Estonia's draft budget too optimistic

TALLINN - The Estonian government approved on Sept. 18 the state budget for 2002, the revenues and expenses of which total 33.44 billion kroons ($1.97 billion) - 12 percent more than this year's budget.

The head of the Bank of Estonia, Vahur Kraft, warned that the government's revenue projections were too optimistic.

"Even (Finance Minister) Siim Kallas himself has referred to this as an unreasonably big budget growth," said Kraft. "I welcome a balanced budget, but the government should be ready to follow a political consensus, to exercise responsibility and to adopt a negative supplementary budget if necessary."

He said the economic situation had changed since the budget was drawn up in August.

The Ministry of Finance predicts gross domestic product will increase by 5 percent in 2002 and consumer prices by 3.8 percent.

Madis Muller, adviser to the minister of finance, said there was no reason to revise the budget in the light of this month's terrorist attacks in the United States, whose impact had been less than expected.

But Veikko Maripuu, analyst at the brokerage house Suprema warned, "Increasing revenues from extraordinary sources in the present economic blaze doesn't look clever."

The government is planning to fill the budget with 700 million kroons in extraordinary revenue from the Huvitusfond compensation fund, a state-run financial organization which issues fixed-term bonds to be purchased initially with privatization vouchers, issued to Estonians following the restoration of the country's independence.

Maripuu said the government was increasing the budget in order to fulfill promises made at the last general election in order to pull itself back from defeat at the next election. It was a tactic which had not helped the Estonian Coalition Party prior to the last election, he observed.

He said spending on health care, with a budget of 507 million kroons, and pensions would represent the biggest expenditure areas, while spending on defense and education would also increase significantly.

At the Finance Ministry, Muller highlighted the need to meet NATO requirements and increase the defense spending to 2 percent of GDP. Defense spending in 2001 is expected to equal 1.8 percent of GDP.

"There are a number of things we couldn't afford this time," said Muller. "The Ministry of Social Affairs, for example, wanted to increase monthly child support to 300 kroons. The government has decided to increase the monthly child support payments for second born children from 225 kroons to 300 kroons, which will cost the state 79 million kroons, but to leave support for a first child unchanged at 155 kroons. Increasing the latter would cost an additional 281 million kroons."

According to Muller the government has decided to increase teachers' salaries by 200 million kroons and support the development of enterprises and agriculture by 79 million kroons.

In addition to an expected 33.45 billion kroons in revenue from regular sources, the state will receive 1.2 billion kroons in foreign aid from the European Union under the PHARE, SAPARD and ISPA programs, which will not be included in the 2002 budget.

Compared to the previous budget the state also expects an increase in dividends: an additional 100 million kroons from the seaport Tallinna Sadam, 37.5 million kroons from ground telecommunications company Eesti Telekom and 23 million kroons from the postal office Eesti Post. Eesti Pank is expected to bring in 50 million kroons of additional revenue to the state budget.

"It's a pity that the budget is so tense we can't decrease taxes this time. It should be easier in the coming years. We're planning to decrease personal income tax and increase the free-allowance tax to the same level as the minimum living wage," said Muller.

The draft budget will be discussed in Parliament at the beginning of October.