STATE BUDGET STRATEGY 2021-2024

Tallinn 2020

STATE BUDGET STRATEGY 2021-2024

Table of Contents INTRODUCTION ...... 3 1. PRIORITIES OF THE GOVERNMENT OF THE REPUBLIC ...... 8 FAMILY-FRIENDLY ESTONIA ...... 8 COHERENT SOCIETY ...... 9 KNOWLEDGE-BASED ECONOMY ...... 10 EFFICIENT GOVERNANCE ...... 12 FREE AND SECURE STATE ...... 12 2. OBJECTIVES OF PERFORMANCE AREAS ...... 14 2.1 Well-being ...... 14 2.2 Health ...... 22 2.3 Educated and active population ...... 27 2.4 Estonian language and identity ...... 32 2.5 Environment ...... 34 2.6 Research and development and enterprise ...... 39 2.7 Agriculture and fishing ...... 45 2.8 Transport ...... 50 2.9 Energy ...... 54 2.10 Information society ...... 57 2.11 Effective government ...... 63 2.12 State based on the rule of law ...... 70 2.13 Internal security ...... 73 2.14 Foreign policy ...... 77 2.15 National security and defence ...... 82 2.16 Culture and sport ...... 90 2.17 Population and coherent society ...... 97 3. FISCAL FRAMEWORK ...... 106 3.1 Fiscal policy objectives of the Government of the Republic ...... 106 3.2 Revenue and expenditure measures ...... 107 3.3 Budgetary position of general government ...... 109 3.4 Tax policy ...... 125 3.5 Financing of the general government ...... 129 3.6 Public finance reforms ...... 134 APPENDICES ...... 137 Appendix 1. Economic forecast of summer 2020 of the Ministry of Finance and sensitivity analysis ...... 137 Appendix 2. Funding Plan of the State Budget Strategy 2021-2024 (thousand euros) ...... 145 Appendix 3. External grants across funds and areas of government ...... 152 Appendix 4. Calculated and transferred costs 2020 – 2024 (thousand euros) ...... 154 Appendix 5. Use of revenue from the EU scheme for greenhouse gas emission allowance trading 181 Appendix 6. Personnel and salary analysis of the general government ...... 189 Appendix 7. Four-year plan of investments and investment subsidies, and real estate investments made via Riigi Kinnisvara AS in the State Budget Strategy, thousand euros ...... 198 Appendix 8. Rail Baltic construction action plan for 2021 and subsequent years ...... 203

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INTRODUCTION

Essence of State Budget Strategy The objective of the preparation of the State Budget Strategy is to ensure fiscal sustainability and to enhance the effectiveness of the government in steering national and sectoral growth. The State Budget Strategy ensures compliance between the state’s needs in sectoral policies and its financial opportunities resulting from forecasts. The first document to serve as a budget strategy was drawn up in 2000. Pursuant to the State Budget Act, the State Budget Strategy must be approved by the Government of the Republic, at the proposal of the Minister of Finance, no later than eight months before the beginning of the next fiscal year. In the year of the regular elections to the Riigikogu, the Government of the Republic must approve the budget strategy no later than seven months before the beginning of the next budgetary year. Due to global spread of SARS-CoV-2 virus in early 2020, the Government of the Republic declared a state of emergency on 12 March. As a result of that, the State Budget Strategy 2021-2024 along with draft state budget is prepared in autumn 2020 and approved by the Government of the Republic in late September. The State Budget Strategy is updated each spring, by specifying the plans for the next three years and supplementing the plan for at least one year. This will ensure that medium-term plans are constantly adjusted to changes in the economy, fiscal environment and sectoral operating environment. The State Budget Strategy 2021-2024 was prepared largely in consideration of crisis-related changes in the economic environment and changes in tax revenue. The budget strategy includes the main directions of the state’s fiscal policy, a forecast of economic development, priorities of the Government of the Republic, situation analysis of performance areas, indicators with targets, main policy changes, and a funding plan for areas of government. Implementation and updating of State Budget Strategy The State Budget Strategy is implemented via sectoral development plans and state budget. For drafting the state budget, the Government Office and the ministries shall submit to the Ministry of Finance necessary data, based on maximum volume of funds given to the particular area of government and general and sub-objectives of the performance areas in the area of government, including programme(s) in relevant areas of responsibilities, draft performance report(s), legal person’s financial plan(s) and, where necessary, application(s) for increasing the maximum funds prescribed in the State Budget Strategy (additional applications). The Ministry of Finance submitted detailed instructions and time plan for preparation of draft State Budget Strategy and reporting for the areas of government in February 2020. Draft budget of constitutional institutions is prepared in accordance with its economic content for the following year and three years thereafter. The Government of the Republic will submit the draft state budget together with explanatory memorandum to the Riigikogu no later than three months before the beginning of the next budgetary year. The Riigikogu will pass a state budget as an Act. Each year, ministries add another year to their development documents aimed at the achievement of the Government’s objectives, thereby ensuring at least four-year outlook in strategic planning. The supplements are based on the current State Budget Strategy. As a rule, development plans are submitted to the Ministry of Finance as a part of the draft budget strategy no later than by 1 March. In 2020, the supplemented versions of programmes prepared for implementation of development plans were submitted by 10 August at the latest.

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State Budget Strategy and monitoring thereof Over the course of the current budgetary year, regular overviews of the state’s financial situation are compiled. Monthly overviews of accrual of revenue, the use of funds from the state budget, changes in liquid assets, the budgetary position and the situation in the economy and the general government are prepared and published on the website of the Ministry of Finance. At the end of each budgetary year, each governmental agency will prepare annual report and submit a report on the performance of action plans to the Ministry of Finance. The state shared Service Centre will prepare an overview of the state’s financial situation, financial performance, cash flows, and the implementation of state budget. Based on those inputs, the Ministry of Finance prepares the consolidated annual report of the state, reflecting comprehensive information about the performance and resources of the general government. The Government of the Republic will approve the consolidated annual report of the state and submit it together with the audit report of the National Audit Office to the Riigikogu for approval. Preparation of State Budget Strategy 2021-2024 The State Budget Strategy 2021–2024 was prepared simultaneously and in substantial consistency with the preparation of the Government of the Republic Action Plan and the updating of the national competitiveness plan “Estonia 2020”. The ministries presented their programmes for implementation of the objectives together with the financial plans to the Ministry of Finance by 10 August. The data received from the ministries was used as an input for preparing both the economic forecast and the State Budget Strategy. As of 2020, the focus of the structure of the state budget is directed at the strategic objectives of performance areas, the budget is planned by programmes created to achieve those objectives. Budget-related strategic development documents contain a development plan and programme for the performance area. As a result of the crisis due to the spread of SARS-CoV-2 virus in 2020, cabinet meetings were held to discuss economic and fiscal policy objectives as well as budget priorities in September. When preparing the State Budget Strategy 2021-2024, the Government of the Republic has not foreseen general increase in operating expenses (additional wage costs, trainings, etc.). The budget strategy has been prepared considering that ministries and their sub-agencies will find possible austerity measures in operating expenses of the budget of 2021 that would allow using released funds to cover critical expenses on information and communication technology (ICT). The Government of the Republic has also adhered to similar principles with regard to budgets of constitutional institutions. The State Budget Strategy 2021-2024 was submitted to the Government of the Republic for approval on 29.09.2020. the document will be forwarded to the Riigikogu after it has been approved by the Government of the Republic. Inclusion of partners in preparation of the State Budget Strategy 2021-2024 The participation of partners in the preparation of the development plans is organised by the responsible ministries. The inclusion of relevant interested persons and authorities and effective cooperation between sectors is unavoidable in order to achieve an integral perspective and coordination of development documents. The Government has also provided the persons preparing the development plans with guidelines on good practice of inclusion. Structure of State Budget Strategy 2021-2024 This State Budget Strategy comprises three chapters.

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The first chapter describes in detail the priorities of the Government of the Republic, outlining the most important development activities to be implemented in the next four years. The second chapter contains a table of indicators and their target levels from the baseline to the next four years, as well as important activities by performance areas for the next four years to achieve the objectives. The third chapter describes the economic and fiscal policy objectives and priorities of the Government of the Republic as well as the fiscal framework of the general government for the following four years.

Document has eight appendices setting out the following: 1. Economic forecast and sensitivity analysis prepared by the Ministry of Finance in summer 2020; 2. Funding Plan of the State Budget Strategy 2021-2024; 3. external funds across funds and areas of government; 4. estimated and transferable costs 2020 – 2024; 5. use of revenue from the EU scheme for greenhouse gas emission allowance trading; 6. personnel and salary analysis of the general government; 7. four-year plan of investment and investment subsidies planned in the State Budget Strategy, as well as investments made through Riigi Kinnisvara AS; 8. Rail Baltic construction action plan for 2021 and the subsequent years.

Meaning of the abbreviations used in the document: MoJ – Ministry of Justice MoER – The Ministry of Education and Research MoD – Ministry of Defence MoE – Ministry of the Environment MoC – Ministry of Culture MoEAC – Ministry of Economic Affairs and Communications MoRA – Ministry of Rural Affairs MoF – Ministry of Finance MoI – Ministry of the Interior MoSA – Ministry of Social Affairs MoFA – Ministry of Foreign Affairs RDP – Estonian Rural Development Plan 2014-2020 EMFF – European Maritime and Fisheries Fund 2014-2020 ESF – European Social Fund EAFRD – European Agricultural Fund for Rural Development

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ERDF – European Regional Development Fund CF – Cohesion Fund RKAS – Riigi Kinnisvara AS R&D – research and development ICT – Information and communication technology PA – Performance area MFF 2020+ - EU’s multi-annual financial framework OSCE – Organisation for Security and Cooperation in Europe EIF – European Investment Fund EAS – Enterprise Estonia GoR – Government of the Republic ESA – European Space Agency CERN – European Organisation for Nuclear Research LG – Local government ELSF – European Internal Security Fund PBGB – Police and Border Guard Board MDFT – multidimensional family therapy MTO – medium-term objective SBS – State Budget Strategy m – million bn – billion

Chapters and performance areas of the State Budget Strategy 2021-2024 The sectoral view provided in the State Budget Strategy is guided by the Government’s political directions. In compliance with the State Budget Act, the State Budget Strategy sets out the performance areas, setting long-term measurable objectives for the Government of the Republic. Performance areas are jointly used in both financial management and strategic planning of the state in order to better connect development plans and budget information. In September 2019, the Government of the Republic decided to partially change and reduce the performance areas used in financial management and strategic planning of the state.

VVTP policy field SBS performance area 2020-2023 SBS performance area 2021-2024

National security and defence Foreign and national security National security and defence

policy Foreign policy Foreign policy Internal security Internal security Internal security Public administration and civil Public administration (incl. civil Efficient state society society)

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VVTP policy field SBS performance area 2020-2023 SBS performance area 2021-2024

Rule of law and direct Legal order State based on the rule of law democracy Regional policy is one of the Regional policy is one of the Local life and regional policy programmes in the governing programmes in the governing performance area performance area Rural life, agriculture and Agriculture and fishing Agriculture and fishing fishing Healthcare Health Health Education Educated and active people Education and research policy Research Enterprise and innovation Research and development and Tax policy is one of the programme Economy, entrepreneurship and entrepreneurship activities in the state finances’ taxes performance area Labour market

Social security Social protection Well-being

Family policy Coherent society and population Integration Population and coherent society Estonian language and identity Estonian language and identity Culture Youth work is one of the Culture, sports and youth work programmes in the education Culture and sports performance area Sports E-government and information Information society Information society society Transportation and infrastructure Transport Transport Energy Energy Environment and energy Environment Environment

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1. PRIORITIES OF THE GOVERNMENT OF THE REPUBLIC

The Government of the Republic bases its preparation of the State Budget Strategy on coalition agreements, the priorities of which include an increase in Estonian economy, population, national security and welfare of people. In order to achieve these objectives, the Government has approved a work schedule, the activities planned in which are financed from the state budget. Below are outlined the most important objectives and activities that the Government is planning to take in order to achieve the objectives and for which it has planned in the strategy the resources for financing such objectives and activities.

FAMILY-FRIENDLY ESTONIA  Total fertility rate by 2023 will be 1.67 (base level 1.67 in 2018).  The absolute poverty rate in children will be reduced to 3.1% by 2023 (base level in 3.2% in 2017) The government deems it important that Estonia would be a place to start a family and build a home, and that it welcomes back everyone who has once left to live abroad. Planned activities:  The Government plans to map the impact and cost-effectiveness of the family policy measures taken so far and if necessary, develop suggestions for improving support and services for families. It also plans to develop a long-term vision of family policy supporting fertility rate and prepare Population and Coherent Society Development Plan until 2030.  The Government will create a national family mediation system in order to support the families and improve parental skills. Programmes aimed at improving parental skills will also continue.  Home support for families with many children will continue with the help of Kredex and, in addition to that the possibilities of providing loan sureties without own contribution for young families and families with many children will be analysed.  In order to combat domestic violence, the Government will implement the action plan for prevention of domestic violence and analyse the development of a system that helps children that have fallen victim of sexual or physical abuse. The plan also includes extending the children’s house service that helps children that have been or are suspected of being sexually abused to East Estonia and updating the Victim Support Act.  In order to ensure availability and quality of the support services for children, the plan involves rearrangement of the support system for children with special needs and updating of the national curriculum of pre-school education and Pre-School Education Act.  To support improving children’s movement habits, give schools more discretion and improving the IT studies at schools, proposals are prepared for amending the national curricula of basics schools and upper secondary schools. The Government also plans to approve the Education and Youth Development Plans until 2035, setting the most important objectives of the education and youth area for the next 15 years. One crucial priority is to regularly monitor the health of children and young people and to reduce problems concerning excess weight, addictive habits, and mental health. The Government plans to put together green books on nutrition, physical activity, and mental health with the aim of preventing the problems in a coordinated manner and solving them efficiently. In order

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to improve the movement habits of children is to continue with the base level swimming programme.  To support integration into Estonian society and culture and to promote returning home from abroad, the government has analysed services for the people returning, for the Estonians living abroad, for the new immigrants and permanent residents of other ethnic nationalities (incl. language learning) and is preparing sectoral development plan that comprises policy instruments formerly discussed in several strategic documents.

COHERENT SOCIETY  Reduction of relative poverty to 15% by 2023 (22.6% in 2017).  Reduction of absolute poverty to 2.8% by 2023 (3.4% in 2017) The Government will contribute to improving people’s well-being and safety, will shorten the waiting times in the medical care system and decrease social inequality to ensure a coherent society. The Government’s priority is to focus on improving the subsistence and well-being of the elderly and to develop services aimed at people with special needs. Planned activities:

 If the state budget allows, the Government considers the option of raising pensions extraordinarily. The government also plans to prepare proposals for supporting the pension-gathering options by employers to employees and reform the old-age pensions under favourable conditions and superannuated pensions.  It is planned to continue with creating service homes for seniors, providing both care and everyday household services to the elderly.  To ensure that people remain as independent as possible in their everyday lives and to ease the burden of relatives with a long-term burden of care, it is planned to bring organisation of long-term care and policy regarding people with special needs up to date. The aim of the updating is to expand the availability of both the nursing service and services and appliances for people with special needs, simplify the system for verifying a disability, and rearrange the cost-sharing of services.  The government plans to support the use of technological solutions in social protection. Innovative digital technological solutions enable to help people who need care manage without leaving home, maintain and increase their individual ability to cope.  The government’s objective is to improve the accessibility of a living environment across all fields, supporting the needs of both the elderly and people with special needs. For that, a cross-ministry task force will be used to establish common principles and more detailed suggestions to improve accessibility.  To make medical care more accessible and shorten the waiting times, the sustainability of the financing system of health care will be analysed, as well as more efficient use of the resources and the possibilities of extending the availability of medical services to people who have no health insurance (incl. creative professionals). It is also planned to develop an action plan for ensuring access to social protection for people employed based on atypical forms of employment.  The government plans to accept the National Health Plan 2020-2030 which will determine the most important priorities of the next decade to improve the health of people, lengthen their life expectancy and healthy life expectancy, and to reduce inequality in the field of health.  The implementation of Ida-Viru and South Eastern Estonia programmes will continue in the full extent of 16.4 million euros and 3.2 million euros respectively until year 2024.

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KNOWLEDGE-BASED ECONOMY  Productivity per employed person as a ratio to the EU average is 80% (base level: 74.4% in 2017)  Employment participation (20–64 years old) is more than 79.5% (base level: 79.2% in 2018)

The government will invest in economic growth that will improve the livelihoods of people everywhere, both in cities and in rural areas. The following growth must be based on smart entrepreneurship, which is why investments into research and development and digitalisation of economy is deemed important. The state will stand for an internationally acknowledged and competitive business environment and, among other things, take steps to reduce bureaucracy and administrative burden. Implementation of innovative solutions is supported, making sure that the state will not hinder innovation. Exporting businesses are valued and economic diplomats will provide them with more support on the foreign markets. Planned activities: Research and development, economy, finance, labour market:  For the first time, the funding of research and development of the general government will reach 1% of GDP. For that purpose, the government allocated additional funds in total sum of 56 million euros, of which 40% (22.4 million euros) is for the Ministry of Education and Research, 40% (22.4 million euros) for the Ministry of Economic Affairs and Communications, and 20% (11.2 million euros) for strengthening research and development activities in other areas of government.  Scientific research on coronavirus causing COVID-19 and the introduction of biosafety level 3(BSL-3) laboratory that enables to study pathogens that are extremely hazardous to heath will be supported.  Importance is attributed to significant increase in the share of private sector investments, which is why emphasis is placed on supporting applied research of businesses. For that purpose, Enterprise Estonia will launch a programme to finance applied research.  In order to extend the doctorate studies in entrepreneurship, a new support measure will be developed.  Support for digitalisation of enterprises continues to improve the productivity and create new competitive advantages. Construction sector processes will be digitalised to improve the productivity of the construction sector and e-construction infrastructure will be developed.  Loan and surety products will be provided through KredEx in order to support undertakings and their employees undergoing hard times due to the health crisis.  Estonia’s membership in the world’s leading research hubs will be put to maximum use. Enterprises will receive support for participating in the EUROSTARS programme and accession to the European Organisation for Nuclear Research (CERN) will be completed.  The research programme based on the needs and interests of the enterprise to add value to the local resources (food, timber, natural resources) and the implementation of the information and communication technology research programme will continue.  In order to improve employment, the government plans to expand the possibilities for retraining, refresher training, and adult learning. Proposals will also be developed to improve the delivery of today’s labour market services, which will support the inclusion of inactive people in the labour market. In order to promote youth employment, the

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government intends to alleviate the provisions of the Employment Contracts Act and allow employment contract with minimum/maximum working hours.  Digitalisation of the legal process will speed up criminal proceedings. Technological possibilities are advanced to make sure that proceedings are as accurate and quick as possible, starting from gathering and transmitting evidence on the crime scene and ending with executing the court’s decision, without spending time on producing and delivering documents on paper. Additionally, capacity will be increased to process and analyse large data volumes to better detect cyber and economic crimes.

Agriculture:  The government will stand for equal competitive conditions for Estonian agricultural and food producers in the European Union. Farmers will continue to receive funding of animal breeding and transitional support.  Clean nature is seen as a competitive advantage of Estonia, which is why implementation of Estonia’s comprehensive programme for organic economy and support measures for tourism enterprises will continue. Promoting Estonian food export and opening up new markets for the food sector is considered important and for that objective, the action plan for promotion of the food sector export will continue.  The Rural Development Foundation will continue financing agricultural undertakings and other enterprises in rural areas to the extent larger than before.

Investments in the infrastructure support economic growth, incl.:  Investments will be made to road construction with the largest projects (2021-2024) being the following: • Väo traffic node, 10.7 million euros; • Grade separation of Pavlov street and Viivikonna road in Sillamäe, 3.9 million euros; • Võõbu-Mäo, 50 million euros; • Kärevere – Kardla, 18 million euros; • Sauga – Pärnu, 8.5 million euros; • Pärnu – Uulu, 46 million euros; • Kanama – Valingu, 30.7 million euros.  A total of 438 million euros (2021-2024) has been intended to support public transport, which is used to keep public transport free at least at the same capacity as now, and maintain at least the same capacity between the islands and the mainland to ensure the demand for ferry traffic. The connection between Saaremaa and mainland will improve because a larger aircraft will be added to the airline route to Kuressaare.  The reconstruction of Tapa-Narva railway and increasing travel speed on some sections to 135 km/h will be supported, Tallinn-Tartu railway will be renovated and travel speed increased (135 km/h), and Riisipere-Turba railway will be renovated.  The construction of Rail Baltic and other strategic infrastructures will continue. Technical planning and purchase of land for the railway track, building of Pärnu and Ülemiste passenger terminals, development of a sustainable and integrated mobility environment between the Old Harbour and downtown, and reconstruction of a transit road passing through Narva will continue.

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Supporting the increase in energy efficiency and energy security, incl.:  Development of renewable energy and measures of energy conservation is contributed to, while also, among others, supporting the reconstruction of residential buildings and street lighting and the area of heating economy for the purpose of energy efficiency.  To ensure energy security, the government will continue preparations for synchronising the Estonian power network with the European frequency band by 2025.

EFFICIENT GOVERNANCE  The percentage of general government employees in employment-age population will not increase in the age group of 15-74 year-olds by 2023 (11.9% in 2017).  The share of government expenditure in GDP will not increase by 2023 (39.3% in 2017). The government will invest in growing well-being and safety, ensure the availability of public service and take steps to reduce bureaucracy and administrative burden. The government will include Estonian people considerably more in the decision-making process and strengthen direct democracy. Planned activities:  Communication with the state needs to be simple and smooth, without excessive bureaucracy or administrative load. Based on the state reform action plan 2019-2023 adopted by the Government of the Republic, consolidation of state agencies is gradually implemented in accordance with completed analyses, and regional recruitment of state employees across Estonia will be implemented.  Broad revision of the state budget will be continued to review all the sources of income and expenditure of the state and assess their purposefulness.  To strengthen direct democracy, drafts and solutions will be prepared to legalise people’s initiative on a broader scale and to simplify referendums.  The capabilities of local governments need to be increased to improve the availability as public services. For that, analyses and suggestions are made on the ways of increasing the budgetary independence of local governments and their role in developing the local business environment.

FREE AND SECURE STATE  The share of defence expenditure of GDP, plus additional costs for Estonia as a recipient country and the expenditure of an additional national defence investments programme, is at least 2% (1.84% in 2019)  The share of people who consider Estonia a safe country is at least 94% (92% in 2019)  Willingness to defend, i.e. the willingness of Estonian people to personally participate in defence in case of an attack against Estonia remains above 54% (60% in autumn 2019). The most important task of the government is to ensure the survival of the people of Estonia and an independent and defended Estonia. One crucial pillar of a free state is membership in international organisations. Strong bilateral and regional relationships ensure a favourable foreign environment for Estonia. Planned activities:

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In order to ensure security and solve the global challenges, cooperation is promoted in international organisations, bi- and multilateral relationships and regional formats.  Resistance of the state and the society to crises will improve. The continuity of vital services will be improved and Estonian Supply Centre will be created to ensure the security of supply for population. The activities necessary for developing the field of civil defence continue to be important, as they will create better opportunities for protecting the residents in case of various crises and will improve the awareness and crisis behaviour skills of residents.  For better coping with crises, a crisis reserve will be created at the Police and Boarder Guard Board. The capability of the Border Guard Department established at the Police and Boarder Guard Board and using quick response units made of volunteers will be enhanced.  Cyber defence capacity and the capability of proceeding cyber offences will be increased and strengthened.  The integration of NATO’s eFP battalion group, which has been present in Estonia since spring 2017, will continue. The infrastructure that supports the presence of allies will be largely completed by 2022. An infrastructure relating to receiving and training of troops will be developed in cooperation with the NATO allies. In order to improve the level of training, more extensive use of the central training area and Soodla training area will be analysed.  Participation in international operations organised by NATO, European Union, UN or coalition to ensure national security and peace together with allies and partners and in response units will continue in 2021.  The implementation of the national defence investments programme will continue, 20 million euros a year (total of 80 million euros in 2020- 2023). Special attention will be given to procurement of ammunition, improvement of capability of self-propelled guns and development of the capacity of brigade’s anti-tank companies.  According to the possibilities, the structure of the Defence Forces will increase 2023. Among other things, additional companies will be formed to strengthen territorial military defence. The number of conscripts will increase to 3,500. For that, capabilities will be developed to use the eesti.ee portal for sending the invitations.  Additional reservist trainings are organised to maintain and control the combat readiness and mobilisation readiness of combat forces of the Defence Forces.  Building the eastern border will continue as planned.

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2. OBJECTIVES OF PERFORMANCE AREAS

This chapter provides an overview of the current situation in performance areas. The performance areas together cover all activities of the state and all funds reflected in the State Budget Strategy. The performance areas present the overall objectives of the Government of the Republic as well as their target levels and indicators describing their achievement. The objectives of the performance areas are implemented through programmes, whose aims, measures and main activities are also described in this chapter. The overview of the current situation in performance areas presents only the most general trends in the performance areas and their central indicators. A more detailed overview of the situation in performance areas can be found in the respective sectoral development plans and programmes. A more detailed overview of the latest achievements in performance areas can be found in management reports of the annual reports of the relevant ministries and in the overview of action plan performance reports included in the annual report of the state. An overview of the more specific planned actions is provided by the Actional Plan of the Government of the Republic.

2.1 Well-being Objective of the performance area: High level of employment and long and high-quality working life. Reducing social inequality and poverty, ensuring gender equality and increasing social inclusion. Table 1. Indicators and target levels of the well-being performance area

Previous Indicator/Target level 2021 2022 2023 2024 actual level

Rate of relative poverty, % Men 19.3 (2018) 14.8 14.8 14.8 14.8 Source: Statistics Estonia; Women 23.8 (2018 ) 15.2 15.2 15.2 15.2 Estonian Social Survey Total 21.7 (2018 ) 15 15 15 15 Absolute poverty rate among children aged 0-17, % 1.6 (2018) 3.4 3.2 3.1 3.0 Source: Statistics Estonia Absolute poverty rate, % Men 2.9 (2018) 3.5 3.4 3.3 3.2 Source: Statistics Estonia; Women 2.0 (2018) 2.6 2.5 2.4 2.3 Estonian Social Survey Total 2.4 (2018) 3.0 2.9 2.8 2.7 Difference between average hourly wages of women and 17.1 (2019) 19.3 18.9 18.5 18.1 men, i.e. gender pay gap, % Source: Statistics Estonia Natural population growth -1,302 (2019) Positive Positive Positive Positive Total fertility rate 1.66 (2019) 1.65 1.65 1.67 1.67 Duration of working life, in Men 39.5 (2019) 40 40.1 40.2 40.3 years Women 38.5 (2019) 38.1 38.2 38.3 38.4 Source: Eurostat Total 39.0 (2019) 39 39.1 39.2 39.3 Men 83.6 (2019) 82.9 82.9 82.9 83.0 Employment rate in the 20-64 Women 76.2 (2019) 75.8 75.9 76.0 76.1 age group, % Total 79.9 (2019) 79.3 79.4 79.5 79.6

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Previous Indicator/Target level 2021 2022 2023 2024 actual level Source: Statistics Estonia, Estonian Labour Force Survey

Well-being performance area programmes: Social Security Programme, Welfare Programme, the Gender Equality Programme, Labour Market Programme and Children and Families programme have been prepared for the implementation of the Welfare Development Plan 2016- 2023 and for achieving its goals. The programmes focus on social equity and reduction of poverty by enabling people to cope independently, live in the community and participate in society. The Ministry of Social Affairs together with various agencies of the performance area is responsible for the achievement of the objectives of the programmes and planning of the activities and funds. Short analysis of the situation of the performance area The Estonian social system is divided into social security and social welfare services. Under social welfare, people are provided, based on their needs, with services to support independent living, coping and employment, and to improve their inclusion in society (e.g., services for the elderly, people with disabilities, people with socio-economic problems), benefits are provided, assistance is given where necessary (subsistence benefit) and emergency assistance is provided. Assistance is given on the basis of the principle of subsidiarity, according to which social services and benefits are generally provided and financed by the authorities closest to the people, i.e., the local government. According to Estonian population projections, the proportion of very elderly people (80 years and older) in population will increase from current 5.6% to 6.7% during 2019–2030. The proportion of people aged 65 years and older in total population will make up almost a quarter by 2030 and 28.4% by 2080 (compared to 19.8% in 2019). Although the life expectancy has significantly extended over the years, the Estonian data of 2018 indicate that the healthy life expectancy is very short for women (5.8 years) and men (5.6 years) aged 65 and older compared to the average indicator in Nordic countries (15.8 for women in Sweden and 11.8 in Denmark and 15.6 and 10.8 for men, respectively) and EU average (10.0 years for women and 9.9 years for men), and, compared to EU average, people aged 65 years and older are more likely to need assistance in their daily activities and self-care and have restricted mobility. According to the data of 2019, approximately 25% (approximately 29% in 2018) of people aged 65 years and older found that their daily activities were largely limited due to health issues. Social transfers, that is, cash benefits and allowances (incl. pensions) reduced the absolute poverty of the population by approximately 89% in 2018 (by 20.3 percentage points), i.e., without financial support and compensation, an estimated 22.7% of the Estonian population would have lived in absolute poverty. The impact on relative poverty reduction is also important – in 2018, social transfers, including pensions, reduced the relative poverty rate of the population by approximately 45% (17.4 percentage points). Of the various types of social transfers, old age pensions reduce the poverty of the population the most. In 2018, the old age pension reduced the absolute poverty of the entire population by 14.1 percentage points (85%) and relative poverty by 9.8 percentage points (31%). The old age pension has the greatest impact on the poverty indicators of people aged 65 and over, as the old age pension is generally the main source of income for them. In 2019, out of all people aged 15–74 years, 671,300 were employed, 31,300 were unemployed and 278,400 were inactive. Employment participation remained high – 78.6% and employment

15 STATE BUDGET STRATEGY 2021-2024 rate reached its record level 79.9%. Both indicators placed us among the best in the EU. In terms of employment participation among people aged 50 years and older, Estonia ranks first among the EU countries for the fifth consecutive year and among the first three or four countries in terms of employment rate of people aged 55–64 years. For the fifth consecutive year, the employment rate target for 2020 among people aged 20–64 was exceeded and is currently 76%. In upcoming years, increasingly more attention must be paid to active labour market participation of people aged 50 years and older. Due to their growing proportion in the population it is more difficult to maintain general employment level. The proportion of people aged 50 years and older in the population is 39% and according to the population projection, this proportion will continue to grow, reaching approximately 48% by 2045. In a situation with ageing and declining population, it is crucial that the potential of all the people is utilised on the labour market. The unemployment rate fell to 5.4% in 2018 and to 4.4% in 2019, which is the lowest level of the last couple of decades. At the same time, the unemployment rate in different regions varies more than twice. For example, unemployment rate in 2019 was 8.7% in Ida-Viru county, but 3.4% in Harju county. Along with overall decrease in unemployment, there was also a drop in the number of long- term unemployed, who constitute approximately one-fifth of the unemployed. The long-term unemployment decreased to 0.9% in 2019. Low qualification level can be seen as the main cause of long-term unemployment. In 2019, 35% of women and 32% of men who were long- term unemployed, had no vocational, occupational or professional education. Many of them find it more difficult to get a job due to lacking skills of official language. In 2019, 20% of the long-term unemployed stated that they did not speak Estonian. Unemployment decreased in 2019 across all age groups. The unemployment rate among youth fell to 11.1%. The employment of youth is more difficult due to lack of experience and professional skills. In 2019, 70% of youth did not have vocational, occupational or professional education and 58% of unemployed men aged 15–24 and 29% of unemployed women had no previous work experience. The decline in the working-age population and the low rate of unemployment are contributing to the worsening of labour shortages. Lack of qualifications and outdated skills also increase labour shortages. In 2019, there were 193,200 people with no vocational education in Estonia in the 25–64 age group (of whom 11,700 were students and probably still acquiring their vocation), i.e. 27% of the age group. According to economic experts, a shortage of qualified labour force is one of the most important factors hindering economic development in Estonia. The employees’ knowledge, skills and experience are not able to meet the needs of employers. On average, women’s wages are significantly lower compared to men’s wages in Estonia. According to Statistics Estonia, the gender pay gap in Estonia was 17.1% in 2019. Despite continued decrease in gender pay gap (compared to 2018, the gender pay gap decreased by 0.9 percentage points), it is still significantly higher in Estonia compared to other EU Member States, 22.7% according to preliminary data of Eurostat 2018.

2.1.1 Social security programme Objective of the programme: People’s economic coping has improved with the help of activating, adequate and sustainable social protection.

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Table 2. Indicators and target levels of the social security programme.

Indicator/target level Previous actual level 2021 2022 2023 2024

Men 1.0 (2018) 3.3 3.1 3.0 2.9 Absolute poverty rate in age 0–17 Women 2.3 (2018) 3.6 3.4 3.3 3.2 groups 0–17, 18–64 and Total 1.6 (2018) 3.4 3.2 3.1 3.0 65+, %1 Men 4.0 (2018) 4.1 4.1 4.0 3.9 Source: Statistics Estonia, 18–64 Women 2.6 (2018) 2.9 2.9 2.8 2.7 Estonian Social Survey Total 3.3 (2018) 3.5 3.5 3.4 3.3 65+ Total2 NA (2018) 0.7 0.7 0.7 0.7 Deprivation rate in the total population, Men 7.0 (2019) 5.8 5.2 4.6 4.0 %3 Women 8.1 (2019) 6.9 6.3 5.7 5.1 Source: Statistics Estonia, Estonian Total 7.6 (2019) 6.4 5.8 5.2 4.6 Social Survey

Important activities to achieve the objectives of 2021-2024  As a result of the reform of the I pillar pension, retirement will become more flexible from 2021 onwards, allowing people the choose when to retire and the amount of pension. To ensure adequate pensions, the pension formula will be supplemented with a compound, 50% of which will depend on social tax and 50% on the length of service. The addition of a compound contributes to slowing the growth of the inequality of the I pillar pension and ensures a better income for the low-paid in old age. Since 2027, the retirement age is linked to the average life expectancy calculated by Statistics Estonia. This change will keep the life expectancy of the retirement age in line with the changes and will allow future pensioners to receive pensions that are equivalent to the current ones.  Pursuant to the State Pension Insurance Act, the Ministry of Social Affairs, in cooperation with the Ministry of Finance, analyses the impact of the basis for calculating pensions on the financial and social sustainability of the pension insurance system every five years, and the Government of the Republic makes proposals for amendments if necessary. The analysis deals with both the first and second pillars of the pension.  In order to provide a more liveable pension, the Ministry of Social Affairs will analyse the survivor’s pension and national pension schemes and submit a proposal to the Government of the Republic for their reform.  For a fairer treatment of pensioners, the Ministry of Social Affairs will propose to the Government of the Republic to reform benefits pensions under the Old Age Pensions Act and the Superannuated Pensions Act, as the conditions for obtaining a pension no longer correspond to the original objective. At the same time, the Ministry of Finance, in

1Shows the proportion of people whose net income per household member (equivalent net income) per month for consumption scales 1:0.7:0.5 is below the absolute poverty threshold, i.e. less than the calculated subsistence minimum. Calculated subsistence minimum is the lowest amount of livelihoods that a person needs to cover his daily needs. The subsistence minimum consists of a calculated minimum food basket and individual non-food expenses, including housing costs. 2 The restrictions of the sampling do not allow to determine data by gender. 3 Indicates the share of people who are unable to afford themselves at least four components of the following nine: 1) payment of rent and utilities, 2) keeping the home sufficiently warm, 3) unforeseeable expenses, 4) eating meat, fish or food that contains equal amount of protein every other day, 5) a week-long holiday away from home, 6) a car, 7) a washing machine, 8) a colour TV, 9) a telephone. Thus, the severe material deprivation rate does not only describe income poverty but a broader material subsistence.

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cooperation with the Ministry of Social Affairs, will analyse the possibilities for promoting occupational pensions.  The social security system must take greater account of the cross-border movement of people. The social insurance agreement with Australia entered into force in 2018. On the basis of the agreement, the Estonian old-age pension (incl. benefits pensions) and the survivor’s pension are exported under more favourable conditions than under the State Pension Insurance Act. For example, a pre-retirement pension is paid under the contract before the retirement age. Insured persons can also join insurance periods in both countries. Pension is paid by both countries based on the working years. The agreement also prevents double insurance of posted employees.

2.1.2 Welfare programme Objective of the programme: People’s ability to manage independently, live in a community, and participate in society has improved due to effective legal protection and assistance. Table 3. Indicators and target levels of the welfare programme

Previous Indicator/Target level 2021 2022 2023 2024 actual level

Ratio of people receiving non-institutional or out-patient care services that support independent living and people receiving 24- 1.1 (2018) 1.3 1.4 1.4 1.4 hour institutional care 4 Source: Welfare statistics of the Ministry of Social Affairs, Social Insurance Board

Important activities to achieve the objectives of 2021-2024  The greatest task is to develop a long-term care system with a main objective of reducing the care burden of family members. For that, cross-sectoral coordination of care services needs to be improved in the upcoming years. Cooperation with local authorities, their empowerment and enforcement, and the integration of social and health policies are important.  Rehabilitation service is provided if it is necessary for independent living and social integration. Besides providing the service to the elderly and adult disabled people, it is necessary to continue the development of rehabilitation programmes on a slightly altered basis of cost model compiled in view of adjusted service prices, evaluation methodologies based on the International Classification of Functioning (ICF) are developed, and service providers are trained.  Consulting local governments with regard to the organisation of social services. In ensuring the availability and quality of social services, especially the availability of care services that support living in a domestic environment, it is important to continue to advise local governments on developing innovative services that prevent or relieve the burden of care

4 The indicator shows the number of the elderly, working age disabled people and people with special mental needs who use outpatient care services, and the ratio of people receiving round the clock in-patient care service. The aim is to increase the number of people within the target group who use outpatient care services, so that it would exceed the number of people receiving inpatient care.

