foundation. Everything that works toward the market economy, or capitalism as it had been meant [to be], has a very good chance to get popular support," he said.