Ansip hands in ‘conservative’ 2012 budget

TALLINN - Estonian Prime Minister Andrus Ansip said in his address to parliament on Sept. 28, upon handing over the draft state budget for 2012, that the document is a “conservative and responsible budget aimed at increasing stability and employment,” reports LETA. “Only if the state’s finances are in sure hands and the economy is in order can all people in Estonia enjoy higher wages, pensions and family allowances. Only then can we allow ourselves education and security of a Nordic calibre and better medical care,” said the head of government.

The prime minister said the state would continue to stimulate the economy by increasing investments, which will result in a significant increase in employment. Compared to last year, public sector investments will grow 28 percent - to 1.2 billion euros - making up 7.3 percent of the gross domestic product.
“Even though unemployment has dropped, the state will continue contributing to the Unemployment Insurance Fund in the same amount as last year. The set goal is to reduce long-term unemployment and greater participation in lifelong learning,” said Ansip.

The prime minister said the government had made the optimum choices in light of the conditions and the budget submitted to the Riigikogu is a “responsible” budget that will withstand even the Ministry of Finance’s economic forecast risk scenario.
“For the Pro Patria and Res Publica Union and the Reform Party, a conservative budgetary policy is not just an empty slogan: it’s a promise. My request to you, my dear MPs in the opposition, is this: in deliberating on this budget, accord the same reverence to the principles of strict budgetary policy as you have for the last two decades. It is a great challenge to refrain from discretionary spending for which no money exists,” said Ansip.
The prime minister went on to say that the budget is based on the “realities of the world economy and promises given to voters.”

“This is a conservative budget,” said Ansip.
1.5 percent of the deficit comes from an increase of investments made with proceeds from sale of Kyoto pollution quotas, and the rest from restoring savings pension payments.
The biggest investments will be made in the economy and communications ministry, agriculture ministry and environment ministry governance spheres. Around 711 million euros will be spent on repairs of state highways.
“The state contributes 173 million euros, or 1 percent of GDP in creating new knowledge, i.e. research and development activities,” said Ansip. Also, pensions will increase by 4.4 percent, which is a positive step in the current economic situation, he added.

Ansip told his listeners that “Estonian state finances are one of the best managed finances in Europe. It is a value to keep.”
Estonia’s central bank Eesti Pank explained why it recommended for the government to base the state budget on its own risk forecasts, saying that the outlook for economic growth in export markets has considerably deteriorated over the past few weeks, reports National Broadcasting.

The Finance Ministry’s base forecast that was presented three weeks ago, and which is the basis of compiling the state budget, forecasts Estonia to see 3 percent economic growth next year. Eesti Pank, however, recommends using a risk forecast that says Estonia can expect just 1 percent of growth next year.

“Otherwise it might be complicated for the government to react to the possible deterioration of the economic situation and fulfill the aims set out in the consolidated budget balance,” said the central bank deputy president, Madis Muller.
He said that the ministry based its forecast on assumptions similar to the central bank’s May analysis. “Unfortunately, it is quite clear that the outlook for economic growth in Estonia’s export markets has considerably deteriorated according to data published in the past few weeks, and the general insecurity about the near future has considerably increased in the world economy,” said Muller.

Different from recommendations of the central bank, the government used the finance ministry base forecast and Prime Minister Ansip said that if need be, the government is ready for budget cuts. “We cannot agree on the best budget being a budget as small as possible; that takes into account the darkest development scenarios. Life in Estonia cannot stand still. Risks are taken in compiling any budget,” said Ansip.

A total of 6.1 billion euros is planned as revenue in next year’s budget. Expenditures will be 6.5 billion euros. Compared to 2011, spending is 11 percent higher - a difference of 652.7 million euros. The budget does include a deficit of 2.1 percent of the gross domestic product, which is mainly due to the investment of proceeds of sales of emissions allowances and the full resumption of state contributions into the second pillar of the funded pension.

The Estonian government debt is likely to remain the lowest in the European Union next year as well, at 5.8 percent of GDP. It is planned to finance the state budget deficit and financing transactions from reserves.