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and coping difficulties. In 2020-2021, it will focus on local governments in Ida-Viru county, in cooperation with whom a pilot project of development programme will be carried out, which supports local governments in the development of social and welfare services.  In 2020, the Government of the Republic approved Green Paper on Increasing the Use of Technology to Support Daily Living and Well-Being of People at Home, which aims to formulate development trends and suggested solutions for implementing novel solutions in social sector, providing opportunities for future policymaking.  Volunteers – support living in a domestic environment. In 2018-2020, a pilot was carried out, in the course of which deployment of volunteers in the welfare system was tested and a cooperation model suitable for implementing across Estonia was developed. As a result, in 2021, it is planned to extend the model of involvement and deployment of volunteers to cover all Estonia. Availability of the service across Estonia will provide significant support to independent coping of the people in need of assistance in their domestic environment, because flexible and human support improves the quality of life of people in need, supplements official services, helps to delay deeper need for assistance and/or prevent placement in institutional care.  Continued development of a victim support system to provide appropriate assistance and support to all victims of violence and crime.  Maintaining 24-hour crisis helpline service 116 006 as part of the victim support system, including, if necessary, providing a focal point for trafficking cases and psychosocial crisis management.  Strengthening the service of Sexual Violence Crisis Centres (SVCCs) and providing standardised assistance to all respondents, both recent and older cases.  The practice of ensuring protection and empowerment of the victim, adequate treatment of perpetrators and strengthening of cooperation between the authorities in cases of domestic violence will continue.  In the field of equal treatment, activities will continue to promote diversity (diversity workplace label, diversity agreement, diversity day).

2.1.3 Gender equality programme Aim of the programme: Men and women have equal rights, responsibilities, opportunities and liability in all areas of the society.

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Table 4. Indicators and target levels of the gender equality programme.

Previous actual Indicator/Target level 2021 2022 2023 2024 level

Number of women graduating in mathematics, science and technology from a 13.2 14.2 14.5 14.8 15.1 thousand women aged 20–29 (2017/2018) Source: Statistics Estonia Percentage of residents who consider the gender pay gap to be a big or very big problem, % 64 74 - - - Source: starting level 2015 EMOR omnibus, (2016) thereafter, gender equality monitoring

Gender equality index Source: European Institute for Gender 59.8 61.7 - 63.3 - Equality (EIGE) (2019)

Important activities to achieving the objectives of 2021–2024  In order to reduce the gender pay gap, the introduction of transparent and objective evaluation of work and pay systems, including making available to employers an analysis of the organisation’s gender equality situation and a digital tool to facilitate and support gender equality planning are encouraged.  A wide-ranging media campaign will be organised to raise public awareness of gender stereotypes and their negative impact on daily life, decisions and economic and social development. Particular attention will be paid to raising awareness of gender equality and increasing the willingness to promote gender equality among young people and policymakers and decision-makers of local governments.  Activities will be carried out to support the availability of gender-based statistics and data in the areas of responsibility of all ministries.

2.1.4 Labour market programme Aim of the programme: Matching labour supply and demand ensures a high level of employment, and high-quality working conditions support a long working life. Table 5. Indicators and target levels of the labour market programme.

Previous Indicator/Target level 2021 2022 2023 2024 actual level Activity rate in the labour force among Men 81.5 (2019) 81.5 81.3 81.2 80.8 5 people aged 15–64, % Women 75.7 (2019) 75.4 75.2 75.1 75.1 Source: Statistics Estonia, Estonian 78.86 (2019) labour force survey Total 78.5 78.3 78.2 78.0

5 The indicator shows the share of the labour force in the working-age population, i.e. how much of the population is active in the labour market. The labour force comprises employees and the unemployed. The unemployed are those who do not have a job, are actively looking for work and are able to start working within two weeks.

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Important activities to achieve the objectives of 2021–2024  The aim is to have an unemployment insurance system that covers people regardless of their form of employment (incl. self-employed persons), which would improve social protection of more people. It is important for the unemployment benefits system to take into account developments in the labour market (changes in the length and nature of the employment relationship) and changes in the economy. To this end, the consideration of the proposals to develop the regulation of unemployment benefits and analysing the effects of the proposals will continue.  Those target groups that are at a disadvantage on the labour market (e.g. young people, the elderly, people with reduced ability to work, people with low Estonian language skills) are still considered to be important labour reserves. For their greater participation on the labour market, it is necessary to continuously develop various measures and increase their supply in case of growth of unemployment.  The aim is to ensure efficient and flexible provision of labour market services, which takes into account changes in the labour market. Based on an analysis carried out by OECD, changes in the employment policy legislation are considered.

2.1.5 Programme for children and families Aim of the programme: Increasing the well-being of children and families and improving the quality of life, thereby promoting the birth of children. Table 6. Indicators and target levels for the programme for children and families.

Previous Indicator/Target level actual 2021 2022 2023 2024 level The The The The difference difference difference difference 0.88 in between between between between Number of children wished and the actual women the the the the number6. and 1.55 desired desired desired desired Source: Special Eurobarometer, European in men and actual and actual and actual and actual Commission (2011) number of number of number of number of children children children children decreases decreases decreases decreases Remains Remains Remains Remains Percentage of children (grade 4 to 12), who are on the on the on the on the generally satisfied with life, % 82 same level same level same level same level Source: Survey on the rights of children and (2018) or or or or parenthood 2018, Praxis increases increases increases increases The difference between the employment rate of men and women aged 20–49 with children aged 64.2 pp 0–2 years, i.e. employment gap. 60 pp 59 pp 58 pp 57 pp (2019) Source: Statistics Estonia, Estonian labour force survey

6 The indicator shows the difference between the number of desired children measured by the survey and the actual number of children based on registry data. In order to develop a regularly published indicator, activities will be launched in 2017 to develop indicator methodology and a regular data source in cooperation with Statistics Estonia.

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Important activities to achieve the objectives of 2021–2024  The children with complex problems are fragmented across different systems and the big picture is lacking. By late 2020, a document for mapping the problems in the field will be developed, offering solutions for dealing with those problems. The aim is to provide children with services that combine treatment, rehabilitation, education and sanctions where necessary.  Needs assessment and provision of services for children with special needs are fragmented across different areas. To solve the problems, an integrated model of social, educational and primary healthcare services for children with special needs will be developed by 2020, aligning the provision of services at local and national level.  In foster care, the activities facilitating family-based foster care and improvement of service quality will be continued. In December 2020, a draft Social Welfare Act will be submitted to the Government of the Republic to improve social guarantees for people working as foster parents. In 2020-2021, the changes in organisation and financing of foster and aftercare that entered into force in 2018 will be analysed, as well as the coping and needs of young people leaving foster care and starting their own lives. In December 2021, the analysis and proposals will be made with regard to adding foster care and aftercare to LG revenue base.  One of the priorities in the field of child protection, but also in the area of criminal policy, is better identification, prevention and support of sexually abused children.  In 2020, an analysis and proposals will be made on the organisation and substantial quality of child protection work, on the basis of which a cooperation agreement will be concluded with the representative organisations of local governments in June 2021.  Amendments to the parental leave and benefit system will come into force in 2021-2022, which will allow parental benefit to be suspended and resumed according to the parent’s wishes until the child reaches the age of three, extend parental leave for parents to 60 days and simultaneously receive parental benefit, make exceptions in case of premature children and parents of multiple (triplets and more) children, and supplement the conditions for parental leave and adoption leave and benefits.

2.2 Health Aim of the performance area: The life expectancy and the healthy life expectancy of Estonian people increases and inequality in health decreases. Table 7. Indicators and target levels in the health performance area.

Previous Indicator/Target level 2021 2022 2023 2024 actual level

Life expectancy (separately for men and Men 73.9 Men 74 Men 74 Men 74 Men 75 women), years Women Women Women Women Women Source: Statistics Estonia 82.4 (2018) 82 82 83 83

Healthy (without limitations) life expectancy at Men 52.8 Men 53 Men 53 Men 54 Men 55 birth (separately for men and women), years Women Women Women Women Women Source: Statistics Estonia 55.6 (2018) 56 56 57 57

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Programmes of the health performance area: Healthy Choices Programme, Environmental Health Programme, and Human-Centred Healthcare Programme have been prepared to implement the National Health plan 2020–2030 and to achieve its objectives. The programmes focus on what choices should be available for people and how to make them available, how to assess the impact of environmental factors on human health and human-centredness in healthcare system. The Ministry of the Social Affairs together with various agencies of the performance area is responsible for the achievement of the objectives of the programmes and planning of the activities and funds. Short analysis of the situation of the performance area The life expectancy continues to increase and approach the EU average. However, there are remarkable differences when comparing the indicator based on different regions, gender, levels of income or education. Unlike in case of life expectancy, the increase in healthy life expectancy has slowed down, Estonia has remained on more or less the same level as in 2009 and even dropped in 2018. In order to extend healthy life expectancy and life expectancy, it is necessary to ensure a functioning health system and ensure the availability of health and treatment services that meet the needs of the population, the cornerstone of which consists in primary healthcare services corresponding to health-related needs. When general medical care fails, people will turn to specialised medical care and emergency care for help, which makes the latter less available and increases healthcare expenditure. In order to ensure sustainable treatment, the healthcare system must become more human- centred. One of its prerequisites consists in coordinated services and efficient cooperation between first contact care, specialised medical care, independent nursing care and midwifery, social services and welfare based on people’s needs and expectations. Another important aspect is patient empowerment that, on the one hand, includes skills for navigating the healthcare system and, on the other hand, awareness of prevention, own health problems, treatment options and disease management. It is important to increase the efficiency of using evidence-based health information in order to improve health awareness of population. According to international evaluation, up to one third of people’s loss of health is directly related to factors arising from their living environment. Certain factors have been studied in Estonia, but there is no comprehensive overview of the impact of living environment factors and resulting loss of health. Such situation is partially caused by the lack of sufficient temporal and spatial measurements of the value of various living environment factors in Estonia, but also by methodological difficulties in assessing person’s exposure to different factors and associating various environmental factors with health problems (e.g. allergies, neural damage, or tumours), which generally manifest much later after the exposure. However, it can be presumed that it does not significantly differ from international evaluation.

2.2.1 Healthy choices programme Programme objective: People have support networks, opportunities and skills necessary to promote a healthy lifestyle, reduce risk behaviour, and improve health indicators across entire lifespan, and they are skilled in making healthy choices regardless of their age, income, level of education or place of

23 STATE BUDGET STRATEGY 2021-2024 residence. Easily comprehensible health-related information, required services and products are accessible to everyone. Table 8. Indicators and target levels of the healthy choices programme.

Previous Indicator/Target level 2021 2022 2023 2024 actual level

Standardised early mortality rate (mortality of 30–69-year-olds due to due to chronic non- 366.8 communicable diseases per 100,000 inhabitants 366.8 366.8 353.1 339.4 (2015) of the same age) has decreased Source: World Health Organisation

Important activities to achieve the objectives of 2021-2024  Procedure of draft Public Health Act, which aims at replacing currently valid Public Health Act with a new comprehensive act in order to create updated legal framework to achieve, manage and implement the objectives of public healthcare.  The Green Paper on mental health (completed), aiming at cross-sectoral agreement on the development of mental health area with a vision that would help to maintain and improve mental health. Indirect objective is greater valuation of mental health in Estonia. The first activity consists in preparation of cross-sectoral suicide prevention action plan by the end of 2021.  Updating the Green Paper on nutrition and movement and its approval by the Government of the Republic. The Paper aims at improving the indicators describing balanced diet and movement of Estonian people, reverse currently increasing trend of obesity and thereby reduce early morbidity and mortality rates.  Continued implementation of the Green Paper on alcohol policy by paying attention to purposeful implementation of policy changes and assessment of the practical impact of already adopted policy changes (incl. restrictions on alcohol advertising and alcohol visibility restrictions on retail trade).  Continued implementation of the Green Paper on tobacco policy by paying attention to better access to counselling service for cessation of tobacco use considering the spread of consumption of alternative tobacco products and nicotine products.  Continued implementation of the National HIV and AIDS Action Plan 2017–2025.  Updating the White Book on addiction policy.  Intention to develop a new Communicable Diseases Prevention and Control Act and preparation of its draft, considering the need to increase preparedness for epidemics and pandemics.

2.2.2 Environmental health programme

Aim of the programme: All people in Estonia have a healthy living environment; information regarding potential environmental health risks and their alleviation methods are easily accessible in a timely manner.

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Table 9. Indicators and target levels of the environmental health programme.

Previous actual Indicator/Target level 2021 2022 2023 2024 level

Number of years lost due to early mortality and morbidity due to environmental factors, incl. work environment per 100,000 1,612 1,612 1,612 1,579 1,546 inhabitants (2017) Source: Institute for Health Metrics and Evaluation, University of Washington

Important activities to achieve the objectives of 2021-2024  Activities related to adoption and implementation of the new Drinking Water Directive, including the introduction of risk-assessment based approach in Estonia. Updating of Water and Health Safety Information System.  Completion of health impact projects in oil shale sector, health impact assessment and submission of mitigation measures.  The Government of the Republic allocated 0.6 million euros for strengthening the mental health area in 2021. The aim is to ensure necessary prevention, improve the quality of counselling services and ensure assistance in emerging crises.  Assessment of health impact incidental to climate change and development of mitigation measures.  Assessment of chemicals and biocides harmful to human health and environment, and activities that contribute to reducing negative impact through safe handling.

2.2.3 Human-centred healthcare programme Aim of the programme: Safe, high-quality health and social services that meet the expectations of people and help to reduce early mortality, extend healthy life expectancy, reduce inequality in health and support living with chronic diseases, and are equally accessible to everyone. Table 10. Indicators and target levels of the human-centred healthcare programme.

Previous Indicator/Target level 2021 2022 2023 2024 actual level

The need for health services that are not covered decreases,% 15.5 (2019) 15.5 15.5 14.6 13.6 Source: Eurostat Proportion of public sector health expenditure in GDP increases, % 4.9 (2018) 4.9 4.9 5.0 5.0 Source: National Institute for Health Development

Important activities to achieve the objectives of 2021–2024  By the decision of the Government of the Republic, 4.5 million euros were allocated for the design and incidental repairs of Viljandi county hospital and health centre (MATK) for 2022.

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 In 2019–2021, an analysis “Human-centred integrated hospital network 2040” will be performed by using the means of the EU Structural Reform Support Programme, which involves analysis of specialised medical care and hospital network and preparation of long- term plan for organisation of high-quality and human-centred health services integrated with other sectors.  The funds of the EU Structural Reform Support Programme are used or performing an analysis “E-health record system audit, management framework and action plan”. It involves analysing the functioning and shortcomings of current e-health ecosystem and development of management framework and action plan to optimise and implement of its organisation.  Development and implementation of the new health information system data exchange platform, which supports opening health data to more flexible data exchange and has a more efficient development and management model than the current platform.  Implementation of personalised medicine service in Estonia.  Creating a digital health management toolbox that would help people, in a user-friendly manner, to find their personal health information and keep track of their path of treatment, and empower them to take care of their health.  Submission of the analysis and proposals regarding more efficient use of opportunities and resources for ensuring sustainable financing of healthcare to the Government of the Republic.  The Government of the Republic made an annual allocation of 0.4 million euros to finance the professional year of psychologists. Financing will commence in 2021 and it will aim to ensure consistent specialisation and professional qualification of psychologists, supported by post-formal education, to provide the population with quality mental health services.  Submission of the analysis and proposals regarding possibilities of expanding health insurance cover to the Government of the Republic. The goal is to ensure the availability of preventive and health care services for all people living in Estonia.  Establishment and development of patient insurance and safety system. Its main aim is to ensure patient safety, which contributes to better protection of patients’ interests in the future and motivates medical institutions to deal with avoidable errors in treatment, analyse and learn from them.  Compilation of the future vision of emergency medical care, which involves analysing current organisation of emergency medical care and the need for changing it in accordance with the needs and expectations of the population.  Compilation of cancer control action plan, which aims at reducing the number of cases and deaths caused by cancer and improving the quality of life of cancer patients.  Development of pharmaceuticals policy and the action plan for its implementation, which sets objectives for ensuring better access to safe, effective, high-quality and affordable pharmaceuticals. Proposed pharmaceuticals policy also includes veterinary medicinal products, supports innovation and transparency in pharmaceutical sector and emphasises the importance of better use of digital technology and health data.  Updating of pharmaceutical legislation. The goal is to amend national legislation in order to implement directly applicable EU legislation on clinical studies and veterinary medicinal products used in both human healthcare and veterinary medicine.  Updating the legislation on medical devices. The aim is to amend national legislation in order to implement directly applicable EU legislation on medical devices.

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2.3 Educated and active population Aim of the performance area: Estonian people have knowledge, skills and attitudes that allow self-actualisation in the society, personal life and work life, and support promoting life in Estonia and global sustainable development. A wide range of opportunities for development, sense of security and strong support create Estonia that young people want to advance. Table 11. Indicators and target levels of the educated and active population performance area.

Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019)

Proportion of people aged 18- 24 with low level of education 9.8 9.8 9.7 9.6 9.3 not in education or training (%) (total) men 12.7 12.7 12.5 12.5 12.0 women 6.9 6.9 6.8 6.7 6.6 Proportion of adults (aged 25– 64) with professional and 73 73.5 74 74.5 75 vocational education (%) Participation of adults in lifelong learning (%) in formal 20.1 >20 >20 >20 >20 and non-formal education Proportion of students with top-class results (level 5-6 according to PISA Survey) (%), incl. functional literacy 13.9 15.4 - - 16.3 mathematical literacy 15.5 17 - - 18.6 natural science literacy 12.2 13.7 - - 14.9 Average teachers’ wage compared to Estonian average wage (%) teacher of preschool child care Maintain the Maintain the Maintain the Maintain the 86 institution level level level level teacher of general Maintain the Maintain the Maintain the Maintain the 112 education school level level level level teacher of vocational Maintain the Maintain the Maintain the Maintain the 108 educational institution level level level level Young people’s trust in the 56 (2016) 60 state

The long-term development objectives of the educated and active population performance area have been set out in the “Lifelong Learning Strategy 2020” follow-up strategy “Education Development Plan 2021–2035” and in the “Youth Development Plan 2014–2020” follow-up strategy “Youth Development Plan 2021-2035”. The goals and measures of the “Education Development Plan 2021–2035” and “Youth Development Plan 2021-2035” support the development needs and achievement of targets set out in long-term strategy of the state “Estonia 2035”. In order to achieve the aim of the educated and active population performance area, one programme has been created: Education and Youth Programme.

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Short analysis of the situation of the performance area The participation of children in pre-school education is high, and the share of language immersion participants participating in Estonian-language pre-school education has grown year by year. The curriculum of a teacher in childcare institutions is popular among students. Estonian basic education has high productivity and ensures equality ‒ compared to global results, Estonian basic school students have top-level skills in all three surveyed areas: mathematics, reading and natural sciences. Also, basic school graduates have good basic ICT skills. After the transition to upper secondary schools in Estonian, the Estonian language skills of upper secondary school graduates have improved, but Estonian proficiency of students whose mother tongue is not Estonian has not improved at expected rate at the end of basic school. Concerns are caused by certain increase in the proportion of basic school students with low level skills compared to the results of PISA test in 2015 and significant differences between the results of Estonian-speaking and Russian-speaking students and between the results of boys and girls. The drop-out rate during the first year of upper secondary school is relatively low. The drop- out rate in vocational and higher education as well as in other than full-time general education remains high. Unfortunately, the proportion of young people aged 18−24 with low educational attainment continues to be high and the increasing share of people without secondary education in the younger age groups and gender gaps in post-primary education is of great concern (ca 7% for women with low levels of education, but ca 13% for men). In basic school, the drop-out rate of boys exceeds that of girls twice. At the end of basic school, there are more boys than girls among students with low academic performance and fewer boys reach secondary education. Lower academic results of boys in basic school do not result from different capabilities, but are caused by different attitude towards learning, etc. Changes in the number of pupils requires continued reform of the school network, including paying attention to various regional changes and centre-hinterland changes within regions. The number of basic school students has only increased in Harju and Tartu counties in the last decade, the number of basic school students has decreased the most in Hiiu, Jõgeva, Võru and Põlva counties. Teachers’ wage growth in Estonia has been one of the fastest in OECD countries and continues to be a strategic goal for the country. Competition for teacher training has remained near average; in 2019, it increased slightly above average of all curricula due to the popularity of training of teachers of preschool childcare institutions and class teacher. The employment and salaries of graduates of higher and vocational education have been on the rise during recent years, which shows the labour market demand for specialists with professional skills. The share of graduates in natural science, science and engineering in higher education is growing and the growth is the greatest in the ICT sector. In addition, the number and share of foreign students has increased, especially in master studies. Adult participation in lifelong learning has made a leap in the last three years and the growth is fastest among people with lower education. The proportion of people without special and vocational education has also decreased slightly. There has been an increase in youth involvement in youth work, i.e. the share of young people who have attended hobby schools, camps, student work camps or engaged in the activity of cross-national youth associations that received annual support or participated in youth councils and active groups. Due to additional state support to hobby education and activities, they have become more accessible and improved quality in all hobby areas. Great work has been done

28 STATE BUDGET STRATEGY 2021-2024 with young people at risk of exclusion – the share of young people not in education, employment or training (NEET) has decreased, but still needs attention. In 2019, the estimated number of NEET young people was 20,700 people aged 15–29 (nearly one tenth of the age group). There has been an improvement in youth workers’ competence, increased awareness of professional standard and acquisition of more versatile methodologies has helped the youth workers to better perform their role.

2.3.1 Education and youth programme Aim of the programme: Estonian people have knowledge, skills and attitudes that allow their self-actualisation in personal life, work life and in the society, and support promoting life in Estonia and global sustainable development. A wide range of opportunities for development, sense of security and strong support create Estonia that young people want to advance. Table 12. Indicators and target levels of the education and youth programme. Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019 Proportion of 18-24-year-olds with low education level not in 9.8 9.8 9.7 9.6 9.3 further education or training (%) (total) Men 12.7 12.7 12.5 12.5 12.0

Women 6.9 6.9 6.8 6.7 6.6 Proportion of adults (25-64- year-olds) without professional 73 73.5 74 74.5 75 and vocational education (%) Participation of adults in lifelong learning (%) in formal 20.1 >20 >20 >20 >20 and informal education Proportion of students with top-class results (level 5-6 according to PISA Survey) (%), incl. functional literacy 13.9 15.4 - - 16.3 mathematical literacy 15.5 17 - - 18.6 natural sciences literacy 12.2 13.7 - - 14.9 Average wage of teachers compared to Estonian average wage (%) teacher of preschool child care Maintain the Maintain the Maintain the Maintain the 86 institution level level level level teacher of general Maintain the Maintain the Maintain the Maintain the 112 education school level level level level teacher of vocational Maintain the Maintain the Maintain the Maintain the 108 educational institution level level level level Young people’s trust in the 56 (2016) 60 state

Important activities to achieve the objectives of 2021-2024  More attention will be paid to recognition, motivation, training and follow-up of teachers, heads of educational institutions and support specialists. Centred in-service training is supported by educational institutions-based development projects and learning events. The

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concept of in-service teacher training and the concept of increasing the attractiveness of the teaching staff will be modernised. In order to ensure the succession of teachers, flexible ways of entering the teaching profession are created.  A total of 1.5 billion euros is planned for teachers’ salary in SBS years 2021−2024, which allows to keep teachers’ calculated average wage at 1,540 euros. The wage incentive programme for kindergarten teachers will continue with the aim of keeping teachers’ wages at 90% and the salary of teachers with a master’s degree at 100% of the minimum wage of a general education teacher, with a total of 60 million euros planned in 2021−2024.  The concept of external evaluation of general education will be updated. Quality criteria for general education will be developed and continuous relevant feedback from the heads of educational institutions, teachers and schoolmasters regarding academic performance of students and functioning of the educational institution will be ensured. Continuous data will be provided to ascertain schools at risk; additionally, models will be developed for intervention in the operation of schools at risk.  Cooperation will be enhanced at secondary level in vocational and general education. Opportunities will be created to enable the general secondary education outcomes to be applied as vocational modules in general secondary education from 2021 onwards, and from 2021 onwards, selective courses developed on the basis of professional training modules for vocational training could be selected in upper secondary schools.  In 2020, the National Curriculum for Early Childhood Education will be updated and the Early Childhood Education Act will be developed. In 2021-2022, the National Curriculum for Basic and Upper Secondary Schools will be renewed. In vocational education, broad- based curricula with short modules will be developed and implemented from 2023 onwards.  Students with other mother tongue will be supported in the acquisition of Estonian; language learning and adaptation of school-age new immigrants to general education and vocational education will be supported. In order to create the basics of language learning in pre-school education, the pilot programme will be continued to include a professional Estonian- speaking teacher in Russian-speaking groups, with a total of 25 million euros planned for 2021−2024.  Appropriate research and evidence-based methodology will be introduced into Estonian circumstances to support student mobility. In order to adapt the methodology to teacher training, to update the content of physical education, to use the movement elements in other subject lessons and outside the school, a total of 0.5 million euros is planned for 2021−2024. One such measure involves support to non-formal education of youth through choosing strategic partner in sports area.  Support mechanisms for research institutions and higher education institutions are planned to aid the development of talented students, in line with the concept developed in 2020, with a total of 3 million euros planned for 2021−2024.  By 2024, there will be 26 state gymnasiums, i.e. at least one state gymnasium in each county, in order to ensure high-level and extensive upper secondary education in all Estonian counties.  Local governments are supported in organisation of school network, both substantially (knowhow, counselling, data) and financially, according to sustainable reduction principle.  For better inclusion of students in need of support in a regular school, at least 60 educational institutions have received support for adapting learning environment according to the students’ needs and thus improve schools’ preparedness to manage students with special needs. Learning conditions of schools for students in need of special support will be improved with state support in at least 4 schools.  In 2022, Tallinn Music and Ballet School will start work in new learning environment.

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 Necessary student places in vocational training will be guaranteed through activity support for vocational educational institutions (budget for 2021−2024 is 271.6 million euros).  OSKA reports recommendations and needs and peculiarities of target groups in vocational education are taken into account more in the planning, financing and support activities of training opportunities. OSKA analyses and forecasts provide input to the design of vocational training content and volume, and training places are designed in collaboration with social partners and advisors’ councils of schools.  A comprehensive OSKA+ labour force and skills medium-term forecasting system based on the forecasting methodologies of the Ministry of Economic Affairs and Communications and OSKA will be developed and launched, where the general forecast will become the central part of the current sectoral approach.  Vocational system reform is foreseen for 2020+, including stronger connection with OSKA system.  Internship system will be promoted in vocational and higher education. The introduction of systematic organisation of internships in vocational and higher education institutions will be supported, workplace-based learning will be developed.  Higher education in universities and state institutions of professional higher education (budget for 2021-2024 is 650 million euros) will be financed and possible scenarios for restructuring to ensure the quality and sustainability of higher education will be analysed.  In order to enhance the effectiveness of doctorate studies, a reform will be prepared to make doctorate students junior researchers to possibly reorganise the current post-graduate supports into junior researcher salaries and provide post-graduates with employment contracts. Until then, doctorate support continues.  Activities will be carried out for the return of people without basic and secondary education to level education, and adult secondary and vocational education reform is foreseen for better integration of general and vocational education, and for facilitation of professional education choices.  In-service and retraining courses are offered to adults, giving priority to adult target groups without sufficient qualification or with outdated skills. The OSKA’s recommendations are taken into account when providing the training. In order to better respond to the training needs outlined in the OSKA reports, the target groups will be expanded in 2020 and the state-commissioned in-service training will also be launched for higher education institutions. Activities have been introduced to improve the quality of adult in-service training, including amending the Adult Education Act.  In order to further develop the system of recognition of prior learning and work experience (RPL), the RPL concept for general education is created alongside vocational and higher education and cooperation networks are developed in order to strengthen cooperation between different educational institutions (adult upper secondary schools, vocational education institutions and higher education institutions), to provide learners with more flexible movements between types and levels of education and to increase the capacity of institutions to take into account prior learning and/or work experience.  In order to prevent and reduce the risk of exclusion, youth work is used for providing various support to young people, incl. finding NEET young people staying away from education and labour market through searching youth work or networking; achieving trusting contact with young people; counselling, motivating and empowerment of young people through youth work activities, inclusion and development of individual solutions.  Smart solutions are implemented with the aim of making youth work more efficiently and effectively, i.e. reaching out to more young people, reducing the risk of exclusion of young people, increasing the involvement of young people and supporting their active participation in community and decision-making. The implementation of self-evaluation processes in the

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youth field and effective cooperation between different parties (state, LG, youth workers and organisations) will be supported.

2.4 Estonian language and identity Aim of the performance area: To ensure the functioning of the Estonian language as a state language in all spheres of life, teaching, researching, developing and protecting the Estonian language and thus preserving the Estonian language through the ages. Table 13. Indicators and target levels of the performance area on Estonian language and identity

Previous actual Indicator/Target level level 2021 2022 2023 2024 (2019)

Average result of the final examination of Estonian as native language of youths who have completed upper 63.7 >64 >64 >64 >64 secondary education, in points (maximum 100) Source: MoER Number of foreign Estonians participating in learning Estonian and in Estonian days 4,046 4,600 4,800 5,000 5,000 held in Estonia and abroad* Source: MoER Proportion of examinees who have passed the Estonian language proficiency 57,4 55 55 55 55 examination (levels A2-C1), % Source: MoER Self-assessment of active skills of Estonian among residents with non-Estonian native 37 (2015) - - - - language, % Source: Estonian Integration Monitoring (EIM) * This indicator includes children studying abroad with the help of the MoER, as well as those who have participated in foreign language days. Language programme has been created to achieve the Estonian language and identity performance area objective. The Ministry of Education and Research is responsible for the planning of activities and financial resources for achieving the aims of the programme. The long-term development objectives of the Estonian language and identity performance area have been set out in the development plan of the Estonian language 2011-2017(2020) and will be further set out in the development plan of the Estonian language 2021-2035. Short analysis of the situation of the performance area A positive thing to note is that the results of the final examination of both upper secondary schools and the basic schools in Estonian have improved in the long term. In recent years, the proportion of those who achieve 80 and more points in the examination of Estonian as a mother tongue has increased and the proportion of graduates with a score below 20 points has

32 STATE BUDGET STRATEGY 2021-2024 decreased. Over the past ten years, proficiency in foreign languages (both English, Russian and German) has improved significantly among adults aged 15−74 in Estonia. The share of non-Estonians who speak Estonian has gradually increased. According to Estonian labour force survey, 70% of non-Estonians who speak Estonian do not speak Estonian at home. The share of non-Estonians who only speak their home language was 18.5% or ca 59,000. Foreign language skills of this group also need attention. The share of people who do not speak English is only 4% in the youngest studied age group (16–24), but more than every fourth among Russians (27%). Learning Estonian abroad or creating relevant conditions in Estonia is important for creating and maintaining motivation to return as well as for helping the returnees to cope at school. Due to the great outward and return migration, more and more attention has to be paid to offering Estonian as the first and second language learning both outside Estonia and in Estonia. maintaining language proficiency abroad and providing language support to returnees is extremely important if we want to provide multinational children with every opportunity to become Estonians.

2.4.1 Language programme Aim of the programme: Estonian is a developed cultural and communication language and multilingualism is valued in Estonia. Table 14. Indicators and target levels of the language programme.

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019) Target and stakeholder attitudes towards Estonian language. Share of respondents who agree that Estonian language is: ... integral part of Estonian- language culture (% of the - - - 93 - respondents) … necessary for living and - - - 90 - working in Estonia (%) … a part of being an Estonian - - - 89 - (%)

Important activities to achieve the objectives of 2021-2024  Estonian is being studied, language databases are being developed and reputation building is being conducted. Language planning system and e-counselling of Sõnaveeb and Terminiveeb will be developed. Terminology network will be improved, development of specialised language and terminology work will be supported.  Conditions are established for having a command of, using and valuing Estonian in the education system, including the issuing of higher education textbooks in Estonian, supporting the organisation of cross-national competitions associated with language. Up to ten higher education textbooks that, inter alia, reinforce the knowledge of special terminology will be published each year.  Common management system for adult learning of Estonian as a second language will be established. In-service training of teachers of Estonian as a second language and subject teachers of general education schools will be supported. Estonian language proficiency

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examinations will be prepared and organised four times a year at all language levels (A2- C1) in at least four different cities. Language learning costs will be repaid from the state budget to those who have successfully passed the Estonian language proficiency exam. Development of electronic tests for adults learning Estonia as a second language will commence.  Machine translation technology will be created for the public sector, centralising all public sector translations and improving the speed, quality, common terminology and efficiency of translation of public sector texts.  Developments of e-learning of Estonian language will continue, both by creating e-courses for adults and by supporting children learning Estonian in basic pre-school education and in general education.  The language learning is supported in Estonian communities in general education and Sunday schools, associations, kindergartens, nurseries and language courses in several countries, as well as the Global School activities. The teaching of Estonian language and culture is supported in higher education institutions of more than 30 different countries (about 100 teachers and 50 lecturers are teaching Estonian outside Estonia).  Multilingualism is promoted in Estonia. Early learning of a foreign language and studying of a second language is supported. Possibilities of assessing foreign language skills are expanded, recognising successful language learning projects.

2.5 Environment Aim of the performance area: Estonian people are ensured a clean and diverse living environment, and the attitude towards nature is responsible. Table 15. Indicators and target levels of the environmental performance area.

Previous actual Indicator/Target level 2021 2022 2023 2024 level (2018)

Proportion of the Habitats Directive’s types of 57 >=57 >=57 >=57 >=57 habitats in favourable condition, % (2019) Environmental awareness index 43.5 46 50 19.98 (without Total greenhouse gas emissions in million LULUCF) data of 18.19 17.51 16.84 16.17 tonnes of CO equivalent. 2 2018 55 Proportion of water bodies in good condition 75 81 81 82 (2019) Waste generation (excluding oil shale industry) 3,747 3,670 3,600 3,530 3,460 (kg/person) (2017) Resource productivity: ratio between GDP and 0.47 0.53 0.54 0.55 0.56 domestic material consumption, euros/kg (2018)

The Environmental Protection and Use Programme and the Common Fisheries Programme with the Ministry of Rural Affairs have been established to achieve the objective of the environmental performance area. The Ministry of the Environment is responsible for the planning of activities and allocating financial resources to achieve the objectives of the first programme, the Ministry of the Environment and the Ministry of Rural Affairs are jointly responsible for the Common Fisheries Programme in accordance with their area of responsibility.

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The long-term development goals of the environmental performance area have been agreed in the Estonian Environmental Strategy until 2030 and in the development plans of the area. Short analysis of the situation of the performance area The continuing challenge for the environmental performance area is to find a balance between achieving the goals of environmental protection and environmental use. The proportion of the Habitats Directive’s types of habitats in favourable condition has improved, it was 52% in 2013 and 57% in 2019; it is assessed in every six years. In order to prevent further fragmentation of habitats and species populations as well as to improve their condition, action plans will be prepared and implemented, protection rules will be updated, the substantive protection management of protected areas will be improved, endangered habitats will be restored and maintained, and the status of species and habitats will be monitored. The value of the environmental awareness index has somewhat increased year by year, and was 43.5 points in 2018, in comparison to 42 points in 2016. Raising public awareness is one of the high-priority environmental objectives.

In 2018, the total greenhouse gas emissions of Estonia was 19.98 million tonnes of CO2 equivalent. Compared to 2017, when emissions equalled to 20.88 million tonnes of CO2 equivalent, GHG emissions have decreased by 0.9 million tonnes of CO2 equivalent. The decrease was primarily caused by a decrease in the production in the energy and industrial sectors. In order to meet the 2024 target (16.17 million tonnes of CO2 equivalent), GHG emissions from the energy and industrial sectors need to be substantially reduced, while limiting GHG emission growth in other sectors (e.g. transport, agriculture) using various measures. The proportion of water bodies in good condition has stayed the same from 2016 to 2019, i.e. 55%. Water management plans have set a target that 81% of surface water bodies and 84% of groundwater bodies have to be at least in good condition by the end of 2021. To achieve this goal, action programmes will be implemented and a water status assessment system will be developed to support the establishment of appropriate measures for the elimination of pollution sources or for reducing or influencing the impact of hydro-morphological pressures. Achieving this goal is problematic, as the new data generated by the monitoring of water bodies indicate a worse condition than expected, there are not enough resources to implement all necessary measures, and many remedial measures are voluntary and therefore not implemented sufficiently. The target level of waste generation (excluding oil shale industry) in Estonia was 3,747 kg per person in 2017. In order to achieve the objective of 2023, waste reduction measures must be implemented, the relevant legislation updated and implemented, and people’s awareness increased. Estimated target level of the performance indicator domestic material productivity (GDP and domestic material consumption ratio) in 2019 was 0.50 euros/kg and initial forecasted level was 0.52 euros/kg. The investments financed from the resource efficiency measure have not yet had significant impact, but one has to keep in mind that this indicator is primarily dependant on the extent of mining and use of oil share.

