TALLINN - Estonia's fiscal policy over the next four years will see a gradual shift of the tax burden from income to consumption, with several tax exemptions slated for eventual cancellation, according to a development report issued last week.
The latest preaccession econo-mic program, which targets core economic developments from 2004 to 2007, was approved by the government on Aug. 12 and is to be sent to the European Commission this week.
The new program states that Estonia will work on trimming its current account deficit – a matter of contention with the International Monetary Fund – and balance its budget.
The preaccession program is designed to prepare EU candidate countries for accession to the economic bloc by ensuring that they can fulfill both the Copenhagen and Maastricht criteria.
As part of the program, candidate countries are obliged to avoid excessive budget deficits and adhere to several key macroeconomic indicators.
Estonia has written a preaccession economic program every year since 2001 in cooperation with experts from the central bank and the Ministry of Economic Affairs and Communications.
Andrus Saalik, deputy head of the economic analysis department of the Finance Ministry, emphasized the fiscal difficulties in 2004.
"The revenue from income tax will decrease in 2004, and the state will also spend more on social welfare," he explained.
He said the ministry estimated that budget revenue in 2004 would reach 46.3 billion kroons (3 billion euros), of which nonrepayable EU financial aid would comprise up to 5.6 billion kroons.
Nevertheless, Saalik, said that despite concerns about the current account deficit, which were emphasized in the IMF mission's latest report released just two weeks ago, Estonia's budget would be balanced.
The Finance Ministry announced last week that it expected 5.6 percent GDP growth in 2004, 0.2 percent higher than forecast earlier this year.
Published together with the pre-accession economic program last week, the forecast also lowered expectations for real economic growth in 2003 from 4.8 percent to 4.5 percent.
The predictions outlined that by the end of 2003 the current account deficit would peak at 12.7 percent of GDP, but in 2004 it would decrease to 10.4 percent and gradually fall further, Saalik said.
Finance Minister Tonis Palts said that the GDP forecast is the most important part of the preaccession economic program and expressed an optimistic point of view on the politically important economic reforms planned by the current government.
The three-party coalition government led by Res Publica's Juhan Parts slated a gradual income tax rate decrease and higher social welfare allowances as its main electoral promises and has started to implement them.
"If we can cope [with the income tax rate decrease] this year, we will definitely cope with it later as well," Palts said.
Palts added that the black scenario budget – seen if the EU accession referendum were to fail – is being developed by the ministry and will be presented soon.
"I think it will spoil your mood for a long time," he warned.
After accession new EU member countries must prepare a so-called stability program, according to ministry officials.