2.5.1 The environmental protection and use programme Aim of the programme:

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The protection of the environment and biodiversity as well as the sustainable and efficient use of the environment are guaranteed. Table 16. Indicators and target levels of the environmental protection and use programme. Previous actual Indicator/Target level 2021 2022 2023 2024 level (2018) Proportion of strictly 14.1 at least 10 at least 10 at least 10 at least 10 protected forests, % (2019) Share of protected areas in 19.4 at least 19.4 at least 19.4 at least 19.4 at least 19.4 land surface, % (2019) Depends on the Depends on the Depends on the Total greenhouse gas implementing act implementing act implementing act emissions in sectors 6.1 (data to be adopted by to be adopted by to be adopted by outside the trading system, 6,.02 of 2018) the European the European the European million tonnes of CO 2 Commission in Commission in Commission in equivalent 2020 2020 2020 Total emissions from Total emissions Total emissions Total Total emissions emissions trading system, 8.5 (data minus Estonia’s minus Estonia’s emissions minus Estonia’s million tonnes of CO of 2019) target in ESR target in ESR 2 minus ESR target in ESR equivalent Proportion of consumers who receive potable water complying with the 98 100 100 100 100 requirements from the (2019) public water supply network, % SO2 76.3 thousand tonnes; NOx 42.09 Change in thousand the t; VOC Change in the Change in the Change in the decrease: 31.78 decrease: decrease: decrease: Decrease in ambient air SO2 32; thousand SO2 32; Nox 18; SO2 32; Nox 18; SO2 32; Nox 18; pollutant content, % Nox 18; t; PM2.5 VOC 10; PM2.5 VOC 10; PM2.5 VOC 10; PM2.5 VOC 10; 12.96 15; NH3 1. 15; NH3 1. 15; NH3 1. PM2.5 15; thousand NH3 1. t; NH3 10.44 thousand t (base level 2005) Proportion of hazardous a % point larger a % point larger a % point larger waste recycling in total 68 > 68 than the value of than the value of than the value of mass of hazardous waste, (2017) 2020 2021 2022 % (excl. oil shale waste) Share of recycled municipal waste in total 31 41 35 37 40 municipal waste, % Eco innovation index (% 81 65 67 69 71 of EU average)

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Important activities to achieve the objectives of 2021-2024

 Restoring habitats (incl. marshes, heritage meadows, watercourses) to ensure their favourable condition and improve the condition of species living in these habitats. Increased awareness and more efficient control and monitoring of alien species. Continued compensation for nature conservation restrictions to required extent, incl. acquiring private lands for the state. Compensation for the protection of strictly protected forest and promotion of voluntary protection by signing contracts for the protection of key habitats with private forest owners, 1.1 million euros. Continuing to pay support to the owners of strictly protected forests outside the areas of Natura 2000.  Implementation of LIFE-IP project “Adaptive community based management of forest and farming landscapes to improve the conservation status of Natura 2000 habitats and species” with total cost of 19.4 million euros over ten years, of which 60% or 11.6 million is foreign support, incl. 4 million implemented during SBS 2021-2024.  Development of the new Estonian nature information system EELIS, which meets the modern requirements, for better management, use and disclosure of nature conservation and environmental data.  Supporting reforestation work in private forests with local tree species that have the best available hereditary properties and are the best suited for the habitat, incl. encouraging plant production and increasing reforestation volumes.  Preparing for the construction of a wooden reference building (Environmental House) with the aim of gaining experience in building large wooden buildings and thereby increasing the export potential of the Estonian timber sector and promoting the value of local raw material.  Implementation of the “Climate Change Adaptation Development Plan until 2030” and “General Principles of Climate Policy until 2050” to improve the capacity to adapt to climate change and mitigate the impact of climate change.  Using the auctioning revenue from trading with emission allowances to contribute to international climate policy cooperation, reducing the risk of flooding to increase Estonia’s preparedness to flooding, and achieving climate policy objectives in pilot projects (including raising awareness, carrying out studies on the effects of climate change, promoting the development of green technologies, etc.) for 166.2 million euros (incl. climate measures applicable nationwide).  Implementing additional measures to reduce greenhouse gas emissions in sectors outside the EU emissions trading system.  Organisation of abandoned and disorderly excavated lands and subsoil, incl. liquidation of collapses in underground oil shale mining areas. Tidying 2,000 hectares of abandoned peat production areas by RMK to the extent of 3.2 million euros.  Preparation of a thematic plan for Harju county in order to determine the areas of future extracting permit areas of major importance to the state, in coordination with interested parties, both spatially and temporally.  Preparing of the preparation of a thematic plans for Rapla and Pärnu counties in order to determine the areas of future extracting permit areas of major importance to the state, in coordination with interested parties, both spatially and temporally.  Modernising and supplementing the documents on best available techniques (BAT) for oil shale industry.  Directing the developments in introduction of hydrogen technologies in Estonia.  Ensuring availability of appropriate land cadastre data to the public, including developing the e-Cadastre. Making high quality and more spatial data available through services corresponding to the requirements of INSPIRE.

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 Implementation of the Maritime Strategy to achieve good environmental conditions in marine areas, incl. renewal of the Maritime Strategy action plan, and support carrying out studies on marine microplastics. Preparing for the acquisition of a new multifunctional monitoring vessel used for marine surveillance.  Carrying out the project of the use of marine resources with a cost of 1 million euros in cooperation with the Ministry of Economic Affairs and Communications and the Ministry of Rural Affairs, with the aim of using marine resources (water, algae, seabed, biota, etc.) in a manner, which also improves the status of the environment.  Carrying out additional studies on marine alien species and performing activities to control such species for 0.8 million euros, with the aim of reducing negative impact of invasive alien species on local species and restoring valuable marine habitats.  Implementing water management plans to achieve favourable condition of bodies of water and treatment of residual pollution sites affecting the condition of bodies of water to ensure their safety.  Implementing the measure programme of the water management plan of Viru sub-basin to the extent of 28.1 million euros, incl. tidying the bodies of water in the Purtse River basin. Also, the implementation of Life integrated water management plan project, which involves implementation of measures necessary to achieve favourable condition of bodies of water in Viru sub-basin until 2029. Total cost of the project that lasts for 10 years is approximately 16.7 million euros.  Financing projects for ensuring clean potable water and compliant treatment of wastewater being led back to the environment to the extent of 64.1 million euros.  Eliminating the two reactor sections of the former nuclear site in Paldiski and conducting evaluations of environmental impacts of establishing a landfill for radioactive waste and carrying out necessary surveys thereof.  The implementation of the 2020–2030 national programme for reducing emissions of specific air pollutants for improving air quality.  Supporting the principle of circular economy to the extent of 10.7 million euros: developing a circular economy action plan, raising the awareness of manufacturers and consumers, improving supervision, better implementation of the system of separate collection of waste, developing economic instruments of the area of environment, implementing environmentally clean public procurements in the public sector, raising awareness of using the eco-label.  For the purpose of increasing resource productivity, investments into resource efficient solutions are supported to the extent of 32.6 million euros.  Further development of the Environmental Decisions Information System KOTKAS, which brings together all the produce procedures related to environmental permits from applying for a permit/registration and paying state fees to the declaration of environmental charges and preparation of annual report.  Increasing the efficiency of research and development activities in the governance area of the Ministry of the Environment in 2021 to the extent of 1.4 million euros, including: • participation in international research projects (European Horizon); • hazardous substances in the environment (incl. pharmaceutical residues, herbicides, microplastics, etc.) – research on developing and monitoring analysis methods for identification and study of the origin and spread of such substances, reducing emissions, and controlling the entry of hazardous substances in the environment; • development of hydrogen technologies to the extent of full cycle; • research related to ascertaining the impact of intensified farming on natural environment, and research on soil biodiversity;

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• research on versatile and sustainable forest use, ensuring biodiversity, productivity, reforestation and vitality of forests; • research related to productivity, health and vitality of forests, including detection of various forest pests (incl. invasive species), prevention of their spread and potential damage, as well as collection and preservation of genetic resources of forest tree species.

2.6 Research and development and enterprise Aim of the performance area: The overall objective of developing research and development activity and innovation is creating favourable conditions for an increase of productivity and quality of life, for good education and culture, and for Estonia’s sustainability and development. The overall objective of enterprise and innovation is to support the development and export- oriented, internationally competitive and reliable economic environment in Estonia, where entrepreneurs have the opportunity to earn more revenue from high added-value products and services and thereby create economic growth that reaches all the people of Estonia.7

Table 17. Indicators and target levels of the research, development and enterprise performance area.8 Previous Indicator/Target level actual level 2021 2022 2023 2024 (2018) Investments into research and development activities (% of GDP), incl. the private sector’s R&D 1.4/ 3.0/ 3.0/ - - expenditure (% of GDP). 0.59 2.0 2.0 Source: Eurostat, Statistics Estonia. Ranking in the EU Innovation Union Scoreboard 12th 10th 10th - - Source: Innovation Union Scoreboard Productivity per employee compared to EU average, 78.6 % 80% 80% 80% 80% (2019) Source: Eurostat

Three programmes have been established to achieve the aim of the performance area on research and development and enterprise: research and development and innovation programme, competitive business environment programme and construction programme. The programmes belong to the area of government of the Ministry of Education and Research and the Ministry of Economic Affairs and Communications. The Ministry of Education and Research is responsible for the planning of activities and financial resources for achieving the objectives of the research and development and innovation programme and the Ministry of Economic Affairs and Communications is responsible for the planning of activities and financial resources for achieving the objectives of the competitive business environment programme and construction programme. The long-term development goals of the field of science have been agreed in the Estonian Research and Development Innovation Strategy 2014-2020 “Knowledge-based Estonia”, the

7 This performance area has currently two goals resulting from former division of performance areas – performance area “research” and “enterprise and innovation”. Common goal of new performance area “research and development and enterprise” will be defined in the Estonian Research and Development, Innovation and Enterprise Development Plan 2021–2035, which is being prepared and will be approved during 2020. 8 Instruments of this performance area have been combined of the indicators and target levels of two formerly used performance areas “research” and “enterprise and innovation”.

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Estonian Entrepreneurship Growth Strategy 2014-2020 and the Estonian National Tourism Development Plan 2014-20209. Short analysis of the situation of the performance area Over the years, a functional and developing research, development and innovation (hereinafter RDI) system, based on quality competition, has been established in Estonia. There has been a growth in international cooperation and publication activity showing high level of research, as well as success in EU research and development framework programme. Estonia stands out with its amount of contracts won in Horizon 2020 framework programme (based on the latter, our indicator exceeds that of EU28 by 1.5 times). Buildings and laboratories of contemporary universities and research institutions established in Estonia create the environment attractive to international researchers. Centres of excellence in research play an important role in Estonian science, as they comprise research teams of several research institutions, facilitate collaboration both in Estonia and at international level, support succession of young researchers and help tp popularise research results. The innovation capacity of companies has also increased significantly in 2018. This is described by indicator “companies’ productivity per employee”, according to which we are on a stable upward trend, approaching EU average. In 2018, Estonia achieved the target for this indicator (76%). Estonia’s ranking in the EU Innovation Scoreboard improved by as many as five positions and it was only one position away from the target set for 2018. The main challenges in the field of research are finding science-based solutions to the development needs of the society, lack of motivation and collaboration capacity between universities and businesses, and next generation of scientists, which is not sufficient to ensure sustainable and consistent quality of the research system. A feature specific to Estonia is that it is highly project-based and there is a high proportion of foreign sources in funding research – especially concerning R&D performed in the public sector. More attention should be paid to improving the attractiveness of academic career, including doctorate studies. It is necessary to increase the knowledge intensity of enterprises and find ways to improve turning research results into practical applications in enterprise and public sector. Estonian business environment is generally favourable towards enterprises, while having remarkable potential for improvement to become excellent for all enterprises operating here. Meeting the requirements established by the state and EU must reduce the burden on enterprises, e.g. by deployment of technological advancement, and business activities and reporting of enterprises must be automated for better efficiency, incl. moving towards real time economy. The problem in Estonia is that the impact of law-making on businesses is in most cases not thoroughly analysed or the proportionality of regulations assessed. Tax system contains several qualities positive for business, while providing opportunities for further developments. There is also an established functioning business support structure. It is important to improve Estonia’s international reputation, which also relates directly to attracting investments required to ensure continued economic growth. Easy starting and developing of a business requires the presence of both favourable and stable business environment, as well as opportunities to assess the potential of its products and services based on market requirements. At the same time, Estonian enterprises are characterised by several strategic weaknesses, which generally inhibit productivity and growth of national wealth. Too many enterprises lack ambition in product development and accessing foreign markets. In addition, improvements are

9 https://www.hm.ee/sites/default/files/59705_teadmistepohine_eesti_est.pdf ; https://kasvustrateegia.mkm.ee/ ; https://www.riigiteataja.ee/aktilisa/3191/1201/3015/lisa.pdf

40 STATE BUDGET STRATEGY 2021-2024 needed in management quality and effectiveness. One bottleneck is low level of cooperation between enterprises on export markets, where it is often essential for success considering Estonia’s small export volume. Another concern relates to human resource, more specifically to knowledge and skills of employees. Here, the key aspect consists in the compliance of the content of education with the demands of labour market, which is a critical factor to improve employment and increase value added and productivity.

2.6.1 Research, development and innovation programme Aim of the programme: The overall objective of developing research and development activity and innovation is creating favourable conditions for an increase of productivity and quality of life, for good education and culture, and for Estonia’s sustainability and development. Table 18. Indicators and target levels of the research, development and innovation programme

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2018) Level of investments into research and development activities, % of GDP 1.4 3 3 - - Source: Eurostat, Statistics Estonia incl. the share of R&D investments into private sector, % of GDP 0.59 2 2 - - Source: Eurostat, Statistics Estonia Productivity per employee compared to EU27 78.6 average, % 80 80 - - (2019) Source: Eurostat, Statistics Estonia Ranking in the Innovation Union Scoreboard 12. 10 10 - - Source: Innovation Union Scoreboard

Important programme (development) activities of 2021-2024

 In 2021, funding of research and development activities from the state budget will reach 1% of GDP. Additional 22.4 million euros will be allocated to the Ministry of Education and Research in 2021 and ca 75 million euros in 2022–2024.  Increasing research and development funding for research institutions by keeping a 50:50 ratio between research grants and baseline funding. Increasing baseline funding is a prerequisite for the development of a stable academic career model and for developing closer cooperation between companies and research institutions. In 2021, 109.3 million euros have been planned for the state budget for the implementation of the main instruments of R&D (including baseline funding, research grants, state research and development institutions, Norwegian foreign aid, etc.). Continued growth of baseline funding and research grants allows universities to continue implementation of academic career models. Increase in personal research grants alleviates the pressure of close competition in funding R&D and supports balanced development of effective and top-level research.  Funding of additional activities is planned for the FINEST Twins project co-financed by Horizon 2020. The aim is to create a cross-border ecosystem for excellence in research and development and innovation in the smart city, centred on the smart city centre of excellence in research, created by TalTech, providing a physical and digital platform for excellence in research, university, business and city collaboration, and co-creation in innovation. Teaming for Excellence is a Horizon 2020 support scheme designed to create new centres of

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excellence with leading European research institutions in countries with low innovation capacity compared to the European top level.  Increased support to the research activity of the growth areas of economy and higher education in order to realise their potential for economic growth. Resource valuation programme ResTA (approximately 3 million euros per year) will be launched. ResTA programme supports research and development activities based on enterprise needs in valuation of timber, food and soil resources to facilitate increase of research group capabilities in these areas, new generation of sectoral specialists and development cooperation between businesses and research institutions. Development of thematic research and development programmes will start in focal areas based on the development needs of Estonia.  Piloting of the proof-of-concept grant will continue. The aim of the proof-of-concept grant is to support development of outstanding research achievements into a format that is attractive for entrepreneurs, testing their profitability and the ways they could be used commercially. As a result of this activity, more research outcomes will find their commercial implementation.  Development of the network of research advisers and development advisers for branches of enterprises will continue. Research advisers in the ministries will ensure planning and implementation of the research and development activities in the area of government of corresponding ministry. Development advisers with a research background will help professional associations to identify important research and development directions for members of the branch, on the basis of which to evaluate the development potential of the sector and to negotiate research necessary for particular sector with the research institutions, raise awareness of the potential and available applications of research and development in the branch, and contribute to raising R&D awareness and skills of entrepreneurs in the sector, facilitating cooperation with research institutions both in Estonia and at the EU level. The network of research advisers and development advisers facilitates better planning of R&D activities, incl. setting clear focus, planning more effective interventions and more actively participating in international research networks. Mutual exchange of information and experiences contributes to more effective and efficient planning and implementation of R&D activities, improves the quality of policy-making and supports implementation of R&D important for private sector.  Implementation of measures facilitating the movement of workers between research institutions and the business sector (so-called sectoral mobility) will continue, as a result of which more scientists are moving into business and companies’ skills to apply and adapt research results will improve. Also, the number of researchers with entrepreneurial experience in research institutions is increasing, which helps to better plan the research corresponding to the demand of society.  In order to ensure the new generation of young scientists, increasing the attractiveness of doctorate studies and reforming of doctorate studies will be supported. Increasing the number of people with doctoral degree, especially outside universities, is an inevitable prerequisite to boost Estonia’s economic growth and move towards higher value added. As a result of reforming doctoral studies, doctorate students will have a clearer position in research career, incl. contractual position of junior researcher in a university or R&D institution. Doctorate studies will increase effectiveness, studies are better related to society’s needs and doctorate studies are carried out in cooperation with businesses and positively evaluated research institutions.  Support for research on Estonian language, culture and education will be increased to ensure continuity of Estonian education, language and culture. These studies are important for the survival and development of the Estonian state, society, ethnic nation and language,

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including the support to study the functional models of Estonian cultural space and society, meet development needs of the society, and adapt to global development trends. The results of sectoral research act, inter alia, as an input in e.g. development and implementation of language technology; in Estonian education system and public services, and in ensuring continuity of Estonian society.

2.6.2 Competitive business environment programme Aim of the programme: The Estonian business environment is internationally competitive and reliable, i.e., a place that takes into account all market participants and is good for establishing and developing a business and providing products and services. Companies here are internationally competitive. Estonia is an internationally attractive tourist destination. Table 19. Indicators and target levels of the competitive business environment programme

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2018) Labour productivity compared to EU average, % 78.6 80 80 80 80 Source: OECD (2019) Estonia’s position in the global competitiveness 31 ranking 25 25 25 25 (2019) Source: WEF Proportion of Estonian export in world trade, % 0.092 0.11 0.11 0.11 0.11 Source: WTO (2017) Share of private R&D expenditure in GDP, % 0.59 2 2 2 2 Source: Statistics Estonia

Important activities to achieve the objectives of 2021-2024  The Government of the Republic has decided to increase R&D expenditure to 1% of GDP. The Ministry of Economic Affairs and Communications will use these resources to support the improvement of research, development and innovation capabilities of enterprises and related activities, and businesses’ investments in research and development activities and innovation. For that purpose, 10.8 million euros will be added to the budget of MEAC competitive business environment programme in 2021 and 66.6 million euros in 2022-2024.  We support enterprises in coping with the aftermath of economic crisis caused by COVID-19, which should be done to bring Estonia out of the crisis more quickly and supported by more powerful growth.  Digitalisation and automation of industry will be supported to increase the capability and readiness of companies to deploy digital technologies.  Enterprises’ investments in environment-friendly technologies are supported, incl. development of green technology foundation.  Enterprise-oriented applied research and experimental development and enterprises’ increased awareness of new technological solutions will be supported with the aim of increasing knowledge intensity of Estonia’s economy (24.6 million for 2021-2023).  Supporting of large-scale investments with high value added (10 million euros for 2021- 2023) which facilitates the creation of jobs that pay higher than average wages, increasing export and improving Estonia’s reputation as a country that supports innovation.  We support restarting Estonian tourism sector after the crisis through increasing awareness of Estonia as a travel destination, and raise the tourism demand in Estonia by restoring the

43 STATE BUDGET STRATEGY 2021-2024

connection to the rest of the world through various modes of transport and reorganisation of business models of tourism enterprises to better serve their target group. According to the new situation in tourism sector, we support the development of innovative digital solutions.  Estonia is an active member of the European Space Agency with the objective to facilitate institutional export. Enterprises and research institutions will participate in ESA procurements for high-tech solutions and in other activities, as well as in other international cooperation networks (2.6 million euros per year). Facilitation of Estonia to join the CERN or European Research Centre for Nuclear Research (1.41 million euros) and participate in strategic partnerships of EU framework programmes. The activities contribute to increased investments into research and development activities of enterprises.  Support for promoting Estonian start-up entrepreneurship and the creation and growth of new innovative enterprises will continue (6 million for 2021-2024).  Investments into research and technology intensive start-ups will be supported (10 million euros).  Diversification of capital markets is supported via investment funds, and access to capital is facilitated (regional loans).  A total of 40 million euros will be invested for the reconstruction of Tallinn City Hall into an international conference centre in order to develop Estonia as a conference tourism destination.  The counselling of enterprises in county development centres will continue, incl. in e- commerce, with the aim of boosting regional entrepreneurship and competitiveness of e- exporters’ global markets.  Introduction of real time economy will be supported to reduce administrative burden of enterprises in cooperation of private and public sector for automation and digitalisation of business processes and reporting (2.9 million euros) and the development of eesti.ee, comprising for the enterprises event-based information and public services to ensure simple and convenient communication with state agencies (6.2 million euros).  Additional 2.5 million euros will be allocated to the budget in 2021 for implementation of e-residency programme.  We will develop digital event-based services for enterprises, in order to make state and local government services intended for enterprises accessible as a comprehensive service from a “single window” in state portal eesti.ee.  We create conditions for introduction of real time economy, which involves automation of business processes and reporting obligation in cooperation of private and public sector through real time data exchange, which turns the activities related to management and administration of a company into background process.  The government will strengthen population’s security of supply by allocating 24.4 million euros (2021-2024) to establish a supply of food, medicinal products, personal protection equipment and basic necessities required for coping with crises through AS Estonian Supply Centre.

2.6.3 Construction programme Aim of the programme: To create an environment and prerequisites for increasing international competitiveness of companies in the construction industry and constructed environment. In order to make people want to live and work in Estonia, we encourage development in areas where market failures of

44 STATE BUDGET STRATEGY 2021-2024 construction environment occur. Due to a better and more cost-effective living environment, the consumption capacity of Estonian people will improve. A basis for sustainable economic growth that will reach all residents of Estonia will be established. Table 20. Indicators and target levels of the construction programme. Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019) Labour productivity of the sector compared to EU average,% 60 62 64 66 69 Source: Eurostat Household energy and heat consumption, 5.6 TWh 5.4 TWh 5.3 TWh 5.2 TWh 5.1 TWh Source: Statistics Estonia

Important activities to achieve the objectives of 2021-2024  The reconstruction of mainly apartment buildings and small houses for the purpose of energy savings and improved living environment, as well as the improvement of living conditions of families with many children will be supported, and LG investment aid payments to rental houses will be continued (total amount of support in 2021-2024 is 76.7 million euros, of which 40.2 million euros in 2021). Pursuant to the Energy Development Plan and long-term strategy of reconstruction of buildings, reducing energy consumption in buildings is one of the key priorities of the climate and energy policy. Reconstruction of homes and demolition of unused buildings makes the living environment safer, more beautiful, comfortable, healthy, better accessible to all population groups, and more affordable. Special attention is paid to areas outside Harju and Tartu counties. Main support measures in 2021 include: • Reconstruction of apartment buildings (25 million euros); • Supporting of investments in LG housing stock KOV (8.4 million euros); • Home support for improving living conditions of families with many children (3 million euros); • Reconstruction of small houses (1.4 million euros); • Demolition of unused buildings (0.5 million euros).  Completion and implementation of e-construction platform that allows creating a single place for the user to view register of construction works, planning register (to be established) and other important information systems intended for digital handling of construction data, and register of construction works will be developed into an effective, simple and transparent environment for performing building-related procedures and linking them to various event-based services (total of 3.6 million euros in 2021-2024, of which 1 million euros in 2021). Services related to construction are constantly adjusted to be more efficient, convenient and suitable for e-construction infrastructure, and developing relevant services involves incentives for private sector. This means saving time on otherwise inefficient processes both for businesses and agencies, and establishing a basis for quality data collection from the construction sector, which, among other things, contributes to successful performance of register-based Population and Housing Census.

2.7 Agriculture and fishing Aim of the performance area:

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Estonian food is favoured, the environment and biodiversity are preserved, food companies are successful, and the vitality of rural and coastal communities is maintained. Table 21. Indicators and target levels of the agriculture and fishing performance area.

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2018) Value added in agriculture, forestry, fishery and 25,101 food and drink production per person employed (2016-2018 25,500 25,800 26,200 26,600 as three-year moving average , € average) Source: Statistics Estonia Export and import value ratio of agricultural produce and foodstuff, % 0.74 0.79 0.80 0.79 0.79 Source: Statistics Estonia Share of Estonian consumers who prefer buying At least At least At least local foodstuff, % 74 At least 75 75 75 75 Source: EKI Food safety barometer 100 (2019) ≥ 100 ≥ 100 ≥ 100 ≥ 100 Source: MeM/VTA Below Below Below 2.5 Below 2.5 2.5 t 2.5 t Greenhouse gas (GHG) emission per value of 2.5 t CO2 t CO2 t CO2 CO2 CO2 agricultural production, tonnes per thousand equiv. equiv./ equiv./ equiv./ equiv./ euros. /thousand thousand thousand thousand thousand Source: KEM/Statistics Estonia EUR (2017) EUR EUR EUR EUR (2019) (2022) (2020) (2021) Employment rate of rural residents aged 20–64, % 76.9 77.8 78.1 78.4 78.7 Source: Statistics Estonia

Two programmes have been set up to achieve the objective of the agriculture and fishing performance area. The Ministry of Rural Affairs is responsible for planning the activities and funds of the agriculture, food and rural programme. The Ministry of Rural Affairs is responsible for the activities and financial resources of the fisheries programme in cooperation with the Ministry of the Environment. Short analysis of the situation of the performance area The agriculture and food industries (incl. drinks industry) have an important role to play in the Estonian economy — these sectors account for ~5% of the value added in Estonia and employ ~6% of the employed population. Value added in agriculture, forestry and fisheries was 692.7 million euros in 2018 and it increased by 23% in 2019. An important role in maintaining and improving the good condition of agricultural environment is played by efficient application of legislation, increased environmental awareness of farmers and voluntary activities. Also, society has increased general awareness of environmental issues. At the end of 2017, there were 1,890 organic farmers in Estonia, operating on ca 200,000 hectares, which constitutes approximately 20% of agricultural land in Estonia (ca million hectares in total). Considering that organic farming is under strict control all, rapid increase in the number of organic farmers and the area of organic land has presented additional challenges to the monitoring system. Maintaining the reliability of food produced and consumed in Estonia, incl. imported and exported food, requires constant adaptation in monitoring of new risks and increased consumer awareness. A prerequisite for ensuring food and feed safety and opening up and keeping open export markets is a systematic, effective monitoring system based on risk assessment, which

46 STATE BUDGET STRATEGY 2021-2024 can be achieved by extending activities to reduce existing and emerging risks, incl. the risks arising from drug-related antimicrobial resistance(AMR), food, feed and animal diseases. Nearly one third of the Estonian population lives and works in rural areas. Approximately one third of all enterprises operate in agriculture, hunting, forestry and fishing and one fifth in manufacturing (incl. food and drink industry). Rural areas employ 24% of total employment participants, i.e., 162,000 people, 71% of whom are rural and 29% urban. In rural areas, the number of people dropping out of the labour market due to age is higher than the number of young people entering. While the proportion of the population aged 20–40 in the urban area is increasing in the total number of the age group, it decreases in rural areas. Therefore, when implementing support and setting targets, increasingly more attention must be paid to creating new well-paying jobs, ensuring the diversity of entrepreneurship and promoting areas that create higher value added (incl. bio-economy, circular economy, eco-tourism, innovative and export-oriented products and services) in rural areas. Half of the economically significant fish stock is currently in good condition. In order to achieve good condition of fish stock, it is necessary to reduce fishing effort for that part of stock that is not in good condition. The activities required both for achieving the good condition of fish stock and for improving the competitiveness of the fishing industry are financed mainly from the funds of the European Maritime and Fisheries Fund; opening the migratory route of salmonids in weirs built on rivers that are important for fishing is also financed from the funds of EU Cohesion Fund. Thus, it is important to ensure that the allocations from EU structural funds would not decrease significantly, as it would endanger continuance of activities necessary for sector development.

2.7.1 Agriculture, food and rural life programme Aim of the programme: Smart and sustainable agriculture, food production and rural life and safe food and environment Table 22. Indicators and target levels of the agriculture, food and rural life.

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2018) Area of utilised agricultural land, ha 984,671 991,500 993,000 994,500 996,000 Source: Statistics Estonia The share of added value of the whole supply chain in total value added of enterprise sector, % 2.3 2.3 2.3 2.3 2.3 Source: Statistics Estonia Consumer confidence index, % 67 (2020) - 68 - 69 Source: Ministry of Rural Affairs Percentage of environmentally managed land, % 80 80 80 80 80 Source: PRIA Share of young people aged 21–40 living in rural areas in the total number of young people in the 27.76 27.76 27.76 27.76 27.76 same age group, % (2019) Source: Statistics Estonia

Important activities to achieve the objectives of 2021-2024

47 STATE BUDGET STRATEGY 2021-2024

 In order to ensure greater and more stable export earnings, more value needs to be added to the raw materials locally. In order to promote exports, it is necessary to continue the activities necessary to keep the export markets open and to find ways to open new markets.  Antimicrobial resistance (AMR) towards drugs has become one of the most serious threats to human and veterinary medicine. In order to reduce AMR, the use of veterinary medicinal products and use of medicated feedstuffs will be enhanced, raising awareness of the use of antibiotics by veterinarians, keepers, medicated feed handlers and food business operators, and continue to monitor AMR and research and applied research. AMR increases the morbidity and mortality of both humans and animals and increases the cost of healthcare.  Allocation of support with significant effect via Common Agricultural Policy I and II pillar will continue, including support for environmentally sound management practices, regional soil protection, support allocated for ensuring the preservation of species and habitats, and compensation for agricultural land located in Natura 2000 area.  In order to promote exports in the food sector10 and to increase exports of value-added goods, the activities needed to keep export markets open will be continued. Organising contact events for entrepreneurs and supporting participation in foreign fairs will also be continued.  Investment aid for processing and marketing of agricultural products facilitates improved competitiveness of enterprises in food industry, allowing them to shift to processing goods with higher added value.  In order to develop organic farming, the promotion of the use of internationally known and recognised common organic standards and the development of the most appropriate solution for organising certification in Estonia will be continued. The Agricultural Board and the Veterinary and Food Board will continue to carry out effective monitoring of organic farming.  Preparations are made to establish national food supply, which makes it possible for local government units and the state to provide population with essential resources and ensure functional services in long-term or resource-intensive crisis situations.  A well-functioning sectoral applied research programme, a plant breeding programme and a programme for the collection and conservation of genetic resources for agricultural crops will continue to provide sector-specific research support.  Significant increase in sectoral basic research and risk assessment methods: • in order to ensure food safety in Estonia and to open markets necessary for exporting agricultural produce and foodstuff, a research-based and systemic evaluation will be carried out with regard to new emerging risks related to animal and plant diseases and food pathogens; • more efficient detection of new risks (e.g., new pathogens and their mutations) in food supply chain will be supported; • suitable monitoring methods will be developed for studying disease-free plant propagating material and resistance, as well as the genesis and causes of antimicrobial resistance; • the use of fertilizers and plant protection products, incl. reduction of environmental risks arising from their use and development of new fertilizers will be studied; • integrated plant protection and biocontrol methods will be developed, incl. development of new plant protection products; • in order to perform international agreements, necessary studies are carried out to reduce climate impact and ammonia emissions in agriculture;

10 Action plan for promoting export in Estonian food sector 2019–2022“

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• novel opportunities for valuation of bioresources for food and other products will be studied (incl. waste, by-products, so-called cascade use of bioresource, suitability of new cultures in local conditions) and the development of necessary new technologies.

2.7.2 Fishery programme Aim of the programme: Sustainable fishery that ensures the competitiveness of the sector and sustainable management of fish resources. Table 23. Indicators and target levels of the fishery programme. Previous actual Indicator/Target level 2021 2022 2023 2024 level (2018) Stock in good condition, % 50 52 53 60 61 Source: Ministry of the Environment Added value per employee in fishing enterprises (professional fishing, aquaculture 24,593 25,060 25,536 26,021 26,515 and fish processing), € Source: Statistics Estonia Number of jobs in fisheries (professional fishing, aquaculture and fish processing), € 2,049 2,049 2,049 2,049 2,049 Source: Statistics Estonia

Important activities to achieve the objectives of 2021-2024  Conditions will be created for the development of marine aquaculture. In order to ensure that the development of marine aquaculture does not have a significant negative impact on the marine environment, it is necessary to develop and implement environmental mitigation and compensation measures that enable the development of marine aquaculture.  To facilitate the submission of applications for fishing licences and the submission of data related to fishing, electronic solutions will be introduced for the submission of data to operators. Thanks to modern infotechnological solutions and the improvement of electronic data interchange, the administrative burden for businesses and fisheries will be reduced, data quality will improve and monitoring of illegal activities will also become more effective. Also, the development of innovative technological solutions will continue for valorisation and better use of living aquatic resources, incl. facilitating collaboration between businesses and research and development institutions.  Promoting the production of products with higher value added in the value chain in the valorisation of living aquatic resources. For the development of an economically more viable and more competitive fisheries sector, it is still necessary to pay attention to the growth of added value through product development and technological capability, which ensures more efficient use of local and hitherto unused living aquatic resources (incl. processing residues). In the development of innovative technological solutions for valorisation of living aquatic resources, cooperation of businesses with research and development institutions will continue to be supported, incl. internationally.  In order to increase the competitiveness of the coastal and inland waters fishing sector, joint activities will be promoted in adding value to the harvested catches and marketing products. The community-led approach based on local development promotes cooperation and joint action among fishermen, both within the sector and more widely in the formulation of fisheries policy.

49 STATE BUDGET STRATEGY 2021-2024

 Environmentally sustainable production is facilitated to ensure sustainable use of biological resources by supporting product development and improved technological capabilities.  National Aquaculture Disease Control programme will be developed for control and monitoring of fish diseases. Disease-free status achieved by the Disease Control programme creates better trading conditions for businesses.  To increase domestic consumption of fish, a multiannual national campaign for introducing and promoting fishing and aquaculture products will be launched, which highlights the importance of consumption of fish products for population in all age groups and improves valorisation and marketing of Estonian fish.

2.8 Transport Aim of the performance area: The aim of the Estonian transport policy is to ensure convenient, safe, fast and sustainable mobility for residents and businesses. Table 24. Indicator and target levels of the transport performance area.

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019) Transport system user satisfaction index.11 55.7 ≥55.76 ≥55.76 ≥56 ≥56 Source: the Global Competitiveness Report

In order to achieve the goals of the transport performance area, the transport programme has been established, which is based on the objectives, measures and activities of the Transport Development Plan 2014–202012 in force at the time of the programme’s preparation and takes into account the possible needs of the Transport and Mobility Development Plan 2021–2035. The Ministry of Economic Affairs and Communications is responsible for the planning of activities and allocating financial resources to achieve the objectives of the programme. Short analysis of the situation of the performance area The implementation of the activities of the transport performance area has continued to be successful. As at the end of 2019, 197,4 km of road sections were reconstructed or updated by

11 www.weforum.org/reports/the-global-competitiveness-report-2017-2018 On performance area level, the indicator of the implementation of Transport Development Plan is transport system user satisfaction index. Until 2018, the index measured the average of the ratings given by the users on the seven-point scale to the quality in four transport system areas (roads, railways, ports and airports). Target level set out in the Transport Development Plan for 2020 (4.8) had been achieved by the end of 2017 (4.875). In 2018, the World Economic Forum (WEF) changed the essence of measuring the index, and therefore, from now on, the index measures the average rating given on the 100-points scale by the users to eight transport quality indicators (road connections, quality of roads, railroad density 11, efficiency of train services, flight connections, efficiency of air transport services, liner connections, efficiency of seaport services). Estonia’s level of achievement was 55.76 in 2018 and only 55.7 in 2019. The rate of development and target level of transport infrastructure and services for 2035 will be agreed in the framework of preparation of new development plan. This international index does not adequately reflect the situation of transport infrastructure and services in Estonia. Therefore, a new indicator will be developed during preparation of the Transport and Mobility Development Plan. 12 https://www.mkm.ee/et/arengukavad

50 STATE BUDGET STRATEGY 2021-2024 the support of Cohesion Fund, which exceeds the initial target level 92% set for 2023. 43% of road sections targeted for 2023 have been completed. The condition of the roads of the TEN-T (Trans-European Transport Network) network is very good due to large investments in the infrastructure made in recent years. In 2019, roads in poor condition comprised only 0.7% of the entire road network, i.e. it improved by 1.5%. compared to the target set for 2018. The target of 11% set for 2023 has thus been exceeded. By the end of the period, the proportion of roads in poor condition may increase again, because many investments have been made about 10 years ago, but it will stay firmly below 11%. The number of train users has increased year by year. In 2019, the number of passengers exceeded 8.3 million. The goal – 8.8 million train passengers by 2023 – can be achieved according to forecasts. At the same time, railway infrastructure faces a problem of absorbed capacity in Baltic Station and Pääsküla-Keila railway section (both only during rush hour). The rest of the railway lines are more likely underutilized and investments require ensuring optimum infrastructure configuration (i.e. reduction of the number of stations and/or railroads where necessary, consolidation of equivalent station park functions in a single location, etc.). The proportion of public transport users, pedestrians and cyclists continues to be problematic. Although most county lines provide free bus transport since 2018 and free transport is available in Tallinn already for several years, there is still not sign that these measures would make people use public transport en masse. In 2019, only 38.8% of people used public transport, walked or cycled to work (target for 2023 is 50%). One can be rather sure that this target will not be met in 2023. Major challenges in public transport continue to be related to population dispersion and improving service quality for people living in peripheral regions through cost-effective organisation of public transport and needs-based line network. To that end, challenges faced by public transport centres are primarily associated with ensuring the supply for increased demand of passengers incidental to free public transport. Additionally, public transport centres must pay more attention to line network and competitiveness of public transport to ensure reasonable transport opportunities for people and reduce their forced expenditure on transport. This also involves needs-based approach to the organisation of public transport and development of demands-based transport, where reasonable. In densely populated areas, the greatest challenge consists in controlling the increase in use of passenger cars by offering high-quality public transport service. At the same time, it is apparent that Estonia will suffer noticeable economic decline in 2020 in connection with global COVID-19 pandemics and its various impacts13. Economic crises always entail negative effect on labour market and this time the impact was the greatest in service sector. Restriction of movement has significant effect on transport sector and major decline is expected primarily in passenger transport in 2020. Due to closing the borders, passenger transport will decrease the most in aviation and maritime sector. With regard to domestic restriction of movement, the pandemics affects local transport (public transport). The volume of freight transport in 2019 was more or less at the same level as in previous years (50.58 million tonnes). It is still far off from the 2020 benchmark (86 million tonnes) because the low volume of freight transport in recent years is accompanied by a poor geopolitical

13 According to the basic scenario of summer forecast by the Ministry of Finance, the size of the economy will contract in constant prices by 5.5 %. Source: https://www.rahandusministeerium.ee/et/riigieelarve-ja- majandus/majandusprognoosid

51 STATE BUDGET STRATEGY 2021-2024 situation and internationally difficult relations with Russia, which the Transit Commission is trying to improve.

2.8.1 Transport programme Aim of the programme: To ensure sustainable, safe, secure, accessible, inclusive, fast and technologically innovative transport sector and infrastructure that enhances the well-being of Estonian citizens and promotes their mobility, supports competitive and efficient logistics and contributes to increasing the competitiveness of the Estonian economy. Table 25. Indicators and target levels of the transport programme. Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019) Decrease in traffic deaths, average number of deaths in the last three years (rail14 and road15), 55 (only 52 (only ≤50 (only ≤48 (only base level 2015-2017 66.67 RA 48) RA 46) RA 44) RA 42) Source: Consumer Protection and Technical Regulatory Authority, Road Administration Energy consumption in the transport sector16 34.8 ≤34 ≤34 ≤33.5 ≤33.9 (thousand TJ) decreases or remains the same as thousand thousand thousand thousand thousand in 2012, base level 2016 TJ TJ TJ TJ TJ Source: Eurostat The proportion of transport costs in household expenditure does not increase by more than 11.6 12.0 12.0 ≤12.0 ≤12.0 12.0%, base level 201717 (2018) Source: Eurostat

Important activities to achieve the objectives of 2021-2024 In order to increase the share of people using public transport among all employed people:  The support to public transport regular services (plane, ship, county bus, railway transport), 2021–2024 in the sum of 438 million euros will continue. This includes introducing two separate airplanes for Kärdla and Kuressaare line. If the contract for Kuressaare airline is signed, then the annual cost of servicing Kuressaare and Kärdla with two planes is 5.7 million euros.  Due to increased passenger traffic on Virtsu–Kuivastu line, the volume of booked trips needs to be increased annually, at least for the peak demand period in summer. As a result of discussions so far, an additional vessel is intended to be introduced to the line in 2023, which could also be used for Rohuküla–Heltermaa line18, where necessary.

14 https://www.tja.ee/et/valdkonnad/onnetused-ja-statistika/statistika 15 https://www.mnt.ee/et/ametist/statistika/liiklusonnetuste-statistika 16 Eurostat database: Simplified energy balances – annual data 17 Eurostat table 18 Virsu-Kuivastu freight volume will be slightly increased annually according to need. However, it will not cover the demand during summer peak periods, because existing ships are unable to meet required freight volume. Therefore, an additional ship is ordered each summer, which makes extra trips in from June to August, but as the

52 STATE BUDGET STRATEGY 2021-2024

 Elron will carry out procurement for acquisition of additional electric passenger trains.  Reconstruction of trains if necessary in 2023–2024.

In order to reduce fatalities in traffic accidents:  Implementation of the traffic safety programme continues; the total need of funding for implementation plan of intended traffic safety programme in 2021–2024 is 21.13 million euros. Programme objective is to reduce the number of traffic deaths and severe injuries, so that average annual fatalities would not exceed 40 and average annual number of severe injuries would not exceed 330 in 2023–2025.  Implementation of the road management plan for national roads will be continued; major construction projects include Võõbu–Mäo and Kärevere–Kardla 2+2 section of Tallinna– Tartu highway, Kanama-Valingu 2+2 section of Tallinn ring road, Väo junction of Narva highway and grade separated junction of Pavlovi street and Viivikonna road in Sillamäe, connection road between Saue city and Topi junction, construction of 2+2 section between Tiskre junction and Tabasalu hill on Tallinna–Rannamõisa–Kloogaranna highway in total sum of 139.3 million euros. Construction of Pärnu–Uulu 2+2 section of Tallinna–Pärnu– Ikla highway will commence in late 2021 and Sauga–Pärnu section in 2022 in total sum of 54.5 million euros.  Pavement of gravel roads will continue in the sum of 32.1 million euros and preparation of road projects in the sum of 26 million euros. The aim is to make significantly used gravel roads dust-free by 2030.  On a case-by-case basis, support is allocated to local governments whose road sections require additional funding due to increased traffic density, also for local traffic and for improving the condition of roads related to business, as well as for better traffic safety, in total sum of 20 million euros (2021).

In order to improve infrastructure quality and safety, the following transport infrastructure investments will continue in 2021–2024:  Reconstruction of Tapa–Narva railway will be supported and travel speed increased to 135 km/h in certain sections, 0.8 million euros.  Renovation of Tallinn–Tartu railway will continue and travel speed will be increased (135 km/h), 4.09 million euros. Within the framework of the project, a new railway bridge will be built across Emajõgi river and railway near the bridge will be deepened.  Renovation of traffic management systems of AS Eesti Raudtee in Turba section, Tallinn– Keila–Paldiski railway will be continued in 2021–2023, 14.5 million euros.  AS Eesti Raudtee will commence construction works to establish Pääsküla–Keila II main road, to improve quality of passenger train traffic in the vicinity of Tallinn (ensuring more frequent train connection with Keila during rush hour). Also, Baltic Station extension and 4 main roads will be built in the section between Paldiski road and Endla street. In 2021– 2023, total of 18.6 million euros.  AS Eesti Raudtee will start design works to continue electrification of railway sections in Tartu, Narva, Valga, Koidula direction, in 2021–2024, which requires 192.37 million euros. Preliminary design in 2021 requires 3.99 million euros.

demand continues to increase, it is necessary to find a way to provide better service to the passengers in summer on Virtsu-Kuivastu line. It is possible that the new ship will cover that need even without increasing the freight volume, but it might be necessary to increase the freight volume as well.

53 STATE BUDGET STRATEGY 2021-2024

 During 2021, preparatory works for stage II of Haapsalu railway (Turba–Rohuküla) will be completed, creating prerequisites for commencing construction procurements, 2 million euros.  Reconstruction of Tapa station sorting park, stage I, which requires 12.49 million euros.  Ensuring navigation in winter 11 million euros in 2021 and 21 million euros in 2022–2024 (7 million euros a year).  Deepening the Rukki channel – 0.3 million euros in 2022 and 0.3 million euros in 2024.  Reconstruction of Ruhnu lighthouse in the amount of 0.9 million euros.  Reconstruction of the lower lighthouse of Tallinn in 2021 – 2022, 0.65 million euros.  Reconstruction of the berth of the Maritime Administration in Rohuküla Harbour in 2021 – 2022, 3.1 million euros. In 2021, state aid measure for passenger industry operators will be continued, which aims to strengthen the competitiveness of passenger industry of Estonia, maintaining jobs and supporting the development of economy and passenger ship sector. The support applies only to the vessels that provide international regular service in the European Economic Area, carry the flag of a contracting state of the European Economic Area and have total capacity of at least 500. The employer is paid support in the sum equal to the difference of labour taxes calculated based on wages paid to the crew member and labour taxes calculated on tax base (minimum rate of 1.5 or 2.5 salaries, respectively). In order to receive the support, the employer must at first pay to the state the taxes, which secures crew members’ warranties to the extent of actual salary. Support can be applied for once in a quarter. Planned support in 2021 is 7.7 million euros.

2.9 Energy Aim of the performance area: Guarantee to the consumers the availability of affordable energy supply, which is compliant with long-term objectives of EU energy and climate policy, while contributing to the improvement of Estonia’s economic climate and environmental state as well as growth of long- term competitiveness.

Table 26. Indicators and target levels of the energy performance area.

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019) Availability of affordable fuel and energy, compliant with environmental requirements, to BAB ABD ABD ABD ABD the consumer19.

19 The indicator of the energy programme is the composite indicator on Energy Trilemma Index (https://trilemma.worldenergy.org) developed by the World Energy Council, which characterises country’s energy sector via three dimensions:  energy security;  energy accessibility and affordability;  environmentally sustainable energy. The status of these dimensions is characterised by a score where A is the best and D the worst. The status is determined by using numerical indicators. In 2019, this composite index was assigned to 128 countries in the world, Estonia ranked 30th in the overall ranking.

54 STATE BUDGET STRATEGY 2021-2024

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019) Source: World Energy Council

In order to achieve the goals of the energy performance area, an energy programme has been established, where the Ministry of Economic Affairs and Communications is responsible for the planning of its activities and allocating financial resources. The long-term development goals of the energy performance area have been set out in the Energy Sector Development Plan until 203020. Target levels for achieving these objectives and trajectories are specified in National Energy and Climate Plan until 203021.

Short analysis of the situation of the performance area Energy performance area has three main goals: increasing the share of renewable energy, improving energy efficiency, and ensuring security of supply. We have been very successful in implementing energy policy and achieving renewable energy targets. Achievement of energy efficiency goal is more complicated due to inevitably increased energy consumption due to former economic growth. Applied measures have reduced the increase of energy consumption. Additional measures may be required to achieve energy efficiency goals in 2021-2030 – further analyses will be completed this year to identify the best measures and evaluate the performance of measures already in use. In 2018, the share of renewable energy in final energy consumption increased, reaching 30%. The general share of renewable energy in final energy consumption has to be 25% by 2020 and 42% by 2030. Thus, we have exceeded the target for 2020 and keeping the trajectory of target set for 2030. The share of renewable energy in total final energy consumption of transport sector has increased remarkably (3.3% in 2018), we are following the trajectory of achieving our targets for 2020 and 2030 (10% and 14%) and significant part of renewable energy in transport sector comes from local fuels (biomethane, electricity). Estonia’s economy is growing faster than EU average and that means pressure on increased energy consumption. The measures applied for increasing the energy efficiency will prevent increase in consumption, and thus our aim for 2020 is to maintain the level of 2010 in final energy consumption. In 2018, the final energy consumption was 34.4 TWh, which means that we are nearing our goal (32.8 TWh), but in order to achieve the target set for 2020, the activities related to improvement of energy efficiency must be continued. By 2030, Estonia aims at keeping the final energy consumption within the range of 32...33 TWh. Energy Efficiency Directive 2012/27/EU has set for Estonia country’s overall energy efficiency obligation. Cumulative volume of overall energy efficiency in 2014-2020 is 7.1 TWh. As at

20 https://www.mkm.ee/et/arengukavad 21 https://www.mkm.ee/et/eesmargid-tegevused/energeetika/eesti-riiklik-energia-ja-kliimakava-aastani-2030

55 STATE BUDGET STRATEGY 2021-2024

2018, ~64% of the country’s overall energy efficiency obligation for 2014-2020 had been met. We are on the trajectory of achieving that target. Based on amended Energy Efficiency Directive (EU) 2018/2002, Estonia’s overall energy efficiency obligation for the next period (2021-2030) will amount to ~14.8 TWh. The obligation to reconstruct buildings occupied by the central government is also based on the Energy Efficiency Directive 2012/27/EU. Every year, it must be ensured that at least 3% of the total useful floor area of buildings occupied by the central government, whose energy consumption exceeds the minimum energy efficiency requirements, is reconstructed. In 2019, 2.5% of the total useful floor area of buildings occupied by the central government was reconstructed (3.5% in 2018). According to the estimation of the system administrator of Estonia’s electricity system (Elering), Estonia has a guaranteed security of electricity supply22. Security of supply is evaluated on an annual basis and by taking into account both domestic production capacities and electricity import opportunities.

2.9.1 Energy programme Aim of the programme: The aim of the energy programme is to ensure the continuous supply of energy and the sustainability of energy supply and consumption, which ensures that consumers have access to energy with market-based pricing. The development of the Estonian energy sector must be in line with the long-term energy and climate policy objectives of the European Union, contribute to the improvement of Estonia’s economic climate and environmental condition as well as increase long-term competitiveness. Table 27. Indicator and target levels of the energy programme. Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019) Availability of affordable fuel and energy, compliant with environmental requirements, to BAB ABD ABD ABD ABD the consumer19 Source: World Energy Council

Important activities to achieve the objectives of 2021-2024  Implementation of already existing measures financed from structural funds and auction revenue of the EU CO2 trading system and carrying out of last application rounds will continue: • Supporting the supply and refuelling of biomethane in filling stations and use of regular service buses using biomethane (>10 million euros, including 4 million euros of CF money). In 2020, the goal is that the share of fuel from renewable energy sources should comprise 10% of the transport sector. As a result of the support, a significant contribution will be made in meeting the renewable energy transport target for 2020, while also

22 https://elering.ee/sites/default/files/public/Infokeskus/elering_vka_2019_web_final2.pdf

56 STATE BUDGET STRATEGY 2021-2024

providing an important basis for meeting this renewable energy target in 2030 (target for 2030 is 14%). • The renovation of a depreciated and ineffective heat pipeline and/or the construction of a new heat pipeline will be supported (4 million euros). As a result, final energy consumption is reduced due to more efficient heat production and transmission. • Renovation and/or construction of district heating boilers and fuel exchange (4 million euros) are supported. The goal is to increase energy efficiency and, in the long term, to increase the share of sustainable district heating in the overall energy consumption. • The renovation of the infrastructure of street lighting for the purpose of energy savings will be supported (11 million euros). The goal is to increase the efficiency of the use of electricity in street lights, which will reduce the consumption of electricity in street lights due to the use of more efficient LED lighting technology. • Implementation of the measure for piloting the electrical buses in public transport (ca 4 million euros) will commence. • Implementation of the measure for piloting hydrogen value chain (ca 5 million euros) will commence.  For analysing climate neutral electricity production in Estonia, funding in the sum of 0.5 million euros was allocated from the European Commission, proposed solutions with impact analyses are expected to be completed by late 2021.  Planning of funding new and existing measures takes place according to the timetable of European Union funds (Structural Funds, Just Transition Fund, Recovery Fund). Measures and their volume will most likely become clear in late 2020 or early 2021.

2.10 Information society Aim of the performance area: A well-functioning environment has been established in Estonia for a wide-scale use of ICT and creation of smart solutions, having thereby increased the economy’s competitiveness, the well-being of people and the effectiveness of governance. Table 28. Indicators and target levels of the information society performance area.

Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019)

Proportion of use of internet with a speed of 100Mbit/s or higher, % 18 22 24 26 26 Source: Consumer Protection and

Technical Regulatory Authority Proportion of people using secure electronic identities among people who 60 67 69 71 71 have an electronic identity, % Source: SK ID Solutions

Two programmes have been developed to achieve the objective of the information society performance area: e-government and telecommunications development programme and cybersecurity programme. The Ministry of Economic Affairs and Communications is responsible for the planning of activities and allocating financial resources to achieve the objective of both programmes.

57 STATE BUDGET STRATEGY 2021-2024

The long-term development goals of the information society performance area have been set out in the Information society Development Plan23. Short analysis of the situation of the performance area Based on the achievement level of indicators of Estonian information society 2020, former activities in each area have led closer to set targets or met the targets. However, despite continuous movement towards the goals set out in the development plan, there are still places without fast internet connection in Estonia, base infrastructure of e-state needs continuous modernisation, e-services are fragmented between different agencies and sometimes difficult to find, citizens and businesses have uneven skills required for using ICT opportunities and technological advancement is ahead of the development of skills, reputation of e-Estonia and export need continued state support and cooperation. The first and undoubtedly most considerable sub-objective is improved internet access, which has significantly improved through implementation of the measures of the development plan, especially with regard to mobile internet. In 2019–20, the so-called last mile as well as internet infrastructure project for schools was implemented to improve connection availability and quality. Accepting fast internet (up to 100 mbit) by users remains a challenge despite increased supply. The second component required for the functioning of information society is base infrastructure of the state. Despite constant development of state services infrastructure (X-Road, eID, information portals, etc.), it needs to be updated or its parts replaced in view of rapid technological progress and users’ expectations. The work of the Architectural Council was re-established for updating interoperability networks to better manage interoperability and e-state architecture, as well as to improve cooperation with private sector. Efforts have been made to keep pace with technology trends, e.g. establishment of state cloud infrastructure, introduction of blockchain technology and applications of artificial intelligence, but the goal is wider employment of these technologies to improve the efficiency of services and infrastructure. The third challenge is the accessibility to e-services, their convenience and speed, which inevitably must keep up with the quality and ample opportunities in private sector. This puts pressure on public e-service providers and developers. By today, the concept of service owners has been implemented in the area of e-services, which includes determining service owners, establishing public services council that allows implementing cross-sectoral and cross- institutional projects for service development. The focus is also on the development of service quality indicators and continued measuring of minimum indicators (time, satisfaction, cost, number of transactions). Ambition involves moving to the next level by providing event-based and comprehensive services (combining the services of different areas and agencies) in client view and proactively (by using existing controlled data) where possible. The fourth cross-sectoral part of functioning information society concerns education and skills that make it possible to influence implementation of digital changes in every field of life and increase productivity. Despite significant progress made in recent years, achievement of the goal is possibly at risk in terms of digital capacity of enterprises as a whole as well as continuity of ICT expertise, inter alia, in the performance area of the Ministry of Education and Research. Challenge consists in ensuring opportunities for all young people in Estonia to acquire good

23https://www.mkm.ee/sites/default/files/elfinder/article_files/eesti_infouhiskonna_arengukava.pdf

58 STATE BUDGET STRATEGY 2021-2024 basic ICT skills, understanding of ICT expertise, incl. engaging in non-formal ICT education and continuing development of talented youth. Computer and internet use of Estonian people has been on the rise throughout the development plan period, reaching 88.1% at the end of 2017 in 16 – 74 age group. Cooperation with partners has made it possible to increase the accessibility and financing of ICT non-formal education and hobby activities in the area of natural and applied sciences, provide training for instructors and prepare instruction materials. Prerequisite for acquisition of basic ICT skills on general education level consists in agreed students’ competences, which are integrated in syllabus, and implementation thereof if supported by study materials and teacher training. Among other things, special attention is paid to developing security-related competences and increasing awareness – Smart Internet Use programme is continued, CyberSpike competition has been launched in cooperation of the Ministry of Defence and TalTech, etc. Acquisition of competences must be measured. Since 2014, digital competence has been defined as general competence in national general education curriculum, ICT syllabus for basic school has been prepared, ICT has been integrated in subject teaching, portal for digital study materials has been created. Development of curricula has been launched, and more attention will be paid to the advancement of digital and data literacy, media literacy, and algorithmic thinking. In spring 2018, standard-determining tests were piloted for measuring the level of ICT skills among last-year students of basic school and upper secondary school. In 2019, standard- determining tests were piloted in vocational secondary education curricula of vocational education and measurements were also performed among last-year students of basic school and upper secondary school. Due to Covid-19, measuring did not take place in 2020, but it will continue in the academic year 20/21. Average level of general education in Estonia is very high, but not enough attention is paid to talented students with great potential, including in the field of ICT. Key importance is attributed to teachers who are expected to link technology with academic work based on needs and possibilities. Although teachers have already been trained for a decade, their skills are still not considered sufficient and there is an ongoing need for training. Despite improved availability of digital study materials since autumn 2018, availability of study materials remains insufficient on a broader scale. IT Academy programme in higher education institutions that teach IT will be continued to alleviate lack of ICT specialists. In addition to IT studies, the IT Academy programme is used for financing the development of professional ICT skills and relevant curriculum and, since 2018, also for strengthening research capabilities. Through IT Academy programme, activities to support the next generation of IT teachers has been launched in cooperation with universities. Development activities for improving ICT vocational secondary education have also been started. Bringing foreign labour force to Estonia is facilitated by the Aliens Act as well as IT specialists project under Work in Estonia programme that was launched in 2018. E-solutions provided both in public and private sector have gained international attention and afforded to Estonia the status of credible partner and appreciated participant in international forms of cooperation, including cooperation formats of EU and NATO and open governance partnership, as well as digitally-minded countries and through memoranda for understanding for cooperation. A topic thoroughly linked to the above aspects is the continuity of e-government, arising from underfinancing of the areas of constant upkeep and development as well as cybersecurity over the years. Based on current estimations, the technological “debt” in state information systems may reach 60 million euros a year; Riigikogu and the Government have started to reduce that debt with the most recent State Budget Strategy, but this process has to be continued. In terms

59 STATE BUDGET STRATEGY 2021-2024 of funding, one challenge is project-based development financed from the Structural Funds (SF), which restricts development agility and constant renewal, causing gradual decrease in the proportion of SF funds. Ensuring cybersecurity has reached elementary and tested maturity level, based on central monitoring of cybersecurity incidents, solving and reporting system, supportive legal area and functional cooperation formats. Experience gained from two crises (cyber-attacks in 2007 and solving the vulnerability of ID-card security in 2017) have resulted in practical and tried-and- tested certainty that the choices made when developing cybersecurity area were generally right and that we are able to protect our digital society. The fact that it is more than just building successful reputation or consequence of single innovative achievements is supported by International Telecommunication Union (ITU) index published in June 2016, which ranks Estonia on the first place in Europe in terms of cybersecurity development.

2.10.1 E-government development and telecommunications programme Aim of the programme: The aim of the programme is to develop infrastructure that takes into account technology trends and the needs of the population and promotes their technological skills and education, and works both in the interests of public as well as private sectors, allowing productivity growth in both sector. Table 29. Indicators and target levels of e-state and communications development.

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019) Proportion of use of internet with a speed of 100Mbit/s or higher 18 22 24 26 26 Source: CPTRA Satisfaction with e-services among 90% of entrepreneurs 59.68 70 80 90 90 Source: MEAC Service catalogue - riigiteenused.ee Satisfaction with e-services among 85% of population 65.18 75 80 85 85 Source: MEAC Service catalogue - riigiteenused.ee Proportion of people using secure electronic identities among people who have an electronic 60 67 69 71 71 identity Source: RIA Proportion of non-users of internet among Estonia’s residents aged 16–74 years Source: Statistics Estonia (IT32: Computer 9.8 8 6 5 5 and internet users aged 16-74 years by group of people Proportion of ICT specialists in total employment 6.8 8 8 8 8 Source: Statistics Estonia

Important activities to achieve the objectives of 2021-2024

60 STATE BUDGET STRATEGY 2021-2024

 The support measure for passive broadband infrastructure for access networks concluded with Elektrilevi in 2018 will be completed, which by the end of 2023 should give 40,016 addresses in rural areas access to a high-speed access network (17.6 million).  State support is used to establish first continuous 5G transport corridors and 5G areas in residential and industrial areas.  Additional support measures will be developed and implemented to support the establishment of access networks in the remaining failing areas of the market.  Based on Estonia’s first artificial intellect strategy, deployment of AI in public sector has commenced and the first positive results have been achieved. However, the competences of using artificial intelligence and data science are low, Estonian language technology level is low compared to the rest of the world, there are legal obstacles to using data (e.g. in interpreting data protection requirements) and there are significantly more potential uses. Artificial intellect represents a great opportunity for Estonia to bring user experience and functioning of the state to a new level of development. Thus, the national AI plan is continuously implemented and updated.  Public agencies are encouraged to be smarter when opening and using data by supporting the introduction of automated work and decision-making processes.  As a result of the smart development of the existing and new information systems, the satisfaction of both residents and entrepreneurs with public services is expected to grow. This is planned to be achieved, among other things, through the introduction of so-called event services, which also includes the development of eesti.ee and its integration with the rest of the country’s databases and services. In addition, support for the development of public services and the base infrastructure and support for the creation of interoperability between public services will continue.  The planned activities of the programme of creating interoperability between public services (incl. e.g. training courses and seminars) will facilitate the smart and secure development, operation and deployment of the infrastructure of services. The activities together contribute to the development of higher-quality public e-services, including event services, and to deploying them actively.  Based on the roadmap for development of event-based services agreed in September 2020, active development of event-based services will commence, the first jobs will start in the first quarter of 2021. According to the roadmap, there are 14 agreed life event based services intended to be developed in 2021-2022.  Implementation of better management of public services, including measuring and monitoring, will be continued. For that purpose, a single service standard comprising service design, development, management and measurement will be developed, knowledge and skills of service managers and owners will be improved, and tools will be created and offered to service owners for service administration, including improved user-friendliness of cross-national central service catalogue.  Implementation of activities necessary for increasing ICT expertise is continued at various levels of education and for different target groups (including in-service training and re- training for adults), also paying attention to cross-sectoral digital skills.

2.10.2 Cybersecurity programme Aim of the programme: Estonia is the most cyber-secure digital country. By dealing effectively with cyberthreats, Estonia can ensure the safe and smooth functioning of the digital society, relying on the joint capability of state authorities, an informed and participating private sector and outstanding

61 STATE BUDGET STRATEGY 2021-2024 scientific expertise. Estonia is an internationally recognised direction indicator in the field of cybersecurity, which supports national security and contributes to the growth of global competitiveness of companies operating in this field. The society as a whole perceives cybersecurity as a common responsibility, where everyone has a role to play. Table 30. Indicators and target levels of the cybersecurity programme. Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019) The number of cyber incidents that severely interferes with the social and economic 70 148 138 128 128 functioning of the society or forces to abandon (2019) traditional digital solutions.24 Proportion of those who refused to communicate electronically with the public 3.1 sector or service provider in order to prevent a ≤ 3.1 ≤ 3.1 ≤ 3.1 ≤ 3.1 (2015) security risk.25 Source: Statistics Estonia Proportion of people using secure electronic identities26 among people who have an 57.6 ≥ 65 ≥ 65 ≥ 65 ≥ 65 electronic identity. (2019) Source: Information System Authority

Important activities to achieve the objectives of 2021-2024  To ensure a sustainable digital society, the development of information security measures will be facilitated and accurate implementation of information security requirements will be monitored. To prevent and manage incidents and crises, it is important to monitor the situation of information security in Estonia (CERT.EE monitoring capacity and notifications) and analyse the cyberspace. Protection and preparedness of infrastructure critical for the society will be ensured – the aim is to organise exercise, continue security testing and enhance cooperation and exchange information with sectors providing crucial services, based on agreed information channels and formats.  In the area of enterprise and research and development, we support the development of cybersecurity-related research capability in universities regarding areas that are of strategic importance for the state in order to ensure the presence of required expertise. We facilitate the creation and development of cybersecurity start-ups with international competitiveness (estimated annual growth by at least 5 start-ups). Various community work and cooperation formats will be implemented to support the operation of start-ups developing cybersecurity technologies.  Discussions on shaping cyber policy will be contributed to and the interests of Estonia will be stood for in international cooperation formats. Improvement of targeted cooperation with strategic external partners will continue and joint exercises will be organised on a regular basis, the purpose of which is to enhance the capability on operative level. In addition, systemic support is granted to the development of cyber capability of the third countries.

24 The annual number of critical cybersecurity incidents registered by CERT.EE. 25 Internet users aged 16-74 years who have avoided internet activity in the last 12 months due to security risks: communicating with public sector agencies or service providers. Source: Statistics Estonia 26 In the case if data if 2017, identities issued by the state were considered secure electronic identities.

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 In the area of developing cyber-cultural society, preventive campaigns for various target groups and extensive and systemic promoting the use of web-based cyber hygiene training platform among public sector agencies will be continued. The aim is to raise both public and private sector awareness of cyber risks and to ensure more secure and aware behaviour in the cyberspace.

2.11 Effective government Aim of the performance area: Unified and effective public administration, accounting for the population’s needs. Table 31. Indicators and target levels of the effective state performance area.

Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019)

Did not Proportion of general government increase 2018 expenditure in GDP will not increase, % ≤39.0 ≤39.0 ≤39.0 ≤39.0 vs 2019 Source: Eurostat (39.1 vs 39.0) Proportion of general government Increased 2018 employees in employment-age population vs 2019 (14.8 ≤14.9 ≤14.9 ≤14.9 ≤14.9 (aged 20-64), % vs 14.9) Source: Ministry of Finance Retained Retained Retained Retained Government effectiveness. Retained the the position the the the Source: Institute for Management position in the in the top position in position in position in Development top five five the top the top the top five five five

The aim of the governance performance area will be achieved through seven programmes: Supporting the activities of the Government of the Republic and the Prime Minister, Public Finances, Administrative Policy, Regional Policy, Financial Policy, Civil Society and Archives. The Secretary of State, the Minister of Finance, the Minister of Public Administration, the Minister of Population and the minister of Education are responsible for achieving the objective. No action plan has been prepared on the performance area. Short analysis of the situation of the performance area Central question of governance is the ability of govern with limited resources. Main strategic challenges the state has to face and adapt to include demographic situation and cost pressure on state budget. Estonian population including working-age population, is diminishing and all sectors struggle to find qualified employees. Smart, effective and efficient use of the resources of public administration organisation continues to be the priority of administrative policy. These resources include human resource, state assets, organisations and the services they offer, etc. For better use of resources, it is important to improve management quality, continue organising processes, find information technological opportunities, reduce red tape, organise strategic human resources management of the state, including training and offering development opportunities, quality and efficiency of support services, and ongoing consolidation and development of client-oriented services. More importance is attributed to implementation of innovative measures, including service design.

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The share of Estonian local governments’ expenses in the government sector expenditure is half (23%) of what it is in the Nordic countries (mainly 40% and more) that we strive to follow, or in other OECD countries. The other important challenge after administrative-territorial reform is to increase the discretion of local governments and handing over the additional tasks from the state to the local administration. OECD studies27 have shown a clear positive connection between the wealth of a state and its fiscal and administrative decentralisation.

Coronavirus pandemics has caused extensive recession across the world, e.g. EU economy is expected to contract by ca 8% in 2020. Large-scale fiscal policy measures have been implemented worldwide to stimulate the economy, resulting in increased government debt burden and deterioration of financial situation. Economic decline and incentive measures have also weakened the situation of public finance in Estonia, and drastically increased the debt burden of general government. Northern Baltic states, however, have suffered somewhat less significant impact of economic effects caused by COVID-19 pandemics than the countries in Central and Southern Europe. Estonian GDP will decrease by 5.5% this year and increase by 4.5% next year, staying approximately 1% below the level of 2019 in 2021. Decrease the share of employees’ income in wage revenue is limited to 4% in 2020 due to wage compensation. Employment will further reduce in 2021, increased in average wage will stop and annual average unemployment will reach 8%. In 2020, 5% decrease in private consumption is the result of reduced income and restricted consumption during the state of emergency, as well as uncertainty-induced increase in savings. Uncertainty with respect to the future will definitely also reduce private sector investments, which cannot be fully compensated by government support measures. Export growth follows the progress of external demand, which is a significant compass of economic development due to large share of industry oriented towards foreign markets.

The main challenge in the system for combating money laundering that is currently under attention is to develop an efficient prevention framework, including creating strategic analysis and monitoring capabilities that are able to sufficiently consider the money laundering risks arising from the constitutive, historical and geographical factors. The system for combating money laundering must be also able to adapt with the new potential money laundering challenges arising from the Estonia’s new image (digital image, e-residency, etc.) and priorities in a balanced but efficient way.

2.11.1 Programme for supporting the Government of the Republic and the Prime Minister Aim of the programme: The overall government objectives have been carried out.

27 OECD Regions at a Glance 2018, https://read.oecd-ilibrary.org/governance/oecd-regions-and-cities-at-a-glance- 2018_reg_cit_glance-2018-en#page1; OECD Regional Outlook 2016.

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Table 32. Indicator and target levels of the programme.

Indicator/Target Previous actual 2021 2022 2023 2024 level level (2020)

Success in carrying The general The general The general out the general objectives The general objectives objectives objectives of the The indicated in objectives indicated in the indicated in the government Source: Government of the indicated in the Government Government Government Office the Republic Government Government action plan action plan has five overall action plan action plan 2020- 2020-2024 are 2020-2024 are goals28 2020-2024 2024 are achieved achieved by achieved by are achieved by 2024 2024 2024 by 202429

The person responsible for achieving the programme objectives is the State Secretary and the programme is carried out by the Government Office.

Important activities to achieve the objectives of 2021-2024  Better implementation of government policy strategy “Estonia 2035” that supports planning and coordination, requires stronger cooperation with ministries and continued reorganisation of the Strategy Unit of the Government Office into national strategic planning centre of excellence.  To promote cooperation and information exchange, as well as better inclusion of general public, development of co-creation environment will continue; it will also be included in government partnership action plan to include non-governmental partners.  Preparation of the National Defence Development Plan for 2021-2030; also renewal of the bases of Estonian security policy and preparation of new national defence activities plan. Continued strengthening of the Government Office in the area of cybersecurity.  Continued organisation of Tallinn digital summits to make it a tradition; more systemic attention will be paid to EU communication.

28 The base levels of the objectives set out by the Government of the Republic are as follows: family-friendly Estonia (total fertility rate 1.59, absolute poverty rate for children 3.2%); cohesive society (relative poverty 22.6%, absolute poverty 3.4%); knowledge-based economy (productivity per employed 74.7% of the EU average (hour- based), participation in employment (age group 20–64) 79.2); effective governance (the share of general government employees in the working age population (age group 15–74) 11.9%, share of general government expenditure in GDP 39.3%); free and protected state (share of military defence expenditure in GDP, plus the additional costs of Estonia as recipient country and the additional defence investment programme cost 1.92%, percentage of people who consider Estonia to be a safe country 94%, willingness of Estonian residents to personally participate in defence operations in case of an attack against Estonia [share of those who responded “yes, certainly” and “yes, probably” (would personally participate in defence operations)] 54%). 29 Family-friendly Estonia (total fertility rate 1.67, absolute poverty rate for children 3.1%); cohesive society (relative poverty 15%, absolute poverty 2.8%); knowledge-based economy (productivity per employed 80% of the EU average (hour-based), participation in employment (age group 20–64) 79.5); effective governance (the share of general government employees in the working age population (age group 15–74) under 12%, share of general government expenditure in GDP <39,3%); free and protected state (share of military defence expenditure in GDP, plus the additional costs of Estonia as recipient country and the additional defence investment programme cost ≥ 2% of GDP, percentage of people who consider Estonia to be a safe country ≥ 94%, willingness of Estonian residents to personally participate in defence operations in case of an attack against Estonia [share of those who responded “yes, certainly” and “yes, probably” (would personally participate in defence operations)] >54%).

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2.11.2 Public finance programme

Aim of the programme: Public finance is sustainable and balances the economic cycle. Table 33. Indicators and target levels of the programme.

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019) The structural budgetary position of the general -2.7 -6.6 -4.9 -3.3 -1.3 government, % of GDP Source: Statistics Estonia Correspondence of the government sector’s cyclical Procyclical Procyclical Procyclical Procyclical Procyclical budgetary position change with the economic cycle. Share of taxes in GDP, % 32.9 32.7 31.5 31.5 31.5 Source: Statistics Estonia Real growth of general government expenditure according to the European Commission methodology 2.2 <2.8 <2.8 <2.8 <2.8 compared to potential economic growth, % 30 Share of debt burden in GDP, 8.4 <23.6 <27.1 <29.6 <30.9 % Share of liquid financial 8.0 >7.2 >6.8 >6.6 >6.3 reserves in GDP, % Estonian macroeconomic indicators are in compliance with the levels agreed in the The number The number The number The number The number EU scoreboards to identify of non- of non- of non- of non- of non- and monitor macroeconomic compliant compliant compliant compliant compliant imbalances, or do not exceed indicators is 0 indicators is 0 indicators is 0 indicators is 0 indicators is 0 these levels without a valid reason.31 Long-term sustainability of the budget policy (European Low risk Low risk Low risk Low risk Low risk Commission’s evaluation)32

Important activities for achieving the objectives for 2021-2024  A system of performance reporting and assessment of the state budget will be developed, which will summarise the current budget expenditure monitoring, performance reporting of the sector development plans, efficiency plans, the consolidated annual report of the state

30 Description of the methodology Box 1.11 p. 52 https://ec.europa.eu/info/sites/info/files/economy- finance/ip075_en.pdf 31https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic- governance-monitoring-prevention-correction/macroeconomic-imbalance-procedure/scoreboard_en 32The respective level is indicated in the annual assessment on the stability programme. See section 5 - https://ec.europa.eu/info/sites/info/files/economy-finance/06_ee_2018_sp.pdf

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and long-term impact assessment. Based on that, the results achieved and trends in achieving long-term goals can be assessed and the government advised in making knowledge-based management decisions.

2.11.3 Administrative policy programme Aim of the programme: The organisation of state administration is efficient and high-quality, and official statistics ensures transparency of the functioning of the state. Table 34. Indicators and target levels of the programme.

Actual level Indicator/Target level 2021 2022 2023 2024 (2019)

Share of central government expenditure of GDP, %. 33.8 <33.3 <33.3 <33.3 <33.3 Source: Eurostat Share of central government in working- age population (20-64)/share of central 8.5 <9 <9 <9 <9 government in employment (20-64)33,% Consideration of consumers need for 70.6 ≥70 ≥70 ≥70 ≥70 statistics, satisfaction index34

The administrative policy programme is divided between the portfolios of the Minister of Finance and the Minister of Public Administration. The ministers have a shared responsibility in the matters of the State Assets Department (policy of engagement is in the area of responsibility of the Minister of Finance and other state assets policies remain in the area of responsibility of the Minister of Public Administration, including real estate and ownership reform), partly in the remuneration policy and also in the matters concerning the central support services of the Ministry of Finance. The Minister of Public Administration is responsible for public administration and human resources policy, public procurement and state aid issues, public procurement dispute committee, operations of the State Shared Service Centre and the role of a shareholder at Riigi Kinnisvara AS. The Minister of Finance is responsible for statistics-related law-making and policy-shaping, Statistics Estonia, Information Technology Centre of the Ministry of Finance and the role of a shareholder at Eesti Energia AS, Eesti Loto AS and Levira AS. Important activities to achieve the objectives of 2021–2024  Establishment of state houses in country centres. A suitable building will be renovated or, in the absence thereof, a new one will be built in county centres (except for Tallinn and Tartu), which provides the employees of state agencies located in the area with modern working conditions. It simplifies the collaboration between agencies and improves the quality of services provided to local community.

33 Employment (20-64): employed – person who was working in the period under consideration and received remuneration either as a salaried employee, entrepreneur, or a freelancer; who worked without a pay in a family enterprise or their personal farm; was not working temporarily. 34 Index calculated on the basis of questionnaire sent to consumers on a regular basis

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 Implementation of public data management. Public data management will involve identification of basic data in the state, description of the data at the disposal of the state and creation of clear and functioning framework to ensure improved quality and life cycle of data.  Preparations for and conducting of the Population and Housing Census  Development of uniform support implementation service will continue.

2.11.4 Regional policy programme Aim of the programme: People have accessible and well-paying jobs in all areas, access to high-quality services and a pleasant living environment that enables diverse activities. Table 35. Indicators and target levels of the programme.

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2018) Share of population in Harju county in the population of 44.7 ≤46.0 ≤46.4 ≤46.8 ≤46.8 Estonia (%)35 Source: Statistics Estonia Share of GDP created outside Harju county of 35.1 ≥35 ≥35 ≥35 ≥35 Estonia’s GDP (%)36 Source: Statistics Estonia Regional difference of real estate prices (Harju, Tartu, Pärnu counties vs the 5.1 ≤5.0 ≤5.0 ≤5.0 ≤5.0 average of the rest of Estonia, in times)37 Source: Land Board Satisfaction with living Increase from Increase from Increase from Increase from 85 (2020) environment,% the base level the base level the base level the base level Regional differences in the level of satisfaction with the Decrease living environment, Decrease from Decrease from Decrease from 29 pp (2020) from the base difference between LGs in the base level the base level the base level level the highest and the lowest decile Share of local government expenses in public sector 24.1 (2019) ≥25 ≥25 ≥25 ≥25 expenditure38,% Source: STA

35 Source: Statistics Estonia RV028U and RV092. The target level indicates a more modest migration to Harju county than estimated. 36 Source: Statistics Estonia RAA0050. The target level shows that the decreasing of the contribution of other counties has slowed down. 37 Source: Land Board, transaction data on apartment ownerships (dwellings), average transaction cost (euros/m2). The target level indicates that increase in regional differences has slowed down. 38 Data from Statistics Estonia, public sector revenue and expenditure broken down by sectors.

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Important activities to achieve the objectives of 2021–2024  Analysis and proposals to support decentralisation, amendment of the funding principles of local governments, and increasing the role of local governments in developing the local business environment. OECD studies have shown that there is a clear positive connection between fiscal and administrative decentralisation.  Supporting the enhancement of capabilities of local governments (development programmes, training, methodologies and guidelines, support measures, etc.).  Adoption of a sea area plan with the aim to solidly determine the principles and conditions for the use of Estonian sea area and to create a common national planning registry.  By the order of the Government of the Republic, based on the proposal of the Ministry of Finance and requested by the Ministry of Economic Affairs and Communications, preparations were started for national special plan and strategic environmental assessment necessary to ensure permanent connection over the great strait, its functioning and security, leading to preparation of marine and terrestrial spatial solution for permanent connection (bridge or tunnel) and structure required for its functioning.  Development of common planning registry.

2.11.5 Financial policy programme Aim of the programme: Competitive and trustworthy business and finance environment. Table 36. Indicators and target levels of the programme.

Actual level Indicator/Target level 2021 2022 2023 2024 (2019)

Capital market volume (stock exchange, bonds, crowd funding, venture capital and 22.8 of GDP >23 of >25 of >25 of >26 of other funds and III pillar pension funds, (2018) GDP GDP GDP GDP except creditors, II pillar pension funds and insurance) towards GSP, % Share of financial and insurance activities in 4.4 >4 >4 >4 > 4 the added value of GDP,% Private persons’ net financial assets (financial assets – financial obligations) 13.8 >13 >13 >14 >14 towards GDP, % Long-term actual performance of the II pillar Yes Yes funds (rolling average of 20 years equals or No (0.7) Yes Yes exceeds 2%) Basel Anti-Money Laundering Index (place Yes (1) (2.68) Yes Yes in the top ten) (Yes, 2.36 (1) in Yes Yes

2020) High quality of reporting and auditing Yes Yes standards (ranking in top 30) Source: The Yes (27) Yes Yes

Global Competitiveness Report

Important activities to achieve the objectives of 2021–2024  Carrying out a national risk assessment on money laundering and terrorist financing and passing the respective evaluation by Moneyval. Empowering the Financial Intelligence Unit in the area of administration of the Ministry of Finance, including developing strategic

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monitoring and analysis capacity, to better understand and address the activities and risks pertaining to money laundering and terrorist financing.  Finalising of common EU financial supervision and crisis management framework resulting from Banking Union project (including establishment of common deposit insurance scheme if necessary) and development of various measures under the EU Capital Markets Union initiative to facilitate advancement of local capital market and inclusion of cross-border capital (including in currently unregulated areas, primarily crowd funding and crypto assets, ensuring higher level of investor protection).  Development of the regulatory framework of mandatory funded pension (so-called II pillar reform) with the aim to ensure efficient system in the stages of pension collection and pension payments (consequently, higher performance of funds and greater pension).

2.11.6 Archiving programme Aim of the programme: Sustainable preservation and use of the documented memory of the society, and verifying rights of the citizens. Table 37. Indicators and target levels of the archiving programme.

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019.a) The number of archival creators (agencies) who have 15 To be specified transferred the digital records to the National Archives Share of archive records preserved in appropriate repositories in the National Archive, % 89 89 89 89 89 Total volume as of the end of 2019 was 9,700,598 archive records Availability of the records 20.9 21.5 21.5 22 22.5 online, million images

Important activities to achieve the objectives of 2021-2024 • Collection of digital information and ensuring access to digital records, establishment of Tallinn centre for the National Archives, carrying out projects for digitizing document, photo and film heritage, and promoting activities for archival studies.

2.12 State based on the rule of law Aim of the performance area: A well-functioning state with legal certainty, low crime rate and high-quality legal system.

One programme has been created to achieve the objective of the performance area: Reliable and Effective Judicial Area. Indicators and target levels of the legal state performance area are identical with programme indicators. See Table 38 “Indicators and target levels of reliable and

70 STATE BUDGET STRATEGY 2021-2024 effective judicial area programme“. The Ministry of Justice is responsible for planning activities and financial resources to achieve the objectives of the programme. Long-term development goals of the legal state performance area are agreed upon in the following strategic documents: General Principles of Legislative Drafting Policy until 2030 (draft)39, General Principles of Criminal Policy until 2030 (draft)40 and the Development Plan for Courts of First and Second Instance 2020-202341. Short analysis of the situation of the performance area The legal and criminal policy of the state must contribute to increased well-being of people and ensure open and secure society, where people know their rights and may rest assure that their rights are protected. The legal policy direction must strive for the Estonian legal environment to be modern, flexible, attractive, less bureaucratic and ensuring economic competitiveness. Therefore, it is important to maintain and improve Estonia’s ranking in various indexes describing state environment (e.g. World Freedom Index, Doing Business report). Judicial area and the procedure of legislative drafting must ensure, that people’s fundamental rights are considered, constitutionality of standards is guaranteed, well-being is improved for everyone, and better conditions are created for entrepreneurship. Thus, the quality of both legal area and legislative drafting allows influencing the competitiveness of the state and increase overall effectiveness of the society. Although the regulations of several areas of private law have, since the restoration of independence in Estonia, undergone substantial renewal, there are still topics that need to be improved and updated:  people and businesses must manage their private law actions and the realisation of rights and obligations generally without state intervention;  a legal environment that protects family and privacy and other human rights and fundamental rights, must be ensured;  legislation regulating economic activities has an important role in creating favourable and modern business environment and ensuring Estonia’s competitiveness. Legal environment must facilitate innovation and investments in innovative goods and services that create added value, inter alia, through effective protection of intellectual property. The aim of criminal policy is to prevent offences and treat offenders effectively. Estonia must be secure. On the one hand, the needs of victims must be ensured and, on the other hand, the return of the offender to a lawful path must be supported. Criminal justice system must ensure increased capabilities of law enforcement personnel (incl. the Prosecutor’s Office, the Estonian Forensic Science Institute) and digitalisation of their work processes. A prerequisite for successful criminal policy is good and effective cooperation between health, education and social, cultural and sporting systems, as the criminal justice system alone is

39 https://www.just.ee/et/oiguspoliitika-pohialused-2030; proceedings of Riigikogu, second reading https://www.riigikogu.ee/tegevus/eelnoud/eelnou/653a4682-5164-4a2b-aca1- fc01e004c6a4/Riigikogu%20otsus%20_%C3%95igusloomepoliitika%20p%C3%B5hialused%20aastani%20203 0%20heakskiitmine_ 40 https://www.kriminaalpoliitika.ee/et/kriminaalpoliitika-arengusuunad/kriminaalpoliitika-pohialused-aastani- 2030-eelnou; proceedings of Riigikogu, second reading https://www.riigikogu.ee/tegevus/eelnoud/eelnou/4370712a-8dae-4d23-9b53- f0b61419d616/Riigikogu%20otsus%20_Kriminaalpoliitika%20p%C3%B5hialused%20aastani%202030%20hea kskiitmine_ 41 https://www.kohus.ee/et/eesti-kohtud/eesti-kohtususteem

71 STATE BUDGET STRATEGY 2021-2024 unable to prevent crime and reduce the resulting damage. A positive aspect is that crime rate has halved over the last 15 years – annual number of registered offences is approximately 27,000. Also, Estonian residents’ sense of security and trust in police are high compared to other EU countries. Namely, 94% of people considers Estonia as a secure place, ranking eighth in the EU. It is important to reduce the recurrent crime or recidivism rate. Criminal punishment must focus on the post-release development of the offender’s capability to lead a lawful life. Here, important role is played by both community-based sanctions and more extensive use of restorative law as well as rehabilitative activities of prisons and probation supervision (incl. the content of imprisonment, post-release support and accommodation service). A prerequisite of validity and functioning of an effective legal state is the accessibility to legal assistance. In 2002, Estonia introduced electronical State Gazette, containing full texts, updated based on amendments of acts and regulations, which have been given legal force. In 2010, electronical State Gazette is the only source of applicable law. Prospective tasks include increasing user-friendliness of the State Gazette, linking legal information published in different sources and ensuring accessibility to important legal information centrally from the State Gazette. It is important to continue modernisation of the judicial system. The structure of the Estonia judicial system is the simplest in Europe and it has no specialised courts; as a rule, the proceedings of the cases are conducted through three instances. Due to significant changes in the social situation (including domestic demographic distribution), high-quality justice has to be accessible across the state. Specialisation of judges, further centralisation of support services and further development of digital solutions are important in improving the efficiency of judicial bodies. Achieving the above is supported throughout by international cooperation and technological solutions:  Constantly increasing role of international cooperation – in particular, agreeing on common rules at European Union level and sharing experience of tried and tested solutions.  Digital solutions – faltering of information systems development, the slowdown of processes and lack of user-friendliness and updating; it is important to develop the technological possibilities that maximise workflows.

2.12.1 Reliable and effective judicial area Aim of the programme: Create the conditions for effective functioning of society and balanced protection of fundamental rights and reduce the number of offences and the damage they cause. Table 38. Indicators and target levels of the reliable and effective judicial area programme Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019) Ranking in the World Freedom index Status “free” Source: Freedomhouse Estonia’s competitiveness ranking 31 29 28 27 27 Source: World Economic Forum

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Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019) Share of people who feel safe at their neighbourhood after 76 >77 >79 >79 >79 dark, % Source: Ministry of Justice

Important activities to achieve the objectives of 2021-2024  The Ministry of Justice implementing digital “legal map” across the entire justice system to ensure effective governance.  Improvement and increased flexibility of institutional functioning of the state. Ensuring systemic development of national administrative arrangement, including analysis of the need for modernisation of administrative proceeding and administrative court procedure.  Ongoing monitoring and analysis of judicial practice in order to solve emerging problems.  Implementing the introduction of infotechnological means to contribute to more efficient criminal proceedings, secure intellectual property rights, digitalisation of the work of prisons and courts and modernisation of judicial network and various registers (land register, commercial register).  Supporting research-based economy by developing an entrepreneurial environment through a modern, attractive and competitive environment.  Developing the state legal aid system, facilitating the creation of a cohesive society and provision of those in need with reasonable and timely access to legal aid. For that purpose, systemic enhancement of free services of legal professionals (lawyers, notaries, bailiffs, etc.) will be ensured.  More efficient primary legal aid and civil services to ensure accessibility of legal aid to those who need it (cannot afford legal aid at market conditions) in all regions of Estonia. The Government of the Republic has decided to allocate additional 2.2 million euros for that purpose in 2021.  Achieving the aims of imprisonment such as directing to law-abiding path by making powerful contribution to diversification of jobs in prison, studies of official language and treatment of illnesses that facilitate crime.  Modernising the judicial network by paying greater attention to contemporary work organisation of judges and advocates general.

2.13 Internal security Aim of the performance area: People in Estonia feel that they live in a free and secure society where everyone’s value, involvement in and contribution to the community’s security combine to make Estonia one of the most secure countries in Europe. Living environment is improved, risks to life, health, property and the constitutional order are reduced, and quick and professional help enabled.

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Table 39. Indicators and target levels of the internal security performance area.

Previous actual Indicator/Target level 2021 2022 2023 2024 level

The share of people who consider Estonia a safe country, % 92 ≥ 94 ≥ 94 ≥ 94 ≥ 94 Source: Ministry of the Interior, survey on public opinion on internal security Share of people who consider

- crime, 3 ≤ 3 ≤ 3 ≤ 3 ≤ 3

- immigration, 12 ≤ 12 ≤ 12 ≤ 12 ≤ 12

- terrorism 1 ≤ 1 ≤ 1 ≤ 1 ≤ 1 the main problem in Estonia, %

Source: Standard Eurobarometer People involved in ensuring internal security, % 17 ˃ 17 ≥ 20 ≥ 20 ≥ 25 Source: Ministry of the Interior, survey on public opinion on internal security Trustworthiness of internal security institutions, %: - Police and Border Guard Board 89 ≥ 89 ≥ 89 ≥ 89 ≥ 89

- Rescue Board 97 ≥ 97 ≥ 97 ≥ 97 ≥ 97

- Alarm Centre 94 ≥ 94 ≥ 94 ≥ 94 ≥ 94 Source: Survey on trustworthiness of market research institutions Number of deaths from injury 687 ˂ 670 ˂ 660 ˂ 650 ˂ 640 Source: Statistics Estonia

In order to achieve the goal of the internal security performance area, Internal Security programme has been prepared, which is based on both the current Internal Security Development Plan42 (STAK 2015–2020) and the possible goals of the future STAK 2020–2030. The Ministry of the Interior is responsible for the planning of activities and allocating financial resources to achieve the objectives of the programme. Short analysis of the situation of the performance area People in Estonia assess their safety high. According to the 2015 Eurobarometer survey, 92% of the respondents found that Estonia is a safe country to live in. The share of people responding to the public opinion survey on internal security who considered Estonia a safe place to live was 94% in 2018, and 92% in 2020. The share of people who deem their neighbourhood safe has remained steadily high (92% in 2015, 96% in 2018 and 92% in 2020). Residents of North-East Estonia assess the safety of Estonia lower than the rest of the respondents (82% in 2020), but do not see the safety of their own neighbourhood considerably differently than the others (88% in 2020).

42 https://www.siseministeerium.ee/et/stak

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In 2015, due to the European migration crisis, the people living in Estonia considered immigration as the most important issue faced by the state. During 2016, the concern over immigration dropped significantly (from 45% to 19%) and continued to decline in 2017 (from 19% to 14%), and only 12% of the respondents saw this as the main problem for the country in 2010. Crime, immigration or terrorism do not reach the top three issues the residents consider most important. At the same time, Estonian residents find that terrorism (20% of the respondents) and immigration (52% of the respondents) are the most pressing issues that need to be dealt with on the European Union level. According to the public opinion survey on internal safety, the involvement of residents in ensuring internal safety has decreased compared to 2016 (it was 46.1% in 2016, 30% in 2018 and 17% in 2020). At the same time, in 2019 there are more internal security volunteers than in 2014: the number of assistant police officers increased from 884 to 1,061, volunteer rescuers from 1,768 to 2,058, and volunteer marine rescuers from 237 to 564. Main factors preventing from participating in security-related voluntary activities were inappropriate age (40%), other obligations and lack of spare time (37%) and requirements to physical capabilities (29%). There is a strong potential for increasing residents’ contribution to improving the safety of themselves and their neighbourhood. People are mainly convinced that they themselves should be actively involved in making them and their neighbourhoods safer (88%). There is also potential to increase participation in security-related volunteer activities. This is shown by people’s willingness to contribute to volunteer activities: 6% of the residents have participated in neighbourhood watch while 47% of the respondents are willing to take part in it again; only 1% of the respondents have participated in the assistant police and rescue work, but every fifth Estonian resident aged 15–49 years is interested in becoming an assistant police officer or a volunteer rescuer. The most important motivation is a desire to make one’s neighbourhood safer. The number of deaths caused by injury43 was lower in 2019 than before (220 in 2018 and 182 in 2019). Decrease in the number of deaths caused by injuries and poisoning has been facilitated mainly by reduced number of deaths due to traffic, fire and drowning. Nevertheless, based on the average EU level, Estonia could annually save another 300 human lives44. Majority of accidents and injury-related deaths occur because of wrongful behaviour, including alcohol abuse, careless smoking. People’s knowledge, attitude, skills and behaviour play an important part in noticing and preventing dangers.

2.13.1 Internal security programme Aim of the programme: People in Estonia feel that they live in a free and secure society where everyone’s value, involvement in and contribution to the community’s security combine to make Estonia one of the most secure countries in Europe. Living environment is improved, risks to life, health, property and the constitutional order are reduced, and quick and professional help enabled.

43 The internal security development plan has a direct impact on reducing the number of the following deaths due to injuries: in traffic, fire and due to drug overdose, casualties due to manslaughter and murder, as well as water deaths. These are the preliminary data submitted by agencies in the middle of January and will be specified during 2019. 44 National Health Plan 2020–2030. Tallinn: Ministry of Social Affairs. Statistics of injuries in 2007–2019.

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Indicators and target levels of the internal security programme and its performance area are identical. See above, Table 39 “Indicators and target levels of the internal security performance area”.

Important activities to achieve the objectives of 2021–2024  Prerequisites are created to keep the law enforcement agencies’ and the rescue network’s capacity to respond on an appropriate level. For that, means are sought to raise the salaries of internal security workers to ensure sufficient number of employees. Also, work environment is improved. The structural units of PBG fleet, marine rescue, marine pollution monitoring and control, and maritime border guarding and servicing of these units will be transferred to Hundipea Harbour. Common building in Pärnu will be completed in 2021. In addition to salaries and the work environment, other prerequisites are created. For instance, accident and hazards reaction network is expanded and cooperation improved between different parts of the network. The number of people ensuring public order is also increased by involving security companies and other qualified and authorised companies and agencies to a larger extent. National and local associations of domestic security volunteers will continue to be supported, both to increase their response capacity as well as to expand prevention.  Construction of the eastern border of Estonia continues. The activities are planned, considering a possibility that the direction of migration pressure from south to north may change and move from east to west. It also takes into consideration the pressure of smuggling. Estonia bears an important responsibility in ensuring the security of the Schengen free movement zone.  Crisis preparedness is improved. Police and border guard crisis reserve is intended to be implemented, able to operate also in case of extensive national defence crises. While peacetime reserves are involved in solving emergencies (assistant police officers and other volunteers), these reserves may not be available in case of national defence crises or they may lack the training and equipment to ensure performance of such tasks. Creating the reserve is necessary to solve that problem. In addition, better conditions will be created to ensure that people manage in crisis situations; preparedness for crisis management and provision of solutions will be improved in institutions, vital services and agencies responsible for continuity and local governments. It is crucial for every agency and enterprise to take responsibility and duly perform the obligations arising from the Emergency Act.  ICT capabilities will be increased and maintained and technical preparedness of the field of internal security improved. Several important information systems of the state are old and need to be updated for continuing provision of high quality services. Technology of the field is updated to enable police officers and rescuers to do their job well.  For more effective prevention, permanent community-centred forms of cooperation are created and the persons responsible on local and national levels selected to plan, conduct and measure the results of prevention. Community-level possibilities to ensure security are increased. This includes selecting a competence centre on a national level to coordinate the setting of prevention objectives and the achievement of results across sectors. In addition to improving the system, targeted prevention is implemented. For that, evidence or knowledge-based prevention programmes are being implemented to reduce damage to life, health and property.

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2.14 Foreign policy Aim of the performance area:  Preserving the Estonian nation, language and culture through history, ensuring the independence and sovereignty of the Republic of Estonia in international relationships.  Increasing well-being in Estonia and protecting the interests of Estonians living abroad.  Estonia’s growing contribution into global sustainable development. Table 40. Indicators and target levels of the foreign policy performance area. Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019) Regional security Source: expert evaluation based on sub- stable stable stable stable stable criteria, Ministry of Foreign Affairs EU cohesion. 6.8 6.8 6.8 6.8 6.8 Source: ECFR EU Cohesion Monitor (2017/18) Estonia’s position in the world’s competitiveness ranking of the World 31 29 27 25 25 Economic Forum Source: The World Economic Forum Estonia’s presence and impact in the world.45 89 (2018) <= 89 <= 89 <= 89 <= 89 Source: Elcano Global Presence Report Estonia is a considerable partner in international communication, incl. 0.15 of performance of international obligations*, 0.19 0.21 0.23 0.25 GNP 46 % Source: OECD DAC Estonia’s presence and impact in the world among countries with population of 5 13 (2018) <= 13 <= 13 <= 13 <= 13 million and less47 Source: Elcano Global Presence Report * % of GNP; based on the decisions of 25.05.2005 and 26.05.2015 of the Council of the European Union, Estonia has set a target level of 0.33% by 2030. Estonian contribution to the achievement of the target level depends on budgetary capabilities of upcoming years (2020-2030). Two programmes have been started in order to achieve the foreign policy performance objective: the Foreign Policy programme and the Development Cooperation and Humanitarian Aid programme. The Ministry of Foreign Affairs is responsible for the planning of activities and financial resources to achieve the objectives of both these programmes.

45 Base and target levels are specified according to recent Elcano report on global presence of countries, which includes recalculation of indicators for previous periods. Previously recorded target levels in 2020-2024 were set based on the principle of maintaining or improving Estonia’s position (84th place), which was achieved in 2018. Specified target levels are determined by following the principle described above. 46 Base level has been specified. Preliminary official estimation of the development cooperation volume in GNP in 2019 by OECD DAC (0.13%) did not include payment of approximately 4 million euros for the purposes of development cooperation from the Ministry of Finance to the European Commission. 47 Specified base and target levels according to recent Elcano report on global presence of countries, which includes recalculation of indicators for previous periods. Previously recorded target levels in 2020-2024 were set based on the principle of maintaining or improving Estonia’s position among countries with population of five million or less (11th place), which was achieved in 2018. Specified target levels are determined by following the principle described above.

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The long-term development goals of the foreign policy performance area have been agreed upon in the preparation of the Foreign Policy Development Plan 2030.

Short analysis of the situation of the performance area Mapping the area of foreign policy and activities when planning activities takes into account the Foreign Policy Development Plan 2030 and future trends analysed in the process of Estonia 2035:  increasing opposition to the European value space;  tensions in international relationships are growing (effects of globalisation, changing nature of conflicts, use of force, radicalisation, terrorism, economic inequality and illegal migration);  global order of economy, innovation, technology and industry are changing, new regions emerge;  population of the western world is reducing and ageing, increased migration and mobility of workplaces;  global population growth, growing consumption and increased use of limited natural resources and climate change put pressure on the environment;  technological advancement and innovation. Increased share of new technologies and digitalisation in economy.

Main challenges to address:  Tensions in international relationships have not been reduced, the influence of international institutions and cooperation based on rules still needs to be protected.  In this tense security situation, closer cooperation with allies, partners in international organisations, bilaterally and under regional formats becomes even more important.  The growing relevance of diplomacy in ensuring sovereignty and security requires strengthening of foreign services.  Estonia’s network of foreign missions needs innovative solutions to increase its presence (besides the more traditional ones).  More complicated map of potential threats and new more diverse sources of danger, including cyber threats.  Safeguarding Estonia’s role as an international speaker in strategically important topics under intensifying competition among countries. Meeting this challenge requires increasing the capacities of foreign services pertaining to cyber and hybrid threats and organising/co- organising sectoral events of international importance.  Handling the impacts of Brexit and maintaining former strong alliance with Great Britain, incl. cooperation for defence, cyber(defence) and economy.  Growing need to solve global challenges, requiring more intense communication with the direct neighbours of Europe and more faraway countries, and increased and more focused contribution to development cooperation and humanitarian aid.  Promoting Estonia’s competitiveness in increasing global competition.  Continuing attention to introducing Estonia in the EU and third countries to achieve security and economic objectives.  Creating better opportunities for enterprises in global competition, including reducing trade barriers.

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 Protecting the interests of Estonian enterprises and the performance of valid free trade agreements in a situation of presumably increasing protectionism due to depression caused by COVID19.  Supporting sustainable development of foreign investments, including finding balance between security and economic interests.  Lack of qualified labour and global competition for talents.  More frequent travelling of Estonians and diversification of the destinations, as well as a large and dispersed Estonian community abroad poses additional challenges to the flexibility and effectiveness of consular services and provision of consular aid.  More effective and innovative solutions need to be found in regard to providing consular services.  The need to find suitable solutions for keeping contact with the Estonian community abroad and support their return. The need to create prerequisites for the Estonian community abroad to be able to substantially contribute to the development of Estonia if it wishes to do so.  Impacts of the polarising societies on the foreign policy, highlighting global need for inclusive and sustainable implementation of reforms.

2.14.1 Foreign policy programme Aim of the programme: The security and well-being of Estonian people and state will increase. Table 41. Indicators and target levels of the foreign policy programme.

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019) Regional security Source: Ministry of Foreign Affairs stable stable stable stable stable (expert evaluation based on sub- (2018) criteria) Support of Estonian people to EU, % 74 (2019) >= 74 >= 74 >= 74 >= 74 Source: Eurobarometer 48 Support of Estonian people to 74 (autumn NATO, % >= 74 >= 74 >= 74 >= 74 2019) Source: Ministry of Defence Cyber security index (position in 3rd place the ranking) 49 2nd place 2nd place 1st place 1st place (May 2020) Source: NCSI

48 Due to change in data source, the target level of 2020 is measured for this indicator. Former target level of 2020 was based on the survey Awareness and attitude of Estonian population in the matters pertaining to the European Union (2017), commissioned by the Government Office, according to which the support to EU was 79%, and that level was to be maintained and improved if possible. Based on the development plan, the same principle is used when setting new target for 2020 with regard to the indicator published for 2019 by Eurobarometer. The surveys performed by the Government Office and Eurobarometer are not comparable one-for-one, because the support to EU is assessed by using statements with different wording and scale. 49 NCSI updates the indicator on an ongoing basis, incl. immediate update of the ranking of states as soon as new relevant information on cybersecurity of states comes to light.

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Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019) Workforce productivity compared to EU average, % 50 79 (2019) 83 85 87 88 Source: Eurostat Estonia’s representation in the world and availability of services 64 (2019) abroad, % 51 77 78 80 89

Source: Ministry of Foreign Affairs (combined indicator) Client-friendliness of consular services and compliance with the reputation of a digital state, % 44 (2019) 54 61 6952 72 Source: Ministry of Foreign Affairs (combined indicator) International involvement of a country (general position/political 18/54 (2019) <= 18/54 <= 18/54 <= 18/54 <= 18/54 involvement) Source: KOF (ETH Zürich) Area manager’s annual assessment indicator on active involvement of the applied in ensured ensured ensured ensured Estonian community abroad 2020 Source: Ministry of Foreign Affairs

Important activities to achieve the objectives of 2021-2024  Promoting Estonian interests in international organisations, bi- and multilateral relationships and regional formats.  Participating in shaping common EU foreign and security policy, including maintaining common sanction policy.  Maintaining strong alliances with EU and NATO states, including the countries of Northern Baltic region, Great Britain, United States of America, Germany and France, covering the dimensions of both security, cybersecurity and economy. Relates to implementation of national strategies.  Ongoing participation in and development of the Three Seas Initiative, including replacement events in 2021 to compensate for Tallinn summit cancelled due to COVID19 epidemics in 2020.  Introduce and/or (co)arrange international events with great diplomatic impact in Estonia, carried out by means of diplomacy development programme.  Ensuring the quality of operations related to e-resident cards and promotion of inclusion of e-residents.

50 Base level of the adjusted indicator pursuant to the last known indicator published by Eurostat (vs formerly reported 80%). Eurostat adjusts set of panel data describing the workforce productivity compared to EU average on an ongoing basis. 51 The indicator is updated on an ongoing basis and the achievement of its target levels and related sub-goals depend on budgetary decisions. 52 The indicator is more ambitious compared to the development plan. Reference base consists in regular renewal of indicator target levels according to the development plan.

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 Increasing and strengthening cyber security capacity. Involves preparation and implementation of new international cyber cooperation strategy and active involvement in renewal and implementation of Estonian cyber security strategy (led by MEAC).  Around-the-clock news, crisis monitoring and consular emergency aid in case of events taking place abroad.  Monitoring the performance of, complementing and compiling external contracts to protect and promote economic interests and reduce trade barriers. Monitoring of the performance, supplementing and preparation of international agreements to protect and promote economic interests and reduce trade barriers. This activity becomes especially important in the situation of economic recession caused by COVID19, which is expected to lead to imposing more protectionist measures.  Continued strengthening of Estonian business diplomacy network, including opening new foreign missions aimed at business diplomacy and secondment of foreign representatives, development of related ICT capabilities and improvement of support given to foreign missions by the headquarters. Foreign market entry is directed by clear and measurable action plans, linked to increased involvement of honorary consuls, Estonian community abroad, friends of Estonia and e-residents.  Provision of consular services in a way that is more convenient for clients and efficient for the state.  Innovative solutions in providing travel information and risk communication, to reach clients more efficiently and ensure that Estonians are well-informed when travelling.  More extensive inclusion of Estonians living abroad in the society to ensure better connection of our people with Estonia via citizen diplomacy.  Development and implementation of cross-agency international human resources policy, incl. supporting Estonians’ successful candidacy for positions in international organisations, training and preparation services for persons applying for positions in international organisations.

2.14.2 Development cooperation and humanitarian aid programme Aim of the programme: Estonia’s contribution to global security and sustainable development has grown, including broadened impact and effectiveness of its development cooperation and humanitarian aid. Table 42. Indicators and target levels of the development cooperation and humanitarian aid programme.

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019) The international obligations have been carried out (0.33% of the GNP in 2030), % 0.15 53 Source: Ministry of Foreign Affairs (2019) 0.19 0.21 0.23 0.25

53 Specified base level. Preliminary official estimation of the development cooperation volume in GNP in 2019 by OECD DAC (0.13%) did not include payment of approximately 4 million euros for the purposes of development cooperation from the Ministry of Finance to the European Commission.

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Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019) Support of Estonian people to development 68 (2018); cooperation, % 54 70 (2019) >= 68% >= 68 >= 68 >= 68 Source: Eurobarometer

Important activities to achieve the objectives of 2021-2024  By focusing on introducing good governance, we support the development of democracy and rule of law and help ensure civil society, human rights, peace and stability.  Estonia’s development cooperation is focused on prioritised target countries and takes into account foreign political developments when determining its new partners.  Increasing cooperation with other international donors.  Development and implementation of a uniform impact assessment system.  We will separate policy making from the implementation of development cooperation. For that purpose, Estonian Development Cooperation Agency will be established in 2021.  Implementation of African Strategy prepared in 2020 will start. The strategy provides a system and targets for Estonia’s activities related to Africa in the area of development cooperation, humanitarian aid and foreign economy.  Strengthening the capacity of reacting to humanitarian crises and increasing the share of prevention.  Due to its unpredictability, COVID-19 pandemics (e.g. constantly changing restrictions on travel and entry) strongly affects the implementation of development cooperation and provision of humanitarian aid. In our work, we have to consider the possibility of suddenly emerging situations that might require changing former plans – it may be necessary to change or end the projects that have already been started or planned – and, in case of urgent need, intervene elsewhere.

2.15 National security and defence Aim of the performance area: Plausible deterrence against a military aggressor. Ability to withstand an attach with the actions of the entire society. If necessary, quick and effective implementation of collective defence and international crisis management. Table 43. Indicators and target levels of the security and national defence performance area.

Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019)

The units are manned, YES, based on YES, based on YES, based on YES, based on YES, based on equipped, trained in the NDDP the NDDP the NDDP the NDDP the NDDP accordance with the 2017-2026 2017-2026 2017-2026 2017-2026 2017-2026 National Defence

54 Targets for 2020-2024 have been established at 68% of the base level of supporting development cooperation based on the Foreign Policy Development Plan in 2018, which is intended to be maintained or exceeded.

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Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019)

Development Plan implementation implementation implementation implementation implementation decisions. plan plan plan plan plan Source: Ministry of Defence Coalition troops are permanently located in Estonia. YES YES YES YES YES Source: Ministry of Defence The level of defence expenditure of GDP by the NATO method (%). 2.0355 >2.0 >2.0 >2.0 >2.0 Source: Ministry of Defence Willingness of residents to participate in defence activities, % 58 >55 >55 >55 >55 Source: survey Public Opinion and National Defence Number of active servicemen at the end of the year, at least. 3,508 3,560 3,610 3,660 3,710 Source: Ministry of Defence

Four programmes have been created to achieve the aim of the security and national defence performance area: independent military defence, participation in collective defence, intelligence and early warning, and shaping of the defence policy and supporting actions. The programmes are in the area of government of the Ministry of Defence. The long-term development objectives of the security and national defence performance area have been agreed in the National Defence Development Plan 2017 – 202656, implemented through the Ministry of Defence’s performance area development plan for 2021-2024. Short analysis of the situation of the performance area In 2019, Estonia was one of nine NATO countries with a defence expenditure of at least 2% of GDP. Nearly ¾ of the defence expenditure was targeted directly at creating and maintaining military units. At that, procurements for major equipment within the meaning used by NATO made up 15.5% of the defence expenditure in 2019. Availability of reservists and active servicemen is essential to man the military units. To achieve the objectives of the long-term development plan of the performance area (National Defence Development Plan 2017-2026), it is necessary to annually enlist on average 50 more

55 Actual level of defence expenditure by the NATO method is 2.03% (GDP value in current prices according to data published by Statistics Estonia on 28.02.20). Level allocated when planning the budget was 2.11% 56 http://www.kaitseministeerium.ee/sites/default/files/elfinder/article_files/rkak_2017_2026_avalik_osa.pdf

83 STATE BUDGET STRATEGY 2021-2024 active servicemen than leave the service – this target has been met. As of 31.12.2019, there were 3,508 active servicemen in service (objective was 3,460). Development of the capabilities of the Defence Forces. In 2019, two M28 aircrafts arrived in Estonia, raising situation awareness of Estonia. Estonia also received last CV9035 combat vehicles and modernised equipment for mine hunters. In 2019, a contract was signed for the procurement of new firearms, which will equip entire wartime structure with modern 5.56 mm calibre automatic guns. In addition, a contract was concluded for procurement of long-range antitank systems to equip antitank companies of the brigades. Creation of the infrastructure of the Defence Forces and the Defence League continued in 2019. Major completed projects include establishment of joint operations centre in Tallinn, reconstruction of the staff building and new barracks in Jõhvi, building of support structure in Tapa. By the support of NATO crowd funding, the construction of medical centre extension, technical maintenance hall and universal halls, as well as camping, container and machinery areas was completed in Tapa. In 2019, NATO support was also used to build 45 km of roads for various purposes. Presence of the allies is guaranteed via various cooperation initiatives. Starting from the spring of 2017, NATO enhanced Forward Presence (eFP) is located in Tapa, with Great Britain holding a permanent presence and the other participant countries are on a rotational principle France, Denmark, Iceland, and Belgium. NATO’s Baltic Air Policing (BAP) continued from the Ämari Air Base on a 365/24/7 principle. In 2019, 4-month rotating air policing missions were held by Germany, United Kingdom and Czech Republic. Receiving and supporting the NATO units and carrying out training practices on the Estonian territory is supported by the NATO Force Integration Unit (NFIU). In 2019, international cooperation continued to be active. Main activity on behalf of NATO was related to preparation of London meeting of leaders and defining further directions of work. The activities of Estonia, Latvia and Denmark for establishing Multinational Division’s North headquarters has continued. The staff achieved primary operability in the spring of 2020 and will reach full operability in 2023. EU matters in focus included Brexit, PESCO, European Defence Fund, command of military operations, military mobility and European Peace Facility. In autumn 2019, DF military representative was posted at the permanent representation at the UN during the period of Estonia’s membership with UN Security Council (2020-2021). Coordination of bi- and multilateral cooperation projects and participation in joint funding projects continued primarily on the direction of Ukraine, Georgia, and Afghanistan. In 2019, the project of English language learning for Ukrainian members of the Defence Forces was continued in the Estonian Military Academy.

As at the end of 2019, Estonia took part in the international military operations of NATO, EU, UN, and in US’s and France’s coalition of the willing operations in Africa, Middle East, Iraq, Afghanistan, and the Mediterranean with a total of 110 servicemen. In reaction units (NATO reaction forces (NRF), joint expedition forces led by the United Kingdom (JEF), and for first-time participation in potential operations of the UN, NATO, EU or their member states), a total of 126 servicemen were ready to deploy. In 2019, Estonia’s most significant contribution in the international military operations included NATO operation Resolute Support in Afghanistan and military operation Barkhane in Mali, led by France. Total volume of defence expenditure

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The calculation in activity-based state budget and in international reporting is not entirely uniform. In international reporting, priority is given to the definition of defence expenditure57 by NATO method that does not take into account external support directed into national defence, the own revenue earned, nor the annual depreciation, but indicates the state’s finances towards its GDP. The respective value added tax is also included in defence expenditure calculations. It should also be noted that based on the package of measures of the Government of the Republic, the percentage of defence expenditure in 2021-2024 is calculated based on the economic forecast published in September 2019, where the level of defence expenditure of 2024 equals to that of 2023. The actual defence expenditure will become clear afterwards, when the actual GDP of the state is calculated by Statistics Estonia. Table 44. Total volume of defence expenditure

2019* 2020 2021 2022 2023 2024 2% of the GDP for implementation of the 1 National Defence 539.8 584.4 614.6 645.4 675.0 675.0 Development Plan 2017- 202658 incl. activity support allocated to the Defence 39.4 39.8 39.2 43.3 44.2 45.6 League59 Expenditure related to 2 15.0 10.5 10.6 10.1 9.9 5.5 allies Other additional 3 allocations intended for a 1.0 0.4 0.2 0.05 0.05 0.05 specific purpose Additional allocations for 4 coastal defence60 0.0 0.0 0.0 46.0 0.0 0.0

Into National Defence 5 Investments programme 30.0 20.0 20.0 20.0 20.0 20.0 (KIP)61 Total defence expenditure 6 569.02* 615.2 645.4 721.5 704.9 700.5 by NATO method 7 % of GDP 2.03% 2.32% 2.29% 2.41% 2.23% 2.12%

57 State budget expenses are also divided between governing functions. COFOG (Classification of the Function of Government) is an international classification of government functions, developed by the Organisation for Economic Cooperation and Development (OECD) and approved as a standard in national accounts. COFOG enables an overview of the trends of expenditure in different government functions and compare the expenditure between countries. The total volume and share of national defence expenditure of the GDP based on the COFOG differs from the one calculated according to the NATO methodology; expenditure also includes expenses that depend on income. 58 Based on the package of measures of the Government of the Republic, defence expenditure is calculated according to the economic forecast for 2020-2023 prepared by the Ministry of Finance in summer 2019 (including VAT). 59 In view of activity based budget, allocation to the Defence League is reflected under various activities according to the volume in which the Defence Forces will contribute to the activity. Operations of the Defence League are also reflected under programmes Independent Military Defence, Participation in Collective Defence and Development of Defence Policy and Supporting Actions. The total support to the Defence league is (2021) 39.2 million euros, (2022) 43.3 million euros, (2023) 44.2 million euros, (2024) 45.6 million euros. 60 Allocation from the package of measures of the Government of the Republic for development of coastal defence in 2022. 61 Allocation from the package of measures of the Government of the Republic for KIP in 2024.

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2019* 2020 2021 2022 2023 2024 Total financial assets in the use of the Ministry of 8 Defence together with 615.0 621.9 646.5 715.6 695.7 689.5 foreign support and domestic transfer62 * Actual level of defence expenditure in 2019 from GDP based on the NATO method (%).

2.15.1 Independent military defence programme Aim of the programme: Prevent attacks against Estonia and ensure Estonia’s ability to defend itself from external threats. Table 45. Indicator and target levels of the independent military defence programme.

Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019)

The units are manned, equipped, trained in YES, based on YES, based on YES, based on YES, based on YES, based on accordance with the the NDDP the NDDP the NDDP the NDDP the NDDP National Defence 2017-2026 2017-2026 2017-2026 2017-2026 2017-2026 Development Plan implementation implementation implementation implementation implementation decisions. plan plan plan plan plan Source: Ministry of Defence

Important activities to achieve the objectives of 2021-2024 In years 2021-2024, actions approved in the National Defence Development Plan 2017-2026 will continue to be implemented, incl.  Additional funds allocated by the Government of the Republic will be used to acquire capabilities set out in NDDP as well as long-range coastal defence system and additional funds from KIP will be used to improve marine defence.  During the planning period, operative structure will be rearmed with new automatic weapons and additional machine guns will be acquired for the entire structure. Replenishment of the stock of large-calibre ammunition will continue and gradual replacement of antitank grenade launchers will take place by 2026. Self-propelled guns and their support machines will be introduced. Entire operative structure will develop uniform tactical communication capacity and night vision capacity. During the period, location of units will be altered in accordance with infrastructure plan.  With regard to achievement of NATO force objectives, main emphasis during the planning period is placed on combat vehicles of the combat battalion and research and development activities. In addition, in the framework of achieving NATO force objectives, efforts will

62 From 2020 onwards, special pensions for servicemen and conscript child allowances will be recorded in the budget of the area of government of the Ministry of Social Affairs and accounting and HR and wage calculation support service provided for the area of government of the Ministry of Defence by RTK in the budget of the area of government of the Ministry of Finance. The said expenses will be recorded under defence expenditure, but they are not financial resources at the disposal of the area of government of the Ministry of Defence.

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be made to develop battle management system (BMS), Identification Friend or Foe system (IFF) and nuclear, biological, chemical (hereinafter NBC) defence.  Continues training the units in accordance with the National Defence Development Plan decisions, including organisation of military exercise SIIL 2022 in 2022.  During the period, infrastructure development will be continued with the focus on improving warehousing of EDF mobilisation supplies.  By the end of the period, Estonian Defence Forces will be equipped with modern communication and guidance systems. Cyber command will be completely equipped.  Command posts of the Defence Forces will be equipped with appropriate staff vehicles, containers, communication solutions, and other means necessary for command.  During the period, professional military policy will start planning the establishment of patrol and investigative capacity in Northeast Estonia (Tapa) and South Estonia (Tartu or Võru) direction, as well as implementing criminal intelligence capability in investigative division.  To meet international obligations, Guard battalion of military police will train personnel for completion of military defence company of Multinational Division North Headquarters (hereinafter MND-N).  To provide the 1st infantry brigade with training for infantry combat vehicles, the very short range practice area with driving practice track and central training area of Tapa base will be developed, by including finances outside defence budget (USA programmes, NATO crowd funding and allocations from the Government of the Republic).  During the planning period, major emphasis is placed on establishing additional accommodation and maintenance/storage infrastructure objects in Jõhvi and Tapa bases, inter alia, to ensure relocation of Kalevi battalion form Paldiski to Jõhvi.  Machine gun battalion of the 2nd infantry brigade will be provided with fire-control equipment, vehicles intended for transporting machine guns and staff vehicle.  By the end of the period, the pioneering capacities of the brigades will be developed as required.  Final development of conditions for using mortar and antitank weapons in Nursipalu training area.  Preparations will be made for building a backup road in Luunja and technical shelters in Tsiatsungõlmaa (improvement of maintenance and storage conditions).  In the Navy, preservation and development of existing capabilities will continue. In terms of minesweeper unit, current capability will be preserved, aimed at providing support for mine hunters. The development of Maritime Situational Awareness (MSA) will continue. By 2022, the programme for upgrading minehunter capabilities will be completed and all three vessels have reached full combat readiness.  Air force will continue daily operation of Ämari Air Base on a 365/24/7 principle in order to ensure air policing operations and reception of allies. During the planning period, runway repairs will be completed to support aircraft aviation safety.  Two M28 aircraft at the disposal of the Air Force will reach full operational readiness to improve Maritime Situational Awareness (MSA) and Intelligence, Surveillance, and Reconnaissance (ISR).  Use of leased training jets will continue to provide and maintain AF ground weapon system managers for air control and targeting skills of air safety pilots.  AN2 aircraft will continue operation to ensure firefighting capability necessary to eradicate forest and wildfires. R44 helicopters will cease operation.  Support command staff will achieve capability to support the chief of support command staff in ensuring sustainability of the Defence Forces and planning logistical operations (including support of receiving state).

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 Completion of infrastructure in Lintsi to store and handle ammunition. Ämari catering complex will be extended and a new catering complex will be built in Paldiski. Development of logistics capabilities in South East region will commence.  Acquisition of heavy equipment transporters (HET) will increase the capability of receiving, assembling and moving forward and improve life cycle management (LCM) of manoeuvrable armoured units. Acquisition of additional means of transport and containers, as well as establishment of new supply units will significantly increase the capacity of off- road stock management.  Equipping and training of the territorial defence units will continue.  The average salary level of active servicemen is kept at least 30% above the average wage in Estonia in order to carry out the capability developments provided for in the National Defence Development Plan to recruit active servicemen. By the end of the period, ca 3,710 active servicemen will be in service and the number of conscripts will increase.  The total amount of defence-related procurements for the period, together with the National Defence Investment Programme, is 1,012 million euros, with NATO 624.2 million euros (incl. VAT) spent on basic procurement for NATO, 101 million euros (incl. VAT) for infrastructure construction and land acquisition.  Ammunition procurements will continue to equip all units. Between 2021 and 2024, ammunition will be procured for 121 million euros (VAT included), to which funds from the National Defence Investment programme will be added (20 million a year, totalling 80 million in 2021-2024). In total 201 million (incl. VAT).

2.15.2 Collective defence programme Aim of the programme: NATO’s collective defence is efficient and strong. Functioning of collective defence is ensured, including through Estonia’s participation in international security and the allies’ contribution to defending Estonia. Table 46. Indicator and target levels of the programme on participating in collective defence. Previous actual Indicator/Target level 2021 2022 2023 2024 level (2019) Coalition troops are permanently located in Estonia. YES YES YES YES YES Source: Ministry of Defence

Important activities to achieve the objectives of 2021-2024  Estonia is actively involved in developing and strengthening NATO’s deterrent and defence policy measures. Estonia supports the development of defence cooperation in the European Union and close partnership with strategic allies.  As to the helping policy, funds are planned for the trust funding for NATO’s armed forces in Afghanistan, as well as for supporting Georgia and Ukraine and for contributing to the Geneva Centre for Security Policy. Transportation costs for rehabilitation of wounded soldiers in Ukraine are covered.  Estonia is one of the founding states of the Multinational Division North Headquarters. Participation involves the manning of posts and contributing to covering the general expenses of the headquarters. The headquarters, established in March 2019 at the Adaži Military Base in Latvia, is aimed at enhancing the region’s defence capability integrating

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military units in the region with NATO’s senior management structure to achieve full operational capability. By creating the Northern Headquarters, NATO’s military structure gains a military leading standard that is specifically focused on the defence of Estonia and Latvia. A respective military police unit will be provided to support the headquarters.  Estonia participates in international military and civilian operations that support the achievement of Estonia’s security and defence policy goals and deepening defence cooperation with strategic allies that are important for Estonia. The volume of participation depends on the current decisions of the Government of the Republic and the Riigikogu. The annual cost of operations during the planning period is ca 11 million euros, the actual cost will be determined during the period according to the actual mandates.  In Estonia, the Baltic air policing mission continues, accommodating the NATO Force Integration Unit (NFIU) and the Enhance Forward Presence (eFP) of NATO led by the United Kingdom. Resources have been planned to cover the navigation charges of the allies. In terms of infrastructure projects, allied needs are supported at Ämari base, Tapa base and at the central training area. According to political agreements, direct costs of the allies’ reception will be covered in addition to the 2% of GDP allocated to national defence, which is used for implementing the National Defence Development Plan 2017-2026.

2.15.3 Intelligence and early warning programme The aim, indicators, target levels, and important actions of the intelligence and early warning programme are protected by access restriction.

2.15.4 Programme for developing defence policy and supporting activities Aim of the programme: The policies of the field are aimed at supporting military national defence, including ensuring civil sector support to military defence. Resources are guaranteed for creating and maintaining military capacities. Table 47. Indicators and target levels of the defence policy development and the supporting activities programme.

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019) Level of military defence expenditure of GDP by NATO 2.03 >2.0 >2.0 >2.0 >2.0 method (%) Source: Ministry of Defence Willingness of the residents to participate in defence operations, % 58 >55 >55 >55 >55 Source: Public opinion and national defence Number of active servicemen at the end of the year, at least 3,336 3,560 3,610 3,660 3,710 Source: Ministry of Defence

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Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019) Number of young people enlisted in compulsory military 3,336 3,500 3,500 3,800 3,800 service Source: Ministry of Defence

Important activities to achieve the objectives of 2021-2024 The most important activities of the programme on developing the defence policy and the supporting activities include:  Supporting defence-related research and development activities and defence industry. Total R&D expenditure63 will increase in 2021-2024, both nominally and as a share of defence expenditure, reaching 0.75% of defence expenditure.  Supporting willingness to defend, significant part of which includes ongoing programme of patriotic education, supporting the continuance of national defence studies and NGOs. Also, information to raise awareness of the importance of compulsory military service system and reserve service, and cooperation with allies and partner countries. Support for think tanks will increase; the support allocated from defence expenditure to International Centre for Defence Studies64 remains at the same level.  Defence expenditure continues to be used to ensure social security and treatment for active service in case of injury. Training and retraining of active servicemen is supported. Let Us Salute! campaign will continue.  By government decision, foundation CR14 will be established, which allows more effective supporting of Estonia’s military defence through achieving the aims of cyber security area and taking into account its needs – the operation of the foundation is planned to commence in 2021.  The Defence League will support national and local government structures in performing comprehensive defence tasks.  The Estonian Military Academy will prepare the leadership of the Defence Forces and conduct further training.

2.16 Culture and sport Aim of the performance area: The objective of the cultural policy is to shape a society valuing creativity by maintaining and promoting Estonia’s national identity, researching, storing and carrying on cultural heritage, and creating favourable conditions for developing a viable, open and diverse cultural space and participating in culture.

63 Total research and development expenditure includes the expenses of the Department of Applied Research at the Estonian Military Academy, support for the International Centre for Defence Studies, expenses related to research and development activities of the Estonian War Museum, and projects allocated for promoting the defence industry. 64 International Centre for Defence Studies (RKK) is a think tank specialising in foreign policy, security and national defence in Estonia.

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Aim of the sports policy: physical exercise and sports have an important and growing role in promoting the viability of Estonia’s residents, creating a rich living environment and shaping a good reputation of Estonia as a country. Table 48. Indicators and target levels of the culture and sports performance area. Previous Indicator/Target level 2021 2022 2023 2024 actual level Participation of residents in cultural life, % 78.7 (2017) 78 78 78 78 Source: Statistics Estonia The proportion of people regularly engaged in hobby exercise (for 30 min twice a week) 40.2 (2018) - 47 - 50 in the 16-64 age group, %

The long-term development objectives of the culture and sport performance areas are set out in the State Budget Strategy 2021–2024 and sectoral strategy documents – follow-up strategy “Culture policy foundations until 2020” (Culture 2020) and “Principles of Estonian sports policy until 2030” (Sports 2030). The goals of the culture and sports performance area are implemented through culture programme and sports programme. The Ministry of Culture is responsible for planning activities and financial resources to achieve the goals of both the performance area and programmes. In addition, many other ministries responsible for other areas, local governments, private sector and third sector organisations, and cultural and sports organisations have an important role and responsibility in shaping the national cultural and sports policy and achieving relevant goals. Short analysis of the situation of the performance area A prerequisite for a diverse cultural life is the preservation and mediation of intellectual and material cultural heritage, access to culture and the creation of creative conditions. Estonian residents are among the most active in cultural participation in Europe, but there are differences in the consumption of culture across regions. Estonian literature is doing well and there are many options to choose from. In 2019, total of 3,605 books and booklets and 1,525 original Estonian books in fiction genre were published. It is important to increase availability of recent additions in libraries, with particular focus on children and youth literature, and to use various measures to support authors. In 2018, theatres were visited by approximately 1.2 million times (1,192,042 visits), theatres gave 6,695 performances in total and repertoires included 582 productions, of which 320 in so- called national theatres. In view of division of new productions by target groups, it is still important to maintain the share of new productions for children and youth, ensure availability of professional theatre across Estonia and support international cooperation projects and festivals, guest performances and Estonian theatre days abroad. The year 2019 had the most cinema visits throughout the history – more than 3.6 million cinema visits. Screening of iconic production "Truth and Justice" in early 2019 was viewed in cinemas by more than 267,000 times. In 2019, a total of 30 new Estonian films were screened in cinemas and 314 new films in cinema distribution. Estonian films were viewed in cinemas 847,960 times and cinema distribution reached the largest ever market share of Estonian films – 23%. The greatest challenge for next years is to maintain the market share of Estonian films at the level of at least 15% in total cinema distribution.

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Estonian media market is open, institutionally diverse and services are provided by both local and global businesses. The volume of Estonian advertising market totalled 104.3 million euros in 2018. As of 2019, Estonia holds a respectable 11th place in World Press Freedom index. In the music sector, there are approximately 100 active concert organizers and collectives, and more than 150 festivals are held annually. Estonian music and musicians have remarkable international recognition and potential. In 2018, 864 art exhibitions were held in 92 professional art exhibition halls in 22 locations across Estonia and they were visited by more than 1.4 million people. Estonian art landscape is in a good condition in terms of content and number of active artists, which is characterised by generational and artistic diversity, great international breakthrough potential of several artists and increasing number of capable, internationally networking art organizers. According to Statistics Estonia, there were 190 museums with 249 sites in Estonia in 2018, containing a total of ca 7.4 million museum objects. Museums continue to be popular – there were 3.4 million museum visits in 2018. As of the end of 2019, Estonia had 26,491 cultural monuments, 12 heritage sites, and there are two UNESCO World Heritage sites in Estonia. Majority of cultural monuments (archaeological, artistic, technical and historical monuments) are in good condition. The situation is worse for architectural monuments, which require larger investments than other types of monuments. In 2018, there were 881 libraries in Estonia, with total collection of 31 million format copies and 711,300 readers, who borrowed more than 13 million format copies. The libraries were visited more than 9 million times in 2018 and the number of virtual visits to these services was 6.4 million. The strength of Estonian folk culture is the rich heritage and the people who value and carry the local customs and lifestyle and pass it on to the next generations, thus keeping the folk culture viable. In 2019, 82,486 enthusiasts participated in the permanent groups. In 2019, 150 years passed since the first song festival, and the dance festival had its 20th anniversary. Therefore, the Ministry of Culture declared 2019 as the Song Festival Jubilee Year. There are over 900 million objects of cultural heritage that are important for Estonian culture in state-operated Estonian memory institutions. Only about 10% of them are currently digitised. Digitisation of cultural heritage objects and analysis of availability of digitised cultural heritage will continue in 2020. The aim is to make a third or 33% of the cultural heritage stored in Estonian memory institutions available digitally by 2023 and to update the information storage infrastructure of memory institutions. Network of cultural representatives operating in Estonian embassies continue to support active international cultural cooperation. In 2019, the Ministry of Culture had valid cultural cooperation agreements with approximately 50 countries. Based on the study of 2018, according to the data of 2015, there were 30.7 thousand employees (4.8% of the working population in Estonia) in the Estonian creative industry and 9,098 enterprises and institutions (11.6% of the total number of Estonian enterprises) operated in the sector. The total income of creative industries and institutions was 1.5 billion euros (2.9% of GDP) and export of the enterprises operating in this sector made up 5.6% of total export of services in Estonia. Although the average income per enterprise and employee operating in creative industries has increased over the years, these indicators remain significantly lower compared to Estonian average and their export capacity is mediocre. Culture and creative industries represents a growing economic sector that creates, commercialises and uses

92 STATE BUDGET STRATEGY 2021-2024 intellectual property as key sales argument, thus creating value for other areas of economy and life. Creative industry has a role to play in creating an attracting living environment, increasing tourism income and developing digital economy. According to the National Sports Database (hereinafter Sports Register), there were approximately 2,500 sports clubs, 440 sports schools, over 3,300 sports facilities and approximately 3,400 certified professional coaches in Estonia in 2019. In addition, Estonia has a good and effective network of sports organisations and a sports register that allows making evidence-based sports policy and one of the best professional trainer qualification systems in Europe. The share of people engaged in exercise in Estonia was 40.2% in 2018 and 42% in 2016 (Health Behaviour Survey). However, the frequency of being engaged in recreational sports for at least half an hour during free time has decreased by gender and age group over the past two years. Lacking physical activity and the number of overweight children continues to be a problem. In recent years, the number of enthusiasts in sports clubs and sports schools has grown rapidly. While in 2012, the number of enthusiasts was 130,839, as of 31.12.2019, the number was 184,481. In 2019, the number of young people aged 5-19 years attending sports clubs and sports schools accounted for 52.15% of the total population in this age group. The number of sports organisations (including sports clubs), has also grown from 2,302 to 2,661 (includes both active and inactive organisations). Based on such statistics, it can be concluded that an increase in physical activity cannot be ensured only through organised sports. In order to ensure the most favourable environment for promoting achievement sports, the Ministry of Culture has carried out sports reform since 2015, in the course of which Team Estonia project was launched in 2019 in cooperation with EOC to provide all potentially top ten athletes in the Olympic Games and championships with adequate preparation and participation in the title competitions as well as support services (disciplines of the Olympic Games). Hundreds of sporting events are held in Estonia each year, including high-end international competitions that not only enrich local life and provide entertainment, but also have impact on Estonian and regional economy. In 2019, Estonian Anti-Doping (hereinafter EAD), key centre of honesty and sports ethics, was reorganised into Estonian Anti-Doping and Sports Ethics Foundation (hereinafter EADSE).

2.16.1 Culture programme Aim of the programme: The objective of cultural policy is to shape a society valuing creativity by maintaining and promoting Estonia’s national identity, researching, storing and carrying on cultural heritage, and creating favourable conditions for developing a viable, open and diverse cultural space, and participation in culture. Table 49. Indicators and target levels of the culture programme.

Previous Indicator/Target level 2021 2022 2023 2024 actual level

Participation of residents in 78.7 78 78 78 78 cultural life, % (2017)

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Important activities to achieve the objectives of 2021-2024  Supporting the payment of the writer’s and artist’s wages will continue through artistic associations.  Mapping of economic viability of freelance artists and their access to social guarantees, and developing possible solutions.  Continued popularisation of reading by making Estonian literature internationally more noticeable.  Supporting of performing arts institutions operating under various forms of ownership to ensure sustainable operation of theatre network and sectoral diversity.  Ongoing development of the amendment of the Performing Arts Institutions Act.  Continued supporting of the construction of new halls of Tallinn City Theatre.  To maintain the consistency of film production, making of fiction, animation and documentary films and co-production will be supported in 2021.  Continued implementation of the measure of repayment fund Film Estonia, with the aim of bringing foreign productions to Estonia.  Supporting the construction of the new television complex of Estonian National Broadcasting will continue. This includes preliminary actions of construction procurement – preparation of basic project and procedure of detailed plan.  National transposition of the Audiovisual Media Services Directive, including amendment of the Media Services Act.  Supporting of restauration and digitisation of music sheets of valuable Estonian musical compositions, thus ensuring access to a large part of Estonian musical compositions that were formerly inaccessible.  In 2021, contributions will be made to support organising international European Jazz Festival.  Development of spatial education and design education model in all levels of education (including broadening of and focus on the opportunities of lifelong learning).  Supporting of the development of creative industries will continue.  Organising architectural competitions required for establishment of Estonian heritage repositories – joint repositories of museum collections in North Estonia, South Estonia and Hiiumaa.  Development of MuIS 2.0 – completion of the first stage of the new information system that corresponds to contemporary needs, supports optimum museum operation and enables better access to the cultural heritage found in museums, and commencement of the second stage of the new information system, with the aim of developing the rest of the museum work environment modules (incl. conservation, exhibitions, digitalisation) and public environment modules (incl. self-service environment), as well as updating open data and migrating data from the old database into the new one.  Preparing the implementation of the system for supporting participation of basic school students in museum lessons.  Implementation of application round “Museum Accelerator” to support modernisation of operational environment and updating exhibits, and to improve the quality, targeting and accessibility of services provided by museums to the public.  Completion of the analysis of museums’ financing system and relevant amendment proposals.  Continuation of pilot programme “Local development and reduction of poverty”, which facilitates refitting and adapting buildings in historical centres of small towns for new functions in order to organise, compact and revive town centres and make them more attractive.

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 One-off increase in support paid by mediation of the Heritage Board to the owners of monuments.  The Heritage Board will continue renewing protection procedures for heritage conservation areas in cooperation with local government, local inhabitants and area experts. In 2019, works commenced in Kuressaare, Pärnu, Valga, Tartu, Paide and Rebala. In 2020, renewal of protection procedures was started in Rakvere, Võru, Haapsalu, Lihula, Viljandi and Tallinn. Renewal of all protection procedures will continue in 2021.  The Public Libraries Act will be updated to create a centre supporting the development and management of central services for public libraries and thus ensure equal availability of e- publications across Estonia, user-friendly lending of printed works and modern operation of library service.  Development of uniform e-publication lending service for all Estonian libraries and their readers will continue.  Renovation design works of the building of the Estonian National Library will continue, in order to provide users with versatile services and ensure proper security for people and for stored (incl. digital) publications with cultural and historical value.  Modernisation of the digital archive of the Estonian national Library to cover its need for passive storage.  Implementation of state funding of instructors for collectives participating in the process of the Song and Dance Festival.  Preparations for drafting the Song and Dance Festival Act.  Updating of folk culture database and ELT SA register, including development of legal principles.  Participation in preparation and organisation of the conceptual design competition for detailed plan of Tallinn Song Festival Grounds in cooperation with Tallinn City Government, Estonian Choral Association, Eesti Laulu- and Tantsupeo SA and Estonian Association of Architect.  Carrying out the action plan “Digitisation of cultural heritage 2018–2023” with the aim of making one third or 33% of the cultural heritage digitally available by 2023.  Preparation of “Digitisation of cultural heritage 2024–2030” action plan will continue.  Contributing to the programme of Tartu 2024 as the European Culture Capital.  Increased sustainability of Estonian culture through research and development activities. Additional national programmes will be developed and implemented to ensure top-level research and development of Estonian language, history and culture.  Support will be allocated to Kunstihoone SA for reconstruction of Tallinn Art Hall.  Supporting regionally important cultural sites Pärnu Art Harbour, International Society of Artur Kapp and Wittenstein Time Centre.

2.16.2 Sports programme Aim of the programme: Ensuring of an effective sports management system based on the European sports model. Table 50. Indicators and target levels of the sports programme.

Previous Indicator/Target level 2021 2022 2023 2024 actual level

The proportion of people Not Not 40.2 (2018) 47 50 regularly (for 30 min twice a measured measured

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Previous Indicator/Target level 2021 2022 2023 2024 actual level week) engaged in hobby exercise in the 16–64 age group, % Source: National Institute for Health Development Number of sports organisations Source: Estonian Sports 2,661 (2019) 2,700 2,700 2,700 2,700 Register Number of recreational sports enthusiasts in sports clubs and 184,481 sports schools (2019) 192,000 196,000 200,000 204,000 Source: Estonian Sports Register Share of young people aged 5-19 years in sports clubs and sports schools in the age group, % 52.15 (2019) 55 56.5 58 59.5 Source: Estonian Sports Register, Statistics Estonia Number of coach certificates Source: Estonian Sports 3,400 (2019) 3,450 3,475 3,500 3,550 Register

Important activities to achieve the objectives of 2021-2024  In 2021, support for Team Estonia will be continued to ensure international competitiveness of Estonian athletes and teams.  The allocation of support for trainers’ labour costs is continued.  Supporting of the establishment of Hiiumaa Sports Centre will be continued.  The establishment of multifunctional, all-year-round indoor football fields will be continued. In 2021, construction of such fields will be started in Pärnu, Rakvere, Kuressaare and Jõhvi.  Supporting of regionally important sports objects Kohtla-Järve Sports Centre, stadium of Loksa Sports Centre, and Kalev stadium of Sillamäe Sports Complex.  Development of infrastructure necessary for operation of Tartumaa Health Sports Centre. Design work for building the centre will be completed in 2021.  Supporting of organisation of international sports competitions in Estonia will be continued.  Estonian Anti-Doping and Sports Ethics Foundation will develop research capability, including “smart testing”, and extend preventive activities in areas under its management.  Continued ratification process of the Convention of the Council of Europe against the manipulation of sports competitions.  Contributions will be made to implement the measures described in the Green Paper on Nutrition and Movement.  Improvement of opportunities available for overarching sports organisations of people with disabilities will be continued to involve more people with disabilities in sports and allow the best athletes to engage in professional sports.  Development and empowerment of county-level sports associations as organisations locally responsible for exercise will continue in cooperation with local governments.  The development of regional health sports centres will continue under current support measure until 2022.

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 The Ministry of Culture continues organisation and development of financing system, including in cooperation with Cultural Endowment of Estonia. The goal is to provide systemic and long-term funding for top-level sports and to create more opportunities for various projects promoting exercise.

2.17 Population and coherent society Aim of the performance area: The Estonian society is a coherent and inclusive society with sustainable population. Table 51. Indicators and target levels of the population and coherent society performance area.

Previous actual Indicator/Target level 2021 2022 2023 2024 level

Indicators are under development

The long-term development goals of the population and coherent society performance area have been agreed in the development plan “Population and Coherent Society 2021-2030”, which represents a follow-up strategy of the following development plans: “Integrating Estonia 2020” for integration, “Children and Families Development Plan 2012–2020” for family policy, “Internal Security Development Plan 2015–2020” for adaptation of new immigrants, “Civil Society Development Plan 2015–2020” for civil society sector and “Compatriots Programme for 2014– 2020” for global Estonian identity. Five programmes contribute to the objective of population and coherent society performance area. The Ministry of the Interior and the Ministry of Culture are responsible for the implementation of national activities and planning of funds. Short analysis of the situation of the performance area Continuity and development of Estonian nation depends on basic demographic processes (fertility, mortality and migration), sense of belonging and social cohesion65, as well as society’s capacity to provide all people, regardless of their socio-economic background (including place of residence, gender, age, ethnic nationality, special need, etc.), opportunities for self- actualisation in the society, economic, family, community and cultural life. According to the basic scenario of population forecast prepared by Statistics Estonia in 2019, the population of Estonia will be 1.18 million people in 2080, which means that the population will decrease by approximately 145,000 people. Pursuant to the forecast, the population will consistently decrease in all regions besides Tallinn and Tartu area, where it continues to increase because of immigration and urbanisation. Due to increased immigration, the proportion of people whose mother tongue is Estonian has started to decline. If such tendencies persist, the population would continue to decline, endangering the preservation of Estonian state, Estonian nation, language and culture through time. Continuity of the nation and reduced negative population growth is possible primarily through increased fertility. Estonia’s contribution to family policy is average, compared to OECD countries, and for now, the low point in fertility

65 “Society’s ability to ensure well-being of all its members, reduce differences and avoid marginalisation.” Lõimuv Eesti 2020. [www] https://www.kul.ee/sites/kulminn/files/le2020_arengukava_uuendatud_2016.pdf (11.03.2020)

97 STATE BUDGET STRATEGY 2021-2024 caused by changes in the society has been overcome by help of family policy. However, fertility is no longer sufficient to ensure natural population growth. Yet Estonia has relatively good outlook to increase fertility rate, because average desired number of children significantly exceeds the actual number of children. The average desired number of children is 2.5966 for women and 2.567 for men, which is one of the best indicators in Europe, similar to Nordic countries, Latvia and Ireland. This fact gives hope that family policy that supports fertility might allow Estonia to achieve or come close to fertility rate that ensures population growth. According to the population register data, as of 01.01.2020, there were 1,337,097 inhabitants in Estonia, of whom 1,132,022 were citizens of the Republic of Estonia. Number of people with undetermined citizenship registered in Estonia is 71,051 (5.3% of the population). Number of citizens of other countries residing in Estonia is 134,024 (the largest share is citizens of the Russian Federation (85,917), followed by persons with Ukrainian citizenship (10,400). In 2015, Estonian immigration exceeded emigration for the first time, i.e. each year, more people come to live in Estonia than leave. Additionally, there has been an increase in short-term migration to Estonia and the number of people returning to Estonia, which has to be considered in developing effective adaptation and integration policy. As the numbers increase, it is important to ensure presence and availability of efficient and proactive services supporting adaptation and long-term integration, as well as equal access to public services necessary for daily operations and functioning as a full member of the society (e.g. health services, driving licences, labour market and career services, education, etc.). Besides availability and access, it important to review and, if necessary, restructure existing services that support adaptation. In 2019, there were approximately 80 different adaptation and integration services in Estonia; some of them are partial duplicates, they do not allow smooth navigation, and service user and the parties in contact with new immigrant (stakeholders) are not always aware of them. Social cohesion has increased in key areas in recent years: labour market gaps between Estonians and people of other nationalities have decreased in the conditions of overall economic growth, and attitudes of Estonian residents to immigration have become more positive. The self-esteemed proficiency in Estonian and the performance of Estonian language proficiency examinations of the people of other nationalities have improved. In terms of language immersion, there has been an increase in the proportion of children in preschool child care institutions whose language of instruction is Estonian. The share of Russian youth with B2 level Estonian language proficiency has also increased and gradual increase is noticeable among Russian-speaking population who watch TV channel ETV+. While 27.4% of people of other nationalities watched TV channels of Estonian National Broadcasting for at least 15 minutes a week in 2018 (at the age of 4 and older), their proportion was already 29% in 2019. In 2019, 57.4% of examinees taking the Estonian language proficiency exam organised by SA Innove at A2, B1, B2 or C1 level had positive results. According to applied research the number of people who plan to learn Estonian within the next three years ranges from 52,000 to 68,000. In the last decade, contacts between Estonians and people of other nationalities have increased primarily in terms of employment and studies, but not free time. There are also differences between culture consumption between Estonians and people of other nationalities.

66Testa, M-R. (2012). Family Sizes in Europe: Evidence from the 2011 Eurobarometer Survey. [www] https://www.oeaw.ac.at/fileadmin/subsites/Institute/VID/PDF/Publications/EDRP/edrp_2012_02.pdf 67 Themas, A., Ainsaar, M., Soo, K., Sammul, M., Uusküla, A., Tarum, H., Hendrikson, R., Arak, T., Espenberg, K., & Varblane, U. (2015). Eesti meeste hoiakute and käitumise uuring: tervis, haridus, tööhõive, ränne and pereloome. Tartu: Tartu Ülikool. [www] https://www.riigikantselei.ee/sites/default/files/riigikantselei/uuringud/meeste_uuring_2015_lopparuanne.pdf

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There are about 300 active minority culture societies in Estonia, 250 of them receive state support. State support to minority cultures has proven to be an efficient political tool for preservation of intellectual cultural heritage of ethnic groups residing in Estonia and for creating multicultural and open cultural space. Civil society plays its part in creating social cohesion, allowing people’s own cooperation initiative to follow their interests, participate in discussing and deciding on public matters and other joint activities. Civic associations – the activity of non-profit organisations, foundations and religious associations, and non-formal associations, networks and societies ensures that majority of people participates in democratic processes and is involved in decision-making and shaping their living environment. There are 22,868 non-profit organisations (NPO) and foundations (SA) in Estonia68. They include 805 foundations and over 500 religious associations. Compared to previous surveys, the share of NPOs that involve volunteers has decreased, from 68% five years ago to 53% . Employees are still present in 36% of NPOs. Last survey on the number of people participating in volunteer activity within the last 12 months was carried out in 2019. The survey revealed that the share of people participating in volunteer activity had increased by approximately one fifth (18%) over the past six years and Estonia’s current level is very good. Overall viability of Estonian civil society is measured by United States Agency for International Development (USAID) index, broken down by seven dimensions: legislative environment, operational capability of organisations, economic viability, protection of interest and impact on policies, provision of services, infrastructure and public image. Estonia has maintained the same level through years and thus, the aim is to significantly improve the viability of civic associations. Development and continuity of Estonia is also supported by compatriots living abroad69. Estonian communities abroad had a significant role in the restoration of independence and building the Estonian state, as well as preserving and developing Estonian language and culture through joint activities. Even now, compatriots act as Estonian ambassadors in the world, help to introduce Estonia and strengthen economic and cultural ties. The number of people returning to Estonia has increased in recent years. Returnees, who are often accompanied by their children and family, contribute directly to the development and continuity of Estonian population. Thus, targeted activity of the state towards Estonians abroad is important to maintain strong ties with Estonian communities abroad and make sure that Estonian language and culture will reach as many compatriots and friends of Estonia as possible. Population administration is another important area in supporting the goals of population and cohesive society as well as the goals of other performance areas, and it is crucial to keep up with technological advancement in the future, use its opportunities and reduce risks. Estonian inhabitants are used to e-services, but current e-services related to population register are often inconvenient and have complex structure. In addition, certain target groups cannot use e- services for legal and technological reasons. Paying personal visits is not purposeful in an e- state, as it spends time of both citizens and officials. Therefore, it is necessary to make e- services as convenient and easy to use for as many people as possible.

68 Data of the register of non-profit organisations and foundations as of 1 June 2020. 69In this document, the term compatriots primarily stands for Estonians living abroad or expatriate Estonians, but also other people with have emigrated after long-term connection with Estonia, and their descendants.

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2.17.1 Integration programme Aim of the programme: The Estonian society is integrated and socially coherent; people from different language and cultural backgrounds participate actively in the society and share democratic values.

Table 52. Indicators and target levels of the integration programme.

Previous Indicator/Target level actual 2021 2022 2023 2024 level The proportion of people with a strong citizen

identity among all people of non-Estonian 39 (2017) 40 - - - nationalities, (%) The proportion of people with moderate citizen

identity among all people of non-Estonian - - 55 - 47 (2017) nationalities, (%) Percentage of people with open attitude on the basis 31 (2017) - - 45 - of the aggregate index of tolerance, Estonians (%) Percentage of people with open attitude on the basis 57 of the aggregate index of tolerance, other - - 75 - (2017) nationalities,% Self-assessed level of awareness of Estonian events among Estonians (who consider it good or very 85 (2017) - - 85 - good), % Self-assessed level of awareness of Estonian events among other nationalities (who consider it good or 83 (2017) - - 85 - very good), % Percentage of people with active Estonian language skills among other nationalities (fluent or 41 (2017) - - 50 - understands, speaks or writes), % Percentage of non-Estonian speakers among other 10 (2017) - - 8 - nationalities (do not speak Estonian), % Contacts between Estonians (percentage of people 38 (2017) - - 55 - with many contacts), % Contacts between other nationalities (percentage of 64 (2017) - - 75 - people with many contacts), %

Important activities to achieve the objectives of 2021-2024  Preparing and implementing “Population and Coherent Society Development Plan 2021- 2030”.  Continued cooperation with the Association of Estonian Cities and Municipalities and ministries to involve local governments in the field of integration.  Cooperation will be continued between cultural associations of minorities, their umbrella organisations and cultural autonomy bodies of minorities cooperation; supporting relevant organisations will also continue.  ESTROM 2 project that supports integration of the Roma, launched in 2019, will continue in order to promote cooperation and dialogue between integration stakeholders, the Roma, local governments and state institutions.  To make the return of fellow countrymen easier, the development of adaptation services and creating a support network to facilitate returning will continue through an advisory support unit established at the Integration Foundation.

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 More frequent contacts between people of different nationalities will be promoted through developing services in the field of sports and culture.  The acquisition of Estonian language will be improved by continuing in-service training for teachers providing Estonian language teaching to adults, paying greater attention to non- formal language learning activities for practicing Estonian and by investing in IT solutions to provide additional language learning opportunities.  Student exchange between general education schools with different language of instruction will be continued to improve communicative language skills of students in schools, where the language of instruction is Russian or Estonian.  Funds are allocated to cultural activities of Estonian youth abroad. Cooperation activities and summer study camps for Estonian youth aged 13-18 living abroad will be organised to support creation of compatriots’ cooperation networks.  The cooperation network of compatriots is maintained and developed throughout the year via web portal GlobalEstonian.com.  In 2021, preparations will be made for implementation of new 2021-2027 Structural Funds period to carry out integration activities.  Cultural cooperation towards kindred peoples, development of kindred peoples movement in Estonia and between Finno-Ugric countries and the activities of Fenno-Ugria Asutus are supported.

2.17.2 Strong civil society programme Aim of the programme: Strong civil society. Table 53. Indicators and target levels of the strong civil society programme

Previous Indicator/Target level 2021 2022 2023 2024 actual level

Quality of policy-making To be specified Proportion of people who have - - - participated in voluntary activities in the 49 50 last 12 months, % Overall viability of Estonian civil - - - associations on a 7-point scale 2.1 2.0 (1 - highest, 7 - lowest)

Important activities to achieve the objectives of 2021-2024  Opportunities are created for better inclusion of private funds in donations. This involves an analysis of changes in taxation policy and relevant proposals for facilitating donations by enterprises and investors.  The advisory service of non-governmental organisation in county development centres is organised in a manner that would ensure even better quality of and access to services, as well as development training necessary for advisers.  The Ministry of the Interior will enter into partnership contracts with non-governmental organisations for the next four years.  Financial instruments supporting the sustainability of non-governmental organisations and social enterprises will be developed and tested (such as special or favourable loan conditions) and activities enhancing social influence of social enterprises will be organised.

101 STATE BUDGET STRATEGY 2021-2024

2.17.3 Efficient adaptation and integration policy Aim of the programme: Quick adaptation of new immigrants and integration of new immigrants and permanent residents of other nationalities in Estonian language, culture and value space is ensured. Adaptation and integration services are human-centred and effectively managed, supporting Estonia’s development, social cohesion and contributing to internal security. Equal opportunities to ensure successful independent coping and well-being are provided for all people living in Estonia, regardless of their ethnic nationality and mother tongue. Estonian society as a whole is a cohesive and stable society, where people with different language and cultural background carry Estonian identity, actively participate in social life, share democratic values and common cultural space, and are cohesive.

Table 54. Indicators and target levels of the adaptation and integration policy programme

Previous actual Indicator/Target level 2021 2022 2023 2024 level

Share of persons with strong and moderate citizen identity 39/47 (2017) ≥ 39/47 ≥ 39/47 ≥ 39/47 ≥ 39/47 of people of other nationalities, % Share of beneficiaries of measures who have Indicator is under development undergone the activities intended for target group Proportion of people speaking Estonian in total Indicator to be developed in the framework of Estonia 2035 population Decrease in the number of permanent residents with Indicator to be developed in the framework of Estonia 2035 lacking or low proficiency in Estonian language New immigrants who consider their general 81 81 81 81 81 adaptation in Estonia as good,%

Important activities to achieve the objectives of 2021-2024 The activities are financed by ESF (until 31.12.2023 at the latest), i.e. RE share is 15%.  An adaptation programme introducing Estonian society, language and culture is provided for new immigrants, including returnees.  Further development of adaptation information platform www.settleinestonia.ee.  Establishment of measures facilitating pre-departure adaptation, intended for new immigrants.  Development of support measure for inclusion of new immigrants’ family members and foreign students in labour market.  Development of a system of effective support measures intended for people subject to international protection, which supports their adaptation and subsequent integration.

102 STATE BUDGET STRATEGY 2021-2024

 Implementation of cross-media programmes to increase social cohesion and social awareness of the citizens of other countries living in Estonia.  Development of a web-based tool intended for the public to enhance adaptation and integration communication.  Development and implementation of public sector adaptation and integration communication network.  Supporting (state) agencies and organisations to improve information exchange in other languages.  Improving media literacy of Estonian residents to reduce the spread of false information.  Implementation of community-based support network model for new immigrants  LGs with the highest number of residents of foreign origin will prepare adaptation and integration strategies on local level.

2.17.4 Sustainable Estonia and effective population administration Aim of the programme: Population and family policy contributes to formation of family-friendly living environment that improves birth rate, and supports the preservation of Estonia as a nation. Population is provided with effective population services and administration. Table 55. Indicators and target levels of the sustainable Estonia and effective population administration programme

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019)

Total fertility rate 1.66 > 1.66 > 1.66 > 1.66 > 1.66 Proportion of Estonians in 68.5 > 68 > 68 > 68 > 68 total population, % Proportion of data in Population Register that 75 (2018) ˃ 75 ˃ 75 ˃ 75 ˃ 75 corresponds to actual location data, %

Important activities to achieve the objectives of 2021-2024  Based on the Population and Cohesive Society Development Plan 2021–2030 and its programmes, measures supporting the achievement of population and family policy goals will be developed and their implementation will be coordinated. Main activities are related to the development of family benefits system, i.e. improvement of parental benefits, family benefits and maintenance support. National family conciliation system will be implemented as a new measure. Cross-sectoral achievement of the objectives of population policy is supported (including via coordination of various draft documents and development plans). Population Register software and e-services will be developed. For example, automated processing of events (change of address, birth) and event-based services will be created to simplify administrative procedures for people (e.g. when getting married).  Contributions are made to improve the quality of location data, so that the state and local governments could better consider them when providing services to the residents of Estonia.

103 STATE BUDGET STRATEGY 2021-2024

2.17.5 Global Estonian identity Aim of the programme: Estonians living abroad carry Estonian identity, fellow Estonians have opportunities to participate in social and cultural life of Estonia and their return is welcomed and supported to necessary extent. People who support and value Estonia help to create positive image of Estonia, introduce its culture, economy and international relations. Table 56. Indicators and target levels of the global Estonian identity programme

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019) Sense of belonging to Indicator is under development Estonia Quality of return services Indicator is under development

Important activities to achieve the objectives of 2021-2024  Common information field is developed for promoting the development and preservation of Estonian identity abroad, Estonian culture is promoted and preserved and Estonian mental and physical cultural heritage is preserved.  Global Estonian community is involved in society and its development, cooperation is promoted and high-quality services are ensured. For that, a provision of high-quality consular services will be ensured in representations abroad; opportunities for learning Estonian language abroad will be expanded and diversified; citizen diplomacy will be promoted; internationalisation of Estonian culture is supported, Estonian youth living abroad will be included to a greater extent.  Return to Estonia and (re)adaptation to life in Estonia is supported. This involves provision and development of services that support returnees; centralisation of diaspora policy and return-related knowledge, and raising awareness in society; empowerment and inclusion of local governments.

2.17.6 Programme for financing political parties represented in Riigikogu Aim of the programme: Enhancement of the operational capacity of political parties that received at least 2% of votes during the elections of Riigikogu.

Table 57. Indicators and target levels of the programme for financing political parties represented in Riigikogu

Previous Indicator/Target level actual level 2021 2022 2023 2024 (2019) Proportion of allocated 100 100 100 100 100 support, %

104 STATE BUDGET STRATEGY 2021-2024

105 STATE BUDGET STRATEGY 2021-2024

3. FISCAL FRAMEWORK

Budget strategy and its fiscal framework are based on the economic forecast of the Ministry of Finance from summer 2020; this forecast is available on the web page of the Ministry of Finance70.

3.1 Fiscal policy objectives of the Government of the Republic The main objective of the government’s fiscal policy is to support macroeconomic stability via the flexibility and efficiency of markets and to manage the risks that threaten the balanced development of the economy. After recovering from the crisis caused by coronavirus, the government’s fiscal policy aims to re-achieve and maintain the structural budgetary balance of the general government in the medium term. The Government’s objective is to guarantee a sustainable fiscal policy that balances the macro economy. The goal is to make fiscal policy decisions that support macroeconomic stability, manage the risks that threaten the balanced development of the economy, and improve the economy’s growth potential and increase employment. The existence of adequate reserves and flexibility in the budget for making changes in the structure of revenue and expenditure must be guaranteed in order to cope with economic downturns. Fiscal policy decisions are made simultaneously (i.e. only in the budget (strategy) process), decisions are made in consideration of sustainability (the long-term impact of decisions), sector policies and the activities of other levels of general government, as well as all funding sources (EU grants, proceedings from sales of greenhouse gas emission allocations, etc., in addition to tax revenue) are uniformly regarded. When emerging from the economic crisis, state investments will be used for economic recovery, and external support is used as preferred financing source. Priority is given to those investments, which lead to improved well-being of people and defence capacity. That allows providing people with better services in education, social welfare and healthcare. Defence expenditure continues to exceed 2% of GDP, and additionally, strategic investments are made in defence capability. The state’s tax policy is comprehensive and aimed at ensuring that the economy grows. Taxes are not increased during economic recession and temporary reduction or tax incentives are imposed where possible. Preparation of positive supplementary budgets will be avoided in the middle of the fiscal year, current expenditure will not be increased on the account of excess tax revenue.

3.1.1 Objective of the budgetary position of the general government and comparison with the previous State Budget Strategy Coronavirus has caused an exceptional situation in the economy. Exemption clause provided for in the Stability and Growth Pact allows EU Member States to deviate from budgetary

70http://www.fin.ee/majandusprognoosid

106 STATE BUDGET STRATEGY 2021-2024 medium-term objective (MTO) or moving towards it both in this year and the next71. At the same time, the requirement to avoid excess budget deficit is still valid, i.e. nominal budget deficit must not exceed 3% of GDP. From 2022 onwards, the requirement of basic Estonian State Budget Act to improve structural budgetary position by 0.5% of GDP will re-apply, in the event of cumulative deficit of structural budgetary position of general government in previous year and deficit of structural budgetary position of general government. In 2020 and 2021, an exemption will be applied pursuant to the exemption clause provided for in the State Budget Act. In consideration of economic situation and legal framework, the Government of the Republic established an objective to reduce nominal deficit to 2.5% of GDP by 2024. No budgetary goal was set for the next year. Estonian economy will not make full exit from the crisis in 2021, and therefore the government will apply economic recovery measures also next year. As a result of that, structural budget deficit will reach 6.6% of GDP, which exceeds relevant indicator in summer economic forecast by ca 200 million euros or by 0.7% of GDP. The impact of recovery measures will partially transfer to subsequent years, but as a countermeasure, measures that will improve the position will be implemented to the extent that would allow maintaining at least the budgetary position indicated in the economic forecast. As a result of that, deficit will start to reduce from 2022 onwards, which ensures meeting the requirement set out in basic budget law to improve structural budgetary position by 0.5% of GDP. In 2024, the measures improving the budgetary position will be implemented to the extent that reduces nominal budgetary deficit to 2.5% of GDP, which falls 0.6% behind the deficit in the economic forecast. Compared to the previous State Budget Strategy, there have been significant changes in the budgetary goals due to sudden recession and the government has focused on mitigation of the effects of the crisis. Thus, budgetary position will be negative for all years and achieving the structural balance set out in previous budget strategy by 2021 is not realistic. With current budget strategy, structural budgetary deficit will decrease to 1.3% of GDP in the last programme year or in 2024.

3.2 Revenue and expenditure measures On the one hand, budget strategy allocates additional funds to the economy through increased state budget expenditure (mainly in 2021), on the other hand, sources have been foreseen to cover the costs, which slows down the increase in budget deficit.

Table 58. Revenue and expenditure measures of SBS for 2020–2024 2020 2021 2022 2023 2024 Measure % of % of % of % of % of GDP GDP GDP GDP GDP Changes in tax - 0.02 0.004 0.01 0.004 Quicker introduction of new external funds - 0.1 0.1 0.01 0.01 Replacement of KredEx expenditure with external - 0.3 0.002 0.005 0.01 funds Dividends with income tax - 0.005 0.005 0.004 0.01

71 The State Budget Strategy does not alter MTO, i.e. in the meaning of the Stability and Growth Pact, Estonia’s MTO will have structural deficit of general government 0.5% of GDP.

107 STATE BUDGET STRATEGY 2021-2024

2020 2021 2022 2023 2024 Measure % of % of % of % of % of GDP GDP GDP GDP GDP Total revenue measures - 0.4 0.1 0.02 0.04 Changes in operating expenses - -0.4 -0.4 -0.3 -0.4 Changes in investments - -0.5 -0.3 -0.2 -0.1 - Changes in grants -0.2 -0.3 -0.3 -0.3 0.01 Overall cost savings measures - 0.04 0.9 0.8 1.4 Total expenditure measures -0.01 -1.1 -0.1 -0.02 0.6 TOTAL -0.0 -0.7 0.0 0.0 0.6

The revenue policy measures adopted include instances of both increasing and decreasing revenue; however, over the four years in total, the revenue measures will have a positive effect to the extent of approximately 148 million euros. One of the major measures improving the budget position is quicker introduction of the means of the new financial framework of the European Union from 2021 onwards compared to the economic forecast. New investments made from external funds lead to increase in tax revenue, which exceeds state’s co-financing, and therefore, the measure has a positive budgetary impact in addition to economic recovery. Mainly, quicker launching of Structural Funds and Restart Facility is expected. Based on the financial forecasts of state-owner companies, the volume of dividends has also been slightly increased. Major tax changes concern the Value Added Tax Act, as a result of transposition of E- Commerce Directive (revenue-increasing measure). In addition to that, there will be changes regarding imposing VAT on invoices payable, the effect of which will manifest from 2022 onwards (revenue-decreasing measure). Revenue-increasing measure involves cancelling the VAT advantage on postal parcels. Expenditure measures with the largest impact include additional investments (road construction, IT, fixed assets), increased research and development expenditure level to 1% of GDP, increased defence expenditure to compensate for decreased GDP level, and increased average pension by ca 16 euros, which requires 50 million euros next year. Operating expenses are also increased by the establishment of Financial Intelligence Unit and Supply Agency. At the same time, the government has decided to cut ministries’ operating expenses by 10 million euros in 2021. The government is planning even greater expenditure cuts for 2022-2024.

Table 59. Volume of revenue and expenditure of the general government taking into account fiscal policy decisions 2019 2019 2020 2021 2022 2023 2024 million % of % of % of % of % of % of euros GDP GDP GDP GDP GDP GDP Revenue forecast of the general 10,966.2 39.0 39.3 39.0 37.7 37.7 37.3 government Expenditure forecast of the general 10,944.7 38.9 45.9 45.7 43.1 42.0 39.8 government Source: Statistics Estonia, Ministry of Finance.

108 STATE BUDGET STRATEGY 2021-2024

3.3 Budgetary position of general government In 2019, the general government’s nominal budget was in surplus, which, according to adjusted data from Statistics Estonia constituted 22 million euros or 0.1% of GDP. Central government and local governments ended the year with a deficit (each 0.1% of GDP), compensated by surplus of social security funds (0.3% of GDP). The deficit of the central government arose from state budget, expenditure of which were mainly increased by social expenditure and European Union payment. The result of social security funds exceeded expectations mostly in terms of the Health Insurance Fund, caused by great accrual of social tax. Local governments’ consolidated position was somewhat more negative than expected, mainly due to increased expenditure level in December. In comparison with the initial estimation by Statistics Estonia, budgetary position improved by 0.4% of GDP, due to change in source data in the course of auditing. Figure 1. Nominal budgetary position of general government

million euros % of GDP 600 4

3 400 2 200 1

0 0

-1 -200 -2 -400 -3

-600 -4 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Central government Social insurance funds Local governments General government (right axis)

Source: Statistics Estonia, Ministry of Finance.

In 2020, the budget deficit reaches 6.6% of GDP, when taking into account budget strategy decisions, which is 6.6% less than the value estimated in the initial state budget due to decreased tax revenue caused by coronavirus crisis and increased expenditure due to supplementary budget. Next year, the deficit will increase by ca 150 million euros and will reach 6.7% of GDP. From 2022 onwards, the budget deficit will begin to decrease and reach 2.5% of GDP by 2024.

Table 60. Budgetary position of general government for 2020–2024 2020 2021 2022 2023 2024 Nominal budgetary position of general government -6.6 -6.7 -5.4 -4.3 -2.5 (% of GDP) Central government -5.4 -6.3 -5.1 -4.0 -2.2 Social security funds -1.5 -0.2 -0.1 -0.2 -0.1 Local governments 0.3 -0.2 -0.2 -0.2 -0.1 Nominal budgetary position of general government -1 749 -1 898 -1 622 -1 357 -815 (m EUR) Central government -1 430 -1 787 -1 524 -1 255 -736 Social security funds -411 -64 -39 -48 -38

109 STATE BUDGET STRATEGY 2021-2024

2020 2021 2022 2023 2024 Local governments 92 -47 -60 -54 -41 Source: Statistics Estonia, Ministry of Finance.

Cyclically-adjusted position of the budget of the general government The method used by the Ministry of Finance to estimate the maximum recommended gross domestic product or the potential GDP72 is the production function method73. According to the estimation of the Ministry of Finance, the growth potential of the Estonian economy is now near 3% and shows a declining trend. The decline in the contribution of labour is the main constraint on economic growth. At the same time, the contribution of investments in growth potential increases. Before the onset of the crisis in 2019, output gap74 was positive and the economy exceeded its potential level by 5%. This year, Estonian economy will drop ca 3% below its potential level due to the crisis, but upon economic recovery from 2021 onwards, we will move back towards normal level again. Because of currently extremely large uncertainty regarding the future and cautious economic forecasts, our economy will remain slightly below its continuous level even at the end of the forecast period. One of the goals of the fiscal policy is to balance the economic cycle. If the GDP level is lower than the potential level (the output gap is negative), the state should relax the fiscal policy. And vice versa, if the level of GDP is higher than the potential level (the output gap is positive), the state should spend less, i.e. the fiscal policy should be tightened. Therefore, the goal is a counter-cyclical fiscal policy. In order to assess whether fiscal policy will be tightened or relaxed, the change in the budgetary position is taken into account75. In addition, external funds should be taken into account, because they are neutral with regard to the budgetary position – revenue always equals expenditure – therefore, increase in the use of funds, for example, is not reflected in changes that occur in the budgetary position. At the same time, it enables providing extra stimulus to economic activities during an economic recess, which is a countercyclical policy measure in its nature.

72 Potential GDP – maximum gross domestic product (GDP) using the existing production input (labour force, capital, productivity/skills) without causing excess pressure for price increase. Potential economic growth – change in potential GDP over time. Depends on changes in production inputs. 73 Read about output gap and the principles of estimating the cyclically-adjusted budgetary position in Appendix 3 to the Estonian Convergence programme of May 2004. More about the methodology: European Commission, 2014. The Production Function Methodology for Calculating Potential Growth Rates & Output Gaps, Economic Papers 535, November 2014. 74 Output gap is the difference between actual and potential GDP level. 75 The change in the cyclically-adjusted primary position is considered under the change in budgetary position. Cyclically-adjusted means that the effect of the economic cycle is removed from the nominal position, i.e. the nominal position of the budget is corrected by the multiplication of output gap and elasticity. According to the weights updated by the European Commission in 2018, the semi-elasticity used to find the cyclical budget component is 0.486 in Estonia, instead of previous 0.44 (see also https://ec.europa.eu/info/sites/info/files/economy-finance/ip095_part_ii.pdf ). Primary means that the nominal position is reviewed before deducting the interest expenditure.

110 STATE BUDGET STRATEGY 2021-2024

Considering the change in external funds, the fiscal policy of Estonia in the years 2020–2021 is counter-cyclical, where fiscal policy relaxes because of negative output gap (see Table 61).

Table 61. Cyclically adjusted budgetary position for 2019–2024 (% of GDP) 2001– 2019 2020 2021 2022 2023 2024 2018 1. Real GDP growth (%) 3,7 5,0 - 5,5 4,5 3,5 3,0 2,3 2. Budgetary position of general - 0.1 -6.6 -6.7 -5.4 -4.3 -2.5 government 3. Interest payments - 0.0 0.0 0.0 0.1 0.1 0.1 4. Potential real GDP growth (%) 3.3 3.7 2.2 3.2 2.8 2.8 2.7 4.a Contribution of capital to 1.9 1.5 1 1.1 1.2 1.4 1.4 potential growth (%) 4.b Contribution of labour to -0.1 0.3 -0.4 0.5 0.0 -0.1 -0.2 potential growth (%) 4.c Contribution of productivity to 1.4 1.9 1.6 1.7 1.5 1.5 1.5 potential growth (%) 5. Output gap 2,0 5.0 -2.9 -1.7 -1.1 -0.9 -1.2 6. Cyclical budget component - 2.4 -1.4 -0.8 -0.5 -0.4 -0.6 7. Cyclically adjusted budgetary - -2.3 -5.2 -5.9 -4.9 -3.9 -1.9 position (7)=(2)-(6) 8. Cyclically adjusted primary - -2.3 -5.1 -5.9 -4.9 -3.8 -1.8 position (8)=(7)+(3) 9. Change in external funds, % of - -0.2 0.7 0.5 0.7 0.8 -0.2 GDP Source: Statistics Estonia, Ministry of Finance.

Figure 2. output gap and structural budgetary position for 2015–2024 (% of GDP)

6,0

4,0

2,0

0,0

-2,0

-4,0

-6,0

-8,0 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24

Output gap (% of GDP) General government’s structural position (% of GDP)

Source: Ministry of Finance.

Structural budgetary position of general government The structural budgetary position of general government is calculated by removing from the nominal position not only the impact of the economic cycle but also one-off and temporary factors, which may distort the budgetary position. Measures that have a significant impact on the budget, but only temporary and non-recurring significant impact on the cyclically-adjusted

111 STATE BUDGET STRATEGY 2021-2024 budgetary position (on a scale of at least 0.1% of GDP) are called one-off and temporary measures. Although general principles have been defined for classifying the impact of a measure as temporary, the consideration of each specific case is decided separately. During 2019–2024, the one-off measures are local government merger grants and suspension of funded pension payments in 2020–2021 and compensation thereof in 2023–2024 (see Table 62). In 2017-2019, the merging of local governments was supported with a total of 65 million euros. The expenditure of that administrative reform was temporary, large-scale and profitable in the long term. Suspension of funded pension payments in 2020–2021 and compensation of funded pension in 2023–2024 During the suspension of the second pillar payments from 1.07.2020 to 31.08.2021, state expenditure will decrease by 141 million euros in 2020 and by 204 million euros in 2021 (in total 345 million). Upon compensation for the second pillar payments, state expenditure would increase from 2023 to 2025 (28 months in total) due to social tax contributions to the second pillar (6% instead of 4%). The exact amount of compensation depends on the number of persons who will continue 2% contributions from December 2020 onwards. As everyone will make 2% contributions to the second pillar until November 2020, the state will compensate the suspension of payments for everyone (except for persons born from 1942 to 1960). The maximum extent of the impact is the same as the effect of savings from suspension of 4% contributions in 2020 and 2021. If, e.g. 1/3 of people will not continue making 2% contributions, then the cost of compensation would be ca 22% lower than that. In order to make mandatory contributions to funded pension in 2023 and 2024, obligated persons born in 1961 or later are allocated from state budget additional twofold amount of contributions paid by the person from 1 July 2020 to 31 August 2021, multiplied by the increase in average net worth of shares in all mandatory pension funds from 1 July 2020 to 31 December 2022. According to the forecast, 345 million euros will be paid as compensation for the suspension of II pillar payments as a one-off measure, which is equally divided between 2023 and 2024.

Table 62. One-off measures and their impact for 2019–2024 (million EUR) 2019 2020 2021 2022 2023 2024 Merger grants for local governments -21 Suspension of II pension pillar contributions 141 204 Compensation for suspension of II pension pillar -173 -173 contributions Total, m EUR -21 141 204 0 -173 -173 Total, % of GDP - 0.5 0.7 0.0 - - 0.1% % % % 0.5 0.5 % % Source: Ministry of Finance.

Table 63. Structurally adjusted budgetary position in 2019–2024 (% of GDP) 2019 2020 2021 2022 2023 2024 1. Cyclically-adjusted budgetary position -2.3 -5.2 -5.9 -4.9 -3.9 -1.9 2. One-off measures -0.1 0.5 0.7 0.0 -0.5 -0.5

112 STATE BUDGET STRATEGY 2021-2024

3. Structurally adjusted budgetary position -2.3 -5.7 -6.6 -4.9 -3.3 -1.3 (3)=(1)-(2) Source: Ministry of Finance.

3.3.1 Revenue and expenditure of general government In 2020, general government revenues amount to 39.3% of GDP and expenditure to 45.9% of GDP (see Table 66). During 2021–2024, expenditure will grow by an average of 2.0% per year, i.e. slower than GDP, which is why the general government expenditure will decrease to 39.8% of GDP by 2024 (see Table 64). Compared to 2020, expenditure related to health will decrease the most as a percentage of GDP by 2023 (see Table 67).

Table 64. Impact of fiscal policy decisions on the revenue and expenditure of the general government 2019 2019 2020 2021 2022 2023 2024 million % of % of % of % of % of % of euros GDP GDP GDP GDP GDP GDP Revenue forecast of the general 10,966.2 39.0 39.3 39.0 37.7 37.7 37.3 government Measures of revenue 0,.0 1.2 0.8 0.2 0.1 policy Expenditure forecast of the general 10,944.7 38.9 45.9 45.7 43.1 42.0 39.8 government Source: Statistics Estonia, Ministry of Finance. The table below shows the revenues and expenditures of the Ministry of Finance according to the forecast compiled in the summer of 2020 and the table above displays the volume of measures of revenue policy for achieving the objectives set out in the State Budget Strategy. Table 65. Revenue and expenditure according to the forecast compiled by the Ministry of Finance in the summer of 2020, excluding budgetary policy decisions 2019 2019 2020 2021 2022 2023 2024 million % of % of % of % of % of % of euros GDP GDP GDP GDP GDP GDP Revenue forecast of the general 10,966.2 39.0 39.3 37.7 36.9 37.6 37.2 government Expenditure forecast of the general 10,944.7 38.9 45.9 43.8 42.3 41.9 40.3 government Source: Statistics Estonia, Ministry of Finance.

Table 66. Revenue and expenditure of the general government budget in 2019–2024 2019 2019 2020 2021 2022 2023 2024 m EUR % of % of % of % of % of % of GDP GDP GDP GDP GDP GDP Budgetary positions by government levels 1. General government 21.5 0.1 -6.6 -6.7 -5.4 -4.3 -2.5 2. Central government -26.3 -0.1 -5.4 -6.3 -5.1 -4.0 -2.2 4. Local governments -26.4 -0.1 0.3 -0.2 -0.2 -0.2 -0.1 5. Social security funds 74.1 0.3 -1.5 -0.2 -0.1 -0.2 -0.1

113 STATE BUDGET STRATEGY 2021-2024

2019 2019 2020 2021 2022 2023 2024 m EUR % of % of % of % of % of % of GDP GDP GDP GDP GDP GDP General government 6. Total revenues 10,966.2 39.0 39.3 39.0 37.7 37.7 37.3 7. Total expenditure 10,944.7 38.9 45.9 45.7 43.1 42.0 39.8 8. Budgetary position 21.5 0.1 -6.6 -6.7 -5.4 -4.3 -2.5 9. Interest expenditure 8.4 0.0 0.0 0.0 0.1 0.1 0.1 10. Primary balance 29.9 0.1 -6.6 -6.7 -5.4 -4.2 -2.4 11. One-off and temporary measures -21.4 -0.1 0.5 0.7 0.0 -0.5 -0.5 Revenue by components 12. Tax revenue (12=12a+12b+12c) 5,983.5 21.3 20.9 20.2 20.1 20.2 20.2 12a. Production and import taxes 3,942.8 14.0 13.4 13.3 13.3 13.3 13.0 12b. Income and wealth taxes 2,040.7 7.3 7.4 6.8 6.8 6.9 7.1 12c. Capital taxes 0 0 0 0 0 0 0 13. Social security contributions 3,329.4 11.8 13.0 12.6 11.5 11.3 11.3 14. Property income 220.5 0.8 0.7 0.4 0.4 0.4 0.5 15. Other revenue 1,432.8 5.1 4.7 5.8 5.7 5.7 5.3 16.=6. Total revenue 10,966.2 39.0 39.3 39.0 37.7 37.7 37.3 p.m.: Tax burden (D.2 (incl. paid to the 9,298.8 33.1 33.8 32.7 31.5 31.5 31.5 EU)+D.5+D.611+D.91-D.995) Expenditure by components 17. Compensation of employees + 5,043.2 17.9 20.4 18.9 17.7 17.4 16.6 intermediate consumption 17a. Compensation to employees 3,223.7 11.5 12.4 12.1 11.4 11.3 10.9 17b. Intermediate consumption 1,819.5 6.5 8.0 6.8 6.3 6.1 5.7 18. Social transfers (18=18a+18b) 3,772.2 13.4 17.0 15.0 14.3 13.8 13.7 of which unemployment benefits 132.8 0.5 1.0 0.8 0.7 0.6 0.6 18a. Social transfers in kind 542.2 1.9 2.2 2.1 2.0 1.9 1.9 18b. Financial social transfers 3,230.0 11.5 14.7 12.9 12.3 11.9 11.8 19.=9. Interest expenditure 8.4 0.0 0.0 0.0 0.1 0.1 0.1 20. Subsidies 135.4 0.5 0.4 0.4 0.4 0.4 0.3 21. Total capital investment 1,392.9 5.0 5.5 6.6 6.6 7.3 7.3 22. Capital movement 121.3 0.4 0.3 2.4 3.0 2.1 0.8 23. Other expenses 487.0 1.7 2.3 2.3 1.1 1.1 1.0 24.=7. Total expenditure 10,944.7 38.9 45.9 45.7 43.1 42.0 39.8 p.m. General government’s consumption 5,582.2 19.9 21.5 20.7 20.3 19.9 19.6 Sources: Statistics Estonia, Ministry of Finance.

Table 67. General government expenses by government functions (COFOG) (% of GDP) COFOG 2016 2017 2018 2019 2023 code

1. General public services 1 3.9 3.8 3.9 3.5 3.4 2. National defence 2 2.3 2.0 2.0 2.3 2.4 3. Public order and security 3 1.9 1.9 1.9 1.7 2.2 4. Economy 4 4.2 4.7 4.0 4.2 7.7 5. Environmental protection 5 0.6 0.7 0.7 0.5 0.2 6. Housing and utilities 6 0.3 0.4 0.3 0.2 0.1 7. Healthcare 7 5.1 5.0 5.2 5.5 4.7 8. Recreation, culture and religion 8 2.0 2.1 2.0 1.7 1.8 9. Education 9 5.6 5.7 6.2 6.2 6.0 10. Social protection 10 13.0 12.9 13.1 13.1 13.5 11. Total expenditure of the general TE 42.0 government 39.1 39.2 39.3 38.9 Sources: Statistics Estonia, Ministry of Finance.

114 STATE BUDGET STRATEGY 2021-2024

3.3.2 Budgetary position of the central government The biggest part of the central government, which comprises about three-fourths of the general government, are agencies financed from the state budget (constitutional agencies and ministries with their areas of government). The central government also includes foundations established by the state (hospitals and the Environmental Investment Centre have the biggest impact), companies that mainly provide services to the state (e.g. AS Riigi Kinnisvara) and agencies governed by public law (e.g. universities, Estonian Public Broadcasting).

Figure 3. Revenue, expenditure and budgetary position of the central government

million euros % of GDP 15000 3

10000 2

5000 1

0 0

-5000 -1

-10000 -2

-15000 -3 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Revenue Expenditure Budgetary position (right scale)

Source: Statistics Estonia.

The tax revenue of the state budget, which is the most sensitive to economic development, comprises the biggest part of the central government’s revenue. Therefore, the biggest part of the budget deficit is coming from the state budget when the economic cycle is in a phase of decline. Correspondingly, the state budget contributed the most to the budget surplus during the pre-crisis years. Non-tax revenue, which mainly consists of external grants received from the European Union, also comprises a large part of the central government’s revenue in addition to tax revenue. The majority of the central government’s expenditure consists of state budget expenditure, about one-third of which are social security expenditure (incl. state pension insurance)76. This is followed by expenditure on economy (incl. agriculture and road construction) and health (allocation to the Estonian Health Insurance Fund). The budgetary position of other central government is formed as an aggregate amount of the positions of foundations, commercial undertakings and agencies governed by public law. Large investments that exceed the revenue of the current year are one of the main factors that influence the budgetary position. The impact on the budgetary position is negative irrespective of whether they are financed from the reserves collected in previous years or with loans. The total effect of other central government’s agencies fluctuates from 0.2% to 0.2% surplus.

76 Based on the state budget for 2020.

115 STATE BUDGET STRATEGY 2021-2024

3.3.2.1 State budget revenue During 2021–2024, the volume of state budget revenue with transferable income will increase on average by 4.9% per year, which is on the same level as the summer economic forecast. Compared to the forecast compiled in the summer, revenue will increase by 351 million euros or by 3.2% next year, and by 233 million euros or by 2.0% a year later. Compared to the current year, revenue will increase by 21.1% or by 2.24 billion euros, reaching 12.9 billion euros by 2024. The volume of state budget revenue was calculated by adding revenue measures decided by the government to the summer economic forecast of the Ministry of Finance.

Figure 4. Volume and growth of state budget revenue (million euros, %)

13 000 12 000 11% 11 000

10 000 8% 9 000

8 000 6% 7 000

6 000 4% 5 000 4 000 2% 3 000 2 000 -1% 1 000 0 -3% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Tax revenue Transferable revenue Non-tax revenue Growth y-o-y

Source: Ministry of Finance

During the budget strategy period (2021–2024), the tax revenue (without transferable taxes) will grow, on average, by 4.7% a year, i.e. 0.1% slower than expected in the summer forecast. Social tax, value added tax and excise duties will constitute the largest part of tax revenues. In 2021–2024, social tax revenue will annually increase by 3.4% on average; the forecast revenue in 2024 is 3,815.3 million euros. These revenues are increased primarily due to increase in wages, which also supports the revenue from personal income tax. At the same time, during the given period, average increase in the latter exceeds 10% a year, because increase in wages will draw people out of the basic exemption area. In 2021–2024, revenue from corporate income tax is affected by discontinuation of transfer to lower tax rate on regularly distributed profit and increase in dividends of state enterprises from 2022 onwards. For the aforementioned period, the accrual of value added tax will increase on average by 5.7% a year and the forecast accrual in 2024 is 2,923 million euros. The increase of value added tax depends on the growth of private consumption, general government investments, intermediate consumption of the general government and of investments of households, changes in the amount of VAT tax gap. VAT revenue will increase next year, increase in revenue is facilitated by further recovery of consumption and low reference based for the crisis year.

116 STATE BUDGET STRATEGY 2021-2024

In 2021–2024, the accrual of excise duties will increase, on average, by 6.3% annually, and the estimated accrual in 2024 will be 1,127 million euros. During next four years, the revenue from excise duties is influenced by various changes in tax policies, mainly due to lower excise duty on diesel fuel (valid from 30.04.2022), which causes certain increase in consumption, mostly at the expense of frontier trade. In the next few years, the revenue from excise duty on tobacco will be influenced by in elimination of excise duty on cigarettes and smoking tobacco and tobacco liquids until 31.12.2022. Compared to the summer forecast, the forecast of excise duty for the next two years has been increased due to revenue from additional investments. Due to external funds, the volume of non-tax revenues will increase from 1.6 billion euros this year to 2.1 billion euros in 2023. In coming years, it is possible to use external funds for both the ending period and the new budgetary period starting next year. The revenue from the sale of goods and services, however, is in decline due to reduced revenue from the sale of emission quotas. Compared to the previous State Budget Strategy, the forecast state budget revenue will increase, on average, by 2.0 % a year during 2021-2023 and the revenue of 2023 will decrease by approximately 385.2 million euros. Changes in tax policies that influence tax revenue and tax incentives that have a negative impact on the revenue collection into state budget are described in the chapter on tax policy.

Figure 5. Comparison of revenue planned in State Budget Strategy 2020-2024 and in the previous State Budget Strategy (million euros)

12000

10000

8000

6000

4000

2000

0 2020 2021 2022 2023 2024

SBS 2020-2023 SBS 2021-2024

Source: Ministry of Finance.

3.3.2.2 Expenditure and investments of state budget

Expenditure Compared to 2020, the annual state budget expenditure will increase by 4.4% or 550 million euros on average.

117 STATE BUDGET STRATEGY 2021-2024

Figure 6. State budget expenses (million euros) and the percentage of expenditure of GDP

Major growth occurs in the expenditure on social security. Each year, the amount of funds allocated to healthcare increases by 112 million euros, compared to 2020, average annual growth rate being 7.6%. Average annual growth of expenditure on first pillar pension insurance is 77 million euros or 3.7%. Total annual increase in social allowances paid is about 50 million euros or 6%. The biggest impact comes from state compensation for suspension of contributions to the second pension pillar from 2023 onwards. Additional 243 million euros is planned for the budgetary period to bring research and development expenditure to 1% of GDP. The European Union funds to be used during 4 years is approximately 7 billion euros. The use of EU funds intended for budgetary period 2014-2020 will be continued and at the same time, the implementation of measures for 2021-2027 will be commenced. Cohesion policy funds will be used to contribute to maintaining and increasing employment, increased social inclusion, education and research and development, innovation and enterprise, as well as investments supporting clean environment and digitalisation in the field of energy efficiency, ICT and transport. In addition, rural development and agricultural and fishing measures will be supported. In order to contribute to the recovery from the crisis caused by Covid-19 and economic recovery, new emergency Restart Facility (or Recovery and Resilience Facility, RRF) will be used for supporting reforms and investments based on Estonian recovery and resilience plan – including areas related to economic, social and regional cohesion, green solutions and digitalisation, health, competitiveness, endurance, education and skills, research and innovation, smart, continuous and inclusive economic growth, job-creation and investments, and stability of financial systems.

118 STATE BUDGET STRATEGY 2021-2024

Overview of general government labour costs is presented in Appendix 6 of the strategy “Personnel and salary analysis of the general government”. Investments In the context of the state budget, in addition to the expenses on acquiring and renovating tangible and intangible fixed assets, investments are also deemed to be grants for acquiring and renovating fixed assets and defence-related special equipment. State budget resources used for investments include state tax revenue, European Union support, revenues from emission allowance trading (CO2 emission allowance) and own revenue generated from operations of state agencies. The investments planned in the state budget for 2021 amount to a total of 1,040.7 million euros, which includes investments of state authorities, investment subsidies into various sectors and investments made via the Riigi Kinnisvara AS and greenhouse gas emission allowance trading. Investments of state-budget agencies form 38% and investment subsidies 54% and built-up real estate and investments from greenhouse gas emission allowance trading is 8%. Compared to 2020, the volume of investments and investment subsidies will increase, and the growth in 2021 is primarily related to the investments implemented by using external funds activities in given period.

Figure 7. Investments and investment subsidies of agencies financed from the state budget and Riigi Kinnisvara AS in 2013-2023 (million euros)

Areas of government with the greatest volume of investments and investment subsidies are the Ministry of Economic Affairs and Communications with 48%, the Ministry of Defence with 11% and the Ministry of Rural Affairs with 8%.

119 STATE BUDGET STRATEGY 2021-2024

Figure 8. Investments and investment subsidies of areas of government and Riigi Kinnisvara AS in 2020 (%)

Approximately half of the funding of investments originates from external funds, of which about ca 80% will be directed into various sectors as investment subsidies. Larger investments from external funds are related to organising the school network, reconstruction of apartment buildings, primary health centres and transport. The majority of the planned investments and investment subsidies in the state budget is allocated to real estate (32% on average) and to roads and facilities (37% on average).

Figure 9. Distribution of investments and investment subsidies in the state budget by acquisition groups (million euros)

120 STATE BUDGET STRATEGY 2021-2024

Built-up real estate investments from public revenues and the budget of Riigi Kinnisvara AS Ca 32.3% of the planned investments in the state budget comprise built-up real estate investments (without roads and facilities). Investments of buildings (registered immovables of government agencies and managed authorities) owned by Riigi Kinnisvara AS are financed from the budget of the Riigi Kinnisvara AS. The state budget will be used to finance investments of buildings that the Riigi Kinnisvara AS cannot own (registered immovables of constitutional agencies, embassies in foreign countries, registered immovables of public foundations and legal persons governed by public law). During the discussions about the State Budget Strategy 2019-2023, the government made a fundamental decision, according to which the planning of the state’s real estate and financing decisions thereof shall be made more systematic and flexible, and they shall be aligned with the principles of activity-based financial management. One step in transitioning to new financing principles and the so-called pool-specific financing based on real estate management plans, a so-called optimisation reserve was created in the Riigi Kinnisvara AS position since 2019, which allows opportunities for more flexible financing of investment projects that help decrease real estate costs. The implementation of this financing principle will be continued in 2021. Major individual investments in 2021 include 2.6 million euros allocated for Kääriku Sports Centre from the state budget and 2 million euros allocated for the joint building of Police and Rescue Board in Pärnu and 1.8 million euros for the buildings located at Rahukohtu 1 and 2 financed from the budget of the Riigi Kinnisvara AS.

Support measures of supplementary budget In 2020, usual general government expenditure was supplemented by support measures to mitigate the impact of COVID-19 pandemics and resulting state of emergency. Support measures were approved by the Government of the Republic in the supplementary state budget for 2020 and adopted by Riigikogu on 15 April. Support measures area reflected in several different general government expenditure types and mostly affect the volume of expenditure and budget balance in 2020. Expenditure will partly carry over to subsequent years (mainly the expenditure related to loans and surety risks). Volume of measures decided in the budget was 2.55 billion euros. According to current forecast, its impact on budgetary position is 810 million euros in 2020 and 131.2 million euros in 2021, i.e. 3.1% and 0.5% of GDP.

121 STATE BUDGET STRATEGY 2021-2024

Figure 10. Volume of supplementary budget and its impact on position in 2020 and 2021

Compensations and support to natural persons include the means allocated to both Health Insurance Fund and Unemployment Insurance Fund. These measures were the quickest to launch in spring and have partially ended, e.g. extended term for using wage compensation ended in late June. This also includes increase in creative support and support for instructions of collectives participating in the song and dance festival process. As of the end of July 2020, support was received by approximately 240 thousand people through almost 20 thousand enterprises and organisations. Enterprises and state agencies have actively applied for operating grants and majority of grants will most likely be utilised by the end of this year. All Estonian local governments, many museums, theatres, churches and private schools have received grants. Enterprise Estonia (EAS) has directed support measures by sectors to those who need it most, e.g. small businesses and tourism enterprises. Additionally, EAS also supports product development and reorganisation of the operation of small businesses. EAS has supported more than 3,500 enterprises in total. Launching of investment aid took slightly more time due to resource-intensive preparation and evaluation of support projects. Majority of support decisions are expected to be made by the end of 2020, but payments and covering actual costs might shift to next year Supplementary budget allocated 1.377 million euros for financial instruments. Loans and sureties have a significant impact on state’s cash flow, but direct impact on budget balance is much smaller and manifests mainly through potential loan losses. Interest in the measure has varied, but utilisation of both sureties and direct loans has generally been more modest than forecasted. This is caused by conservative credit policy of banks as well as enterprises’ uncertainty in making new investments. Terms of the measure have been relaxed over time and an increase in enterprises’ interest is expected in the second half of the year.

3.3.3 Budgetary position of local governments Local governments (a total of 79) have an important role in the performance of public sector functions. They all perform the same functions irrespective of their size. General governance

122 STATE BUDGET STRATEGY 2021-2024 includes the operation and management costs of city governments and rural municipality governments and councils. Management expenses (incl. housing and utilities) consist mainly of public transport within the rural municipality or city, road or street maintenance in the rural municipality or city, water supply organisation and street lighting. Social security means the maintenance of nursing homes, provision of social aid and welfare services and providing social protection to families. Maintenance of schools and kindergartens falls under the area of education. Recreation, culture and religion include the maintenance of hobby schools, cultural centres, libraries, museums and sports facilities as well as youth work. Other areas make up a smaller part of a local government’s expenditure which includes such activities as e.g. cleaning and organisation of waste management and effluent treatment. The total volume consolidated accrual-based volume of those expenses was 2.4 billion euros in 2019 (incl. 0.1 billion euros of liabilities). Personnel and management expenditure comprised 63% of this.

Figure 11. Breakdown of local governments expenditure in 2019 (million euros)

Other, 131 Loan payments, 124

Social protection, 187

General governance, 164 Education, 1103 Free time, culture, religion, 256

Economy (including housing and utilities), 447

Source: Ministry of Finance

The budgets of local governments are independent, which means that they are responsible for preparing their budgets themselves. The common purpose of tax revenue carried forward from the state budget (tax and land tax) as well as the equalisation fund and the support fund is to ensure that they have sufficient funds to make independent decisions on local matters on the basis of laws. The equalisation fund is intended to equalise their budgetary possibilities. The support fund consists of various types of grants for different fields making it possible to pay wages to teachers, organise catering at school, pay subsistence benefit and maintain local roads. Local governments can also apply for project-based support from several measures. Other own revenue of local governments include mainly accruals of environmental charges or revenue from the sale of goods and services.

123 STATE BUDGET STRATEGY 2021-2024

Figure 12. Breakdown of local governments revenue in 2019 (million euros)

Other revenue, 51

Support received for Sales of acquisition of fixed goods and assets, 210 services, 207

Support received for Income tax, 1219 current expenses, 543

Other tax revenue, 76

Source: Ministry of Finance.

In 2017, local elections were held and the administrative reform was carried out, which resulted in a decrease in the number of local governments from 213 to 79. While the local governments ended in deficit in the election year, then in the following year, the local governments and their dependent units reached an accrual-based surplus of 59 million euros. The Ministry of Finance predicts that, by 2020, local governments will increase the surplus to 92 million euros. After that, however, their budgetary position will be in deficit 0.2% of GDP due to continued increase of investment activities. The information on the budgets of local governments and fulfilment of those budgets can be examined in the public funds application.77

3.3.4 Budgetary position of social security funds Estonian Health Insurance Fund providing health insurance and the Estonian Unemployment Insurance Fund providing unemployment insurance belong to the sector of social security funds. In Estonia, the national pension insurance system belongs to the central government. Due to a large revenue from social tax and less than expected expenditure in relation to some expenditure items, the Health Insurance Fund was in considerable surplus both in 2018 and 2019 (28 and 38 million euros, respectively). This year has understandably been strongly affected by the COVID-19 crisis. Expected social tax revenue has decreased and crisis-related expenditure has increased, which were funded by allocation from supplementary budget. At the same time, suspension of scheduled treatment during the state of emergency has resulted in

77 http://riigiraha.fin.ee

124 STATE BUDGET STRATEGY 2021-2024 certain cost-saving. All in all, a deficit of 30 million euros is expected this year. From 2021 onwards, a large budgetary deficit is expected due to considerably decreased expectance of social tax revenue. The government will allocate operational support to cover reduced social tax revenue, to the extent that cannot be covered from the reserves of the Health Insurance Fund. In 2021, the deficit is 18 million euros and it will gradually decrease along with economic recovery, reaching close to balance in 2024. The surplus of the Unemployment Insurance Fund amounted to 40 million euros in 2019, which in terms of magnitude is similar to the surplus of 2017 and 2018 and rather accurately met the expectations of the summer economic forecast of the precious year. The reason for surplus was higher than expected receipt of unemployment insurance premiums and lower than expected expenditure in most cost categories. Expenditure on compensations was higher than expected. Similar to the Health Insurance Fund, the financial status of the Unemployment Insurance Fund has this year been strongly affected by the crisis caused by coronavirus. In addition to 257 million euros for salary compensation, there has been an increase in nearly all expenditure categories. The Unemployment Insurance Fund ends this year with a deficit of 381 million euros. At the beginning of the year, the reserves of the Unemployment Insurance Fund amounted to 838 million euros. In upcoming years, annual deficit of approximately 40 million euros on average is expected. By 2024, the volume of reserves will be less than 300 million euros, which roughly corresponds to annual expenditure of the Unemployment Insurance Fund that are covered from the receipt of unemployment insurance premiums.

3.4 Tax policy 3.4.1 General tax burden One of the tax policy goals of Estonia has consisted in using partial reorientation of taxes to shift the tax burden from the taxation of income to the taxation of consumption, use of natural resources and pollution of the environment. At the same time, the system is kept stable, simple and transparent, with as few exceptions and special cases as possible. The tax burden of Estonia in 2018 was 32.9% of GDP, which is 6.3 percentage points lower than the average of the European Union (see Figure 13). In comparison with the Central and East European countries, Slovakia, Poland, Czech Republic, Hungary, Slovenia and Croatia had a bigger tax burden than Estonia.

Figure 13. Tax burden in the European Union in 2018 (% of GDP)

50

39,2 40,5 40 32,9

30

20

10

0 IE RO BG LT LV MTEE*UK CY SK ES PT PL CZ HU SI HR NL GR EL LU DE € IT FI AT SE BE DK FR

* Estonian indicator was calculated based on GDP time series published on 31.08.2020. Source: Taxation Trends in the European Union (2020)

125 STATE BUDGET STRATEGY 2021-2024

The tax burden of 2021 will be 32.7% of GDP, which is 1.1% lower than in 2020. In 2021, capital taxes78 will decrease because of lower income tax rate on regularly distributed profit. Both labour taxes79 and consumption taxes80 will grow slower than GDP due to decreased tax revenue during recovery from the crisis. In 2022–2024, tax revenues will grow slower than nominal GDP and the tax burden will fall to 31.5% of GDP by 2024.

3.4.2 Implicit tax rate and tax wedge In addition to the share of tax revenue in GDP, the level of tax burden is also characterised by the implicit tax rate81 (ITR), being the ratio of accrued tax revenue to the tax base. Implicit tax rate on labour is calculated as the ratio of taxes on labour to labour cost. As the basis for calculating the implicit tax rate are factually accrued taxes, an international comparison must take into account the fact that the performance of tax administrators and the tax discipline of people varies across countries and this may influence the indicator. The basic exemption reform (2018) reduced the implicit tax rate on labour, but at the same time, the expiry of the higher contributions to funded pension had the opposite effect. With implicit tax rate 33.5%, Estonia ranked 16th in the European Union in 2018. Due to wage growth this indicator will rise to 33.9% by 2024 (see Figure 14 A). The definition of implicit tax rate on consumption changed – it is now expressed as the ratio of consumption taxes (value added tax, excise duty) to final consumption expenditure of households, general government and non-profit institutions, minus general government compensation to employees. In Estonia, this indicator decreased due to a change of its definition by the European Commission by approximately 5 percentage points in 2016–2018. In 2018, we ranked 5th in the European Union with 22.4%. The effective tax rate on consumption will rise to 22.7% by 2024 (see Figure 14 B). Labour tax wedge is the difference between an employer’s labour costs and an employee’s net income, including monetary allowances (child allowance, needs-based family allowance, tax credit to low-income persons). An excessively high tax wedge may reduce the incentive to work and thus have a negative impact on the development of the labour market as well as economy. In 2019, the tax wage of a single childless employee was at all income levels lower than the EU average in 2019.

78 According to the ESA2010 methodology, the following is deemed to be included among capital taxes: corporate income tax, personal income tax on capital income, gambling tax, advertisement tax, land tax, heavy goods vehicles tax, state fees on activity licences and professional licences, fee for the special use of water, road and street closure tax, other taxes and fees. 79 According to the ESA2010 methodology, the following is deemed to be included among labour taxes: social security contributions, personal income tax on wage income, personal income tax on social transfers and pensions, personal income tax on business activities. 80 According to the ESA2010 methodology, the following is deemed to be included among taxes on consumption: value added tax, customs duty, excise duties, motor vehicle registration fee, sales tax, pollution charges, fee for the right of fishery, boat tax, sales revenue of allowances, liquid fuel reserve charge and Guarantee Fund contributions. 81 Sometimes also translated into Estonian as actual or average tax rate. The preferred definition is still implicit tax rate, as its meaning is more precise compared to other variants.

126 STATE BUDGET STRATEGY 2021-2024

In 2020, the tax wedge of a single childless person earning 67% of the average wage is 33.3%, which is lower than the EU average of 35.9% in 2019. Due to wage growth, the indicator will rise to 34.2% by 2024 (see Figure 14 C). The tax wedge of a married couple with two children, where one parent earns 100% of the average wage (see Figure 14 D), is in addition to the general tax-free income also dependant on the additional tax-free income in relation to the second child. The tax wedge for the family is decreased by child benefits. Parental benefit is not taken into account pursuant to the OECD methodology. In 2020, the tax wedge of such family reaches 27.3%, which is lower than the EU average 29.6% in 2019. Due to wage growth, the indicator will increase to 30.1% by 2024. Compared to other EU countries, the tax burden on Estonian labour force is becoming more competitive with higher wages, because, unlike in most EU countries, in Estonia taxes are not progressive at the upper end of income. In regard to larger incomes (125% and 167% of the average wage), Estonia’s tax wedge is lower than in Latvia but higher than in Lithuania.

Figure 14. Implicit tax rate (% of tax base) and tax wedge (% of labour expenditure) A. Implicit tax rate on labour B. Implicit tax rate on consumption

40% 24% 22% 35% 20% 18% 30% 16% 14% 25% 12% `06 `08 `10 `12 `14 `16 `18 `20 `22 `24 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24

Estonia Latvia Estonia Latvia Lithuania EU 28 Lithuania EU 28

C. Tax wedge, single childless person, D. Tax wedge, married couple, 2 children, one who earns 67% of the average worker’s parent earns 100% of the average worker’s wage* wage*

46% 40%

42% 35% 38% 30% 34%

30% 25% `06 `08 `10 `12 `14 `16 `18 `20 `22 `24 `06 `08 `10 `12 `14 `16 `18 `20 `22 `24 Estonia Latvia Estonia Latvia Lithuania Finland Lithuania Finland EU 28 EU 28 A.

* According to the summer forecast of the Ministry of Finance, the gross average worker’s wages in fields of activity B-N in 2024 will be 19,439 euros per year. Sources: European Commission http://ec.europa.eu/economy_finance/db_indicators/tab, Ministry of Finance

127 STATE BUDGET STRATEGY 2021-2024

3.4.3 Tax expenditure Tax expenditure makes up government instruments for directing social or economic policy and provide tax incentives for taxpayers with certain characteristics. The accrual of the state budgets for 2020 and 2021 is influenced by 21 significant tax expenditure provisions in the Value Added Tax Act, the Income Tax Act and the Alcohol, Tobacco, Fuel and Electricity Excise Duty Act. The total volume of the main tax expenditure in 2020 comprises 236.8 million euros or 0.9% of GDP and 3.2% of tax revenue. Compared to previous year, the tax expenditure this year is reduced by 4.1%. Compared to previous year, the tax expenditure is reduced due to the decrease in the impact of diesel fuel for special purposes, resulting from decrease in the excise duty rate mis. During the forecast period, the tax expenditure will increase the most due to gradual expansion of lower tax rate of regularly distributed profits. The highest volume of tax expenditure comes from lower VAT rates for medicinal products and medical devices as well as accommodation services, amounting to 92.6 million euros. Lower tax rate of regularly distributed profits 42.2 million euros and more favourable rate of excuse duty on diesel fuel for specific purposes 25.0 million euros also have a significant impact on the budget. The volume of the four largest types of tax expenditure constitutes 68% of the total tax expenditure in 2020. In 2021, tax expenditure will increase by 16.3% to 275.4 million euros, mainly due to economic growth and increase in tax revenue.

Table 68. Tax expenditure in state budget in 2020–2021 (million euros) Government Tax expenditure Provision 2020 2021 function82 1. 9% value added tax rate on books, workbooks, Clauses 15 (2) 1) 10.8 12 9 periodicals and digital publications and 3) of the VATA 2. 9% value added tax rate on medicinal products Clause 15 (2) 2) of 63.9 66.6 7 and medical devices the VATA 3. 9% value added tax rate on accommodation Clause15 (2) 4) of 28.7 29.9 8 services the VATA 4. Lower tax rate of 14% on regularly distributed Subsection 4 (5) of 42.2 66.9 4 profits the ITA 5. Increased basic exemption from the second Section 23¹ of the 21.8 24.1 10 child ITA 6. Increased basic exemption for spouse Section 234 of the 6.4 6.4 10 ITA 7. Deduction of mortgage interest Section 25 of the 5.8 6 6 ITA 8. Deduction of training expenses Section 26 of the 12.8 13 9 ITA 9. Gifts and donations Subsection 27 (1) of 3.7 3.7 8 the ITA 10. Insurance premiums and acquisition of units of Section 28 of the 4.2 4.2 10 a pension fund ITA 11. Increased basic exemption of self-employed Subsection 32 (4) of 3.9 9.2 persons upon a sale of agricultural produce or the ITA 4 timber

82 Government functions: 1. General government activities; 2. National defence; 3. Public order and security; 4. Economy; 5. Environmental protection; 6. Housing and utilities; 7. Health; 8. Free time, culture and religion; 9. Education; 10. Social protection.

128 STATE BUDGET STRATEGY 2021-2024

Government Tax expenditure Provision 2020 2021 function82 12. 50% excise duty rate for independent small Subsection 46 (1) of 1 1 4 breweries the ATFEEDA 13. Lower excise duty rate on diesel fuel for Subsection 66 (7) of 25.2 28.2 4 specific purposes and light fuel oil the ATFEEDA 14. Exemption of fishermen from excise duty on Subsection 27 (1) 1.4 1.2 fuel 22² of the 4 ATFEEDA 15. Electricity used for chemical reduction and in Clause 27 (1) 24), 0.2 0.1 electrolytic, metallurgic and mineralogical section 284 of the 4 processes ATFEEDA 16. Electricity and fuel used for producing Clause 27 (1) 282) of 1.4 0.7 electricity and electricity used for maintaining the ATFEEDA 4 the ability to produce electricity 17. Fuel used for mineralogical processes Clause 27 (1) 24) of 1.63 1.1 4 the ATFEEDA 18. Natural gas used for the purpose of operating Clause 27 (1) 286) of 0.05 0.03 4 the natural gas network the ATFEEDA 19. Deduction of excise on electricity for major Subsection 66 (121) 0.7 0.2 4 consumers of the ATFEEDA 20. Deduction of excise on gas for major Subsection 66 (103) 0.7 0.6 4 consumers of the ATFEEDA 21. Forwarded quantity of biofuel not subject to Clause 19 (14) 22) 0.3 0.3 4 excise duty of the ATFEEDA TOTAL 236.8 275.4 Source: Ministry of Finance.

3.5 Financing of the general government 3.5.1 Cash flow and net position According to the State Budget Strategy, the state budget position is in nominal deficit both this year and subsequent years because of the impact of the crisis and gradual recovery. Also, the cash flow will be negative this year as well as next year, as other factors will be taken into account in addition to the state budget position. The negative cash flow arises mainly from three factors: nominal deficit in state budget, the loan amount repayable by the State Treasury, and the effect of COVID-19 measures on cash flows. Another factor that has negative impact on cash flow this year and in 2022, consists in more large-scale funding of financing transactions. In addition to the factors described above, the European Union structural funds will also have a negative effect on the cash flow next year – the awarding of grants will be larger than the receipt of money from the European Union and the liquidity reserve as well as additional funds will be used to cover the difference. The negative cash flow of the state budget 2021-2024 is partly financed by bond issue and new loans.

In 2019, the general government debt exceeded the level of reserves and the net debt amounted to 0.4% of GDP (see Figure 15). According to the forecast, the debt will decrease from this year onwards and next year, the level of reserves will decline too, leading to a net debt increase to 16.4% of GDP by the end of 2021. Due to the increase in the share of debt and decline in reserves from 2021 to 2024, the net debt will increase to 24.5% of GDP by the end of the forecast period. Thus, the net position of the general government, i.e. the difference between the level of debt and reserves, will increase this year and continue growing in subsequent years.

129 STATE BUDGET STRATEGY 2021-2024

Figure 15. Liquid assets, debt burden and net position of the general government in 2009–2024 (% of GDP)

18 13 8,0% 8 6,3% 3 Reserves -2 -0,4% -7 -12 8,4% -17 -24,5%

-22 Debt -27 -32 30,8% '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 Central government (debt) Central government (reserves) Social insurance funds (reserves) LGs (debt) LGs (reserves) EFSF (debt) Net assets(+)/-debt(-)

Source: Ministry of Finance, Statistics Estonia.

3.5.2 Debt burden of the general government The main goal of Estonia’s fiscal policy since the restoration of independence has been to keep the budgetary position of the general government over the medium term in balance or, if possible, in a surplus, which has been expressed in the low debt burden of the state. The general government debt of Estonia at the end of 2019 remained unchanged compared to the previous year, i.e. 8.4% of GDP, but nominal debt increased slightly, amounting to 2,360 million euros. Regardless of nominal increase in debt burden, the main reason why the share of debt remained unchanged, was the rapid growth of GDP compared to the previous year. the nominal increase in debt burden was due to the increase in debt of local governments and the State Treasury. Last year, only the debt of public law agencies and foundations included in the central government increased nominally. This year, debt burden will reach 18.2% of GDP and continues to grow in upcoming years, and by the end of the forecast period, the debt will amount to 30.8% of GDP. The central government debt (including the funds received from the EFSF)83 comprised estimated 1,608 million euros84 of the total general government debt of 2,360 million euros and the debt of local governments 752 million euros; the share of external debt in total debt was 70%.

83 The European Financial Stability Facility (EFSF), i.e., the temporary crisis resolution mechanism for countries in the euro area, which was created in June 2010 and no longer issues financial aid, and which was the precursor to the European Stability Mechanism (ESM) – the current financial institution of the euro area. 84 Consolidated figure at the level of the general government.

130 STATE BUDGET STRATEGY 2021-2024

Table 69. Change in the debt burden of the general government in 2019 31 December 2018 31 December 2019 Change million % of GDP million % of % of euros euros GDP GDP General government 2 174.2 8.4 2 360.4 8.4 0.0 Domestic debt 912.0 3.5 712.8 2.5 -1.0 External debt 1 262.2 4.9 1 647.6 5.9 1.0 Central government85 2 464.3 9.5 2 704.3 9.6 0.1 Domestic debt 1 365.0 5.3 1 252.7 4.9 0.0 External debt 1 099.3 4.2 1 342.2 4.8 0.5 Local governments 735.4 2.8 752.1 2.7 -0.2 Domestic debt 572.5 2.5 446.7 1.6 -0.6 External debt 162.9 0.7 305.4 1.1 0.5 Social security funds 0.0 0.0 0.0 0.0 0.0 Domestic debt 0.0 0.0 0.0 0.0 0.0

External debt 0.0 0.0 0.0 0.0 0.0

Source: Ministry of Finance, Statistics Estonia.

This year, the debt burden of the general government will increase to 18.2% of GDP. The debt increases nominally at central government level, but decreases at local government level compared to 2019. The debt burden is projected to continue to increase also next year, but at a slower pace, rising to 23.6% of GDP, and to reach 30.8% of GDP by the end of the forecast period in 2024. This year, the negative cash flow in state budget that results primarily from the COVID-19 crisis is financed by using already existing funds, and the State Treasury will incur a need for new loans based on cash flow only next year. During the forecast period, the EFSF’s contribution to the central government debt burden will decrease both nominally and as percentage of GDP. According to the forecast, the deficit of local governments will be covered from external funds during the entire medium-term period and the nominal amount of their debt will increase but remain near 2.5% as percentage of GDP.

Table 70. Debt burden of the general government in 2019–2024 (% of GDP) 2019 2020* 2021* 2022* 2023* 2024* 1. Total debt 8.4 18.2 23.6 27.1 29.6 30.8 2. Change in debt burden 0.0 9.8 5.4 3.5 2.5 1.2 Contributions to change in debt burden: (2=3-4+5+6)86 3. Contribution to nominal GDP increase -0.6 0.5 -1.1 -1.3 -1.5 -1.3 4. Primary budget balance -0.3 -6.6 -6.7 -5.4 -4.2 -2.4 5. Interest payments 0.0 0.0 0.0 0.1 0.1 0.1 6. Difference between change of debt burden and the budgetary position (stock-flow adjustment, 0.3 2.7 -0.3 -0.5 -0.3 0.1 SFA)

85 Consolidated debt at central government level for both domestic and foreign debt, taking into account transactions related to subsectors of the general government (including changes in liabilities). 86 In some years, the equation is not applicable due to rounding.

131 STATE BUDGET STRATEGY 2021-2024

2019 2020* 2021* 2022* 2023* 2024* Estimated interest rate of general government 0.5 0.3 0.2 0.2 0.2 0.2 debt (%) Other relevant indicators 7. Liquid financial assets 8.0 8.3 7.2 6.8 6.6 6.3 8. Debt amortisation since the end of last year87 0.6 1.2 1.8 0.2 0.2 0.2 9. Net debt (9=1-7) 0.4 9.9 16.4 20.3 23.0 24.5 10. Share of debt denominated in foreign currency 0.0 0.0 0.0 0.0 0.0 0.0 (%) 11. Average limitation period88 (in years) 4.7 7.4 7.4 7.4 7.4 7.4 * - forecast. Source: Ministry of Finance, Statistics Estonia.

Figure 16. Development of debt burden in 2015–2024 (% of GDP) A. General government debt (% of GDP, pp growth) B. Difference between the change of debt burden and the budgetary position, SFA (% of GDP)

35,0 12,0

30,0 10,0 5 25,0 8,0 4 20,0 6,0 3 15,0 4,0 2 1 10,0 2,0

% of GDP of % 0

5,0 0,0 points percentage Growth, -1 -2 0,0 -2,0 '13 '15 '17 '19 '21 '23 -3 '08 '10 '12 '14 '16 '18 '20 '22 '24 Debt burden, % of GDP Difference between the change of debt burden and Growth, percentage points, y-o-y budget deficit

87 Central government without foundations and legal persons in public law. 88 Central government without foundations and legal persons in public law.

132 STATE BUDGET STRATEGY 2021-2024

C. Repayment of central government89 debt D. Average interest rate of central (million euros) government90 debt (%)

500 6 400 5

300 4 3 200 2

100 1 10,5 17,4 3,5 0 0 -1 '09 '11 '13 '15 '17 '19 '21 '23 '08 '10 '12 '14 '16 '18 '20 '22 '24

Repayment of loans Average annual interest rate

Source: Ministry of Finance, Statistics Estonia, Eurostat.

3.5.3 Development of general government liquid financial assets The volume of the liquid assets of the general government as of the end of 2019 was 2,239 million euros, constituting 8% of GDP. Compared to 2018, the reserves of social security funds, local governments and central government increased. This year, the reserves of social security funds are decreasing due to negative cash flow. Surplus of this year will not reduce local government reserves. This year, the liquidity of State Treasury improved due to loan received from the Nordic Investment Bank (NIB) as well as short-term and long-term bond issue. A decrease in general government reserves is expected for the next year. There will be decrease in social security fund reserves, but in addition, state budget’s negative cash flow is at first financed at the expense of the liquidity reserve, which includes already previously allocated additional funds. Reserves will decrease, because in addition to the state budget position that, due to the impact of the COVID-19 crisis will continue to be in deficit the next year, loan repayments, impact of COVID-19 measures, and cash flow of external funds will also be taken into account in the cash flow of the state budget. Additionally, large-scale funding of financing transactions will have negative impact on cash flows this year and in 2022. During the forecast period, required liquidity buffer is maintained on the general government level to service cash flows. Therefore, the volume of reserves of the general government as a whole will remain stable in 2021-2024, but will decrease as percentage of GDP. By the end of 2024, the reserves will amount to 6.3% of GDP.

Table 71. Liquid financial assets, i.e. reserves of the general government in 2019–2024 (million euros, % of GDP) 2019 2020* 2021* 2022* 2023* 2024* Total financial assets (million 2,239 euros) 2,203 2,030 2,038 2,077 2,095 incl. central government 865 1,240 1,144 1,201 1,292 1,348 incl. local governments 312 312 299 289 284 284 incl. social security funds 1,062 651 587 548 500 463

89 Central government without foundations and legal persons in public law. 90 Central government without foundations and legal persons in public law.

133 STATE BUDGET STRATEGY 2021-2024

Total financial assets (% of 8.0 8.3 7.2 6.8 6.6 6.3 GDP) incl. central government 3.1 4.7 4.1 4.0 4.1 4.1 incl. local governments 1.1 1.2 1.1 1.0 0.9 0.9 incl. social security funds 3.8 2.5 2.1 1.8 1.6 1.4 * - forecast. Source: Ministry of Finance, Statistics Estonia.

3.6 Public finance reforms 3.6.1 Performance based budgeting From 2020 onwards, the state budget is prepared on the basis of performance. In addition to the former expenditure-based budget, the state budget of 2020 includes programmes run by ministers. This means that the government sets performance targets for the programmes and resources are agreed upon in order to achieve the targets. In the framework of the programme, state authorities will provide services, the quality, volume and price of which are monitored and analysed. That knowledge is used for planning and updating the budget and for preparing programmes for subsequent period. Programme goals are set based on sectoral development plans that are established for nearly ten years, as well as long-term development plan Estonia 2035. An overview of the achievement of objectives is presented in the performance report. Programmes and performance reports are published on the webpages of relevant ministries and on the webpage of the Ministry of Finance. Introduction of service-based management in public sector represents a constant challenge and brings along changes in former culture and management systems. Already in the first year of activity-based budget, state agency services have provided good input for planning analyses or new developments in the state, which would create greater value for citizens and better use of state resources. For instance, service data has been used when developing criteria for the services of local governments, the methodology for monitoring the accessibility to public services in local governments, carrying out spending reviews, centralising state support services, preparing proposals for state agency merger, collecting statistics related to general government objectives, organising strategic planning of the state, preparing an overview of the use and maintenance of state assets, and with regard to evaluation of continuity of the provision of public services.

3.6.2 Implementation of spending reviews In order to increase the efficiency and effectiveness of the use of public resources and to support the implementation of government priorities, the implementation of spending reviews will continue in the state budget process. The concept of spending review is established in section 342 of the State Budget Act. Spending review is critical assessment of general government expenditure with the aim of improving sectoral efficiency, allocate resources for investment and find new sources of growth. In 2020 entered into force the amendment to the regulation of the Government of the Republic91, pursuant to which the preparation of spending review forms a part of the state

91 Conditions and procedure for preparation of State Budget Strategy and draft state budget, preparation of spending reviews and transfer of state budget funds, and procedure for submission of reports arising from the State Budget Act https://www.riigiteataja.ee/akt/121122019026

134 STATE BUDGET STRATEGY 2021-2024 budget strategy and state budget process. Conducting of spending reviews and implementing proposals will be decided upon in the framework of preparation of the State Budget Strategy. Spending review establishes particular proposals for more effective, efficient and sustainable use of state budget funds. In order to increase Estonia’s capacity to conduct spending reviews and improve the sustainability of fiscal policy, the project “Development of Estonian Public Financial Management: Spending Review as an Input to State Budget Preparation” was started in cooperation with the European Commission and the Organisation of Economic Cooperation and Development in 2019. In the framework of the project, the methodology for conducting a spending review will be improved, taking into account the principles of preparing an activity- based state budget and programmes. In cooperation with external experts, two spending review projects will be conducted, namely “Improved efficiency of public sector investments and investment management” and “Financing of museums from state budget”. In addition, training has been and is organised regarding the spending reviews in order to improve the capacity and skills for preparing spending reviews. The project will last until the end of 2020. On 19.12.2019, the Government of the Republic approved the proposals for implementation of six spending reviews in 2020 – 2021: 1. Consolidation of accounting services for state foundations, with the aim of making proposal on how to provide state foundations (35 institutions) consolidated solutions that would reduce the number of jobs related to provision of service, and hence also the cost, and improve the quality of services. 2. Improving the efficiency of structural support implementation system, which involves making proposals for reorganisation of the system in order to make implementation of support more efficient, transparent and financially optimal. 3. Consolidation of records management and archiving service, with the aim of submitting proposals for the opportunities of consolidation of records management and archiving service, reduce the number of jobs required for provision of services, and thus also the expenditure, and improve service quality. 4. Improving the efficiency of public sector operation by IT means to increase productivity of public sector via ICT investments and improve sustainability of ICT sector. 5. Improving the effectiveness of public sector investments and investment management, which involves making proposals to improve the effectiveness of investments and better investment management. 6. Financing of museums from state budget, with the aim of submitting proposals for creating result-oriented and sustainable financing system and defining state’s expectations to the museums. The spending reviews will be published on the webpage of the Ministry of Finance.

3.6.3 Strategic management of the state The Ministry of Finance and the Government Office will continue close cooperation to ensure consistency between the state’s strategic plans and funding. Simultaneous and coordinated updating will continue concerning the four main tools of the Government of the Republic – the Action Plan of the Government of the Republic, the State Budget Strategy, the Competitiveness Strategy “Estonia 2020” and the Stability Programme. In addition to that, the development of

135 STATE BUDGET STRATEGY 2021-2024 the long-term (15 years) cross-sector development strategy “Estonia 2035” started in 2018. Draft strategy “Estonia 2035” was completed in April-June 2020 and was submitted to the ministries for approval and to public consultation. “Estonia 2035” will be a strategic basis for the development or renewal of medium-term (7−10 years) sectoral development plans, as well as for agreeing upon a framework for the use of various EU funds of the financial period 2021- 2027. The strategy “Estonia 2035” sets five strategic objectives for the Republic of Estonia for the next fifteen years and determines the changes necessary to achieve these objectives. Strategy allows coordination of long-term strategic planning and financial management of the state, taking into account the opportunities of public finance. It represents cooperation strategy of the Riigikogu and the Government of the Republic for comprehensive management of Estonia’s development and it strengthens relations between different types of strategic policy documents. Strategy is primarily implemented through sectoral development plans and programmes. This can be used as a basis for strategic planning by LGs and public, free and private sector organisations. When planning state budget funds, Estonia will continue with the central principle that the state’s funding sources and needs have to be reviewed in a comprehensive way. The EU funds for 2014–2020 have also been planned by conducting a comprehensive analysis of the state’s needs. When discussing amendments to the State Budget Act in 2017, the Government decided that in the future, all domestic and external funds shall be planned based on uniform strategic grounds. This means that domestic funds, EU funds and, for example, the funds of the European Economic Area, will be planned in a comprehensive and coherent manner for the strategy period starting in 2021. The goal is to increase the effectiveness of the activities of the state and the efficient use of resources in order to ensure the achievement of the long-term goals defined in the “Estonia 2035” development strategy. Regardless of the source of funding, the activities must be planned in a sustainable and effective manner, and in cooperation with other areas, in order to provide mutual support with regard to achieving goals. EU funds are treated as a one-off support (e.g., launch and implementation of structural reforms and projects), and their use must lead to a development leap, thereby ensuring a sustainable positive impact on the economy and society, while avoiding placing additional burden on the state budget.

136 STATE BUDGET STRATEGY 2021-2024

APPENDICES

Appendix 1. Economic forecast of summer 2020 of the Ministry of Finance and sensitivity analysis

Economic forecast Forecast assumptions On the basis for the budget strategy and its fiscal framework is the economic forecast compiled in the summer of 2020 by the Ministry of Finance, the macroeconomic part of which is summarised in tables presented in this Appendix 1. A more detailed explanation of the economic forecast can be found on the website of the Ministry of Finance (https://www.rahandusministeerium.ee/et/riigieelarve-ja-majandus/majandusprognoosid). The economic forecast of the Ministry of Finance has been prepared by analysts of the Department of Fiscal Policy of the Ministry, who, according to the State Budget Act, are independent in the preparation of the forecast and in selecting the compilation methodology. The summer forecast assumptions have been fixed as of the end of August 2020.

Table 72. Important external assumptions of the forecast (percentage) Assumptions of the MoF’s summer 2020 European Commission forecast 2019 2020* 2021* 2022* 2023* 2024* 2019 2020* 2021* 1. Euribor, 3 months (annual -0.4 -0.4 -0.5 -0.5 -0.4 -0.3 -0.4 -0.4 -0.5 average) 2. Long-term interest rate of the euro zone (annual -0.2 -0.4 -0.4 -0.2 0.0 0.2 -0.3 -0.4 -0.4 average) 3. USD/EUR exchange rate 1.120 1.135 1.176 1.176 1.176 1.176 1.12 1.11 1.12 (annual average) 4. Nominal effective exchange 0.0 2.0 0.4 0.0 0.0 0.0 - - - rate 5. World economic growth 2.9 -4.5 5.5 4.5 3.5 3.2 - - - 6. GDP growth in euro area 1.3 -8.0 5.7 3.2 1.8 1.5 1.3 -8.7 6.1 7. Import growth of Estonian 2.2 -9.0 6.0 4.5 3.0 2.9 - - - export markets 8. Oil price (Brent, 64.3 42.3 47.5 49.3 50.7 51.8 64.1 41.8 43.1 USD/barrel) Sources: Eurostat, Eesti Pank, European Central Bank (ECB), IMF, U.S. Energy Information Administration (EIA); Consensus Economics (CF), European Commission (COM summer forecast, July 2020) and NYMEX Brent futures.

The forecast of public finances has been compiled on the basis of the baseline scenario of macroeconomic forecast. It is based on the current situation – valid legislation, information regarding the performance of the state budget and other information about the general government. Prerequisites of the state budget revenue forecast:  The tax forecast is based on general forecast principles.  The main administrative measures that affect revenues and have been taken into account in the forecast:

137 STATE BUDGET STRATEGY 2021-2024

 Temporary suspension of contributions to the second pension pillar.  Measures not covered in the forecast:  Changes in pension system (II pillar reform).  Changes in the Value Added Tax Act pertaining to remote sales and irrecoverable claims.  The forecast of the rise of minimum wage is based on the labour productivity forecast by Eesti Pank until 2022 and the forecast of the Ministry of Finance 2023-2024.  Compilation of the forecast for non-tax revenues is based on previous receipts and detailed forecasts for areas of government (environmental charges, state fees, sale of assets).  The dividend forecast of 2020 will take into account the sums of indicated in the order of the Government of the Republic for determining dividends. In 2021-2024, the basis will be the decisions of the SB process and the financial forecasts and dividend proposals. Prerequisites of the state budget expenditure forecast:  In terms of 2020, the additional state budget for 2020 and detailed forecasts for the areas of government is used as a basis.  The expenditure forecast for 2021–2023 is based on the SBS for 2020-2023 (excl. calculated costs, revenue-dependent expenditure), decisions of the Government of the Republic and financial plans of areas of government.  The level of defence expenditure during 2021-2024 constitutes 2% of GDP, plus costs related to the presence of allied forces and additional defence investments. In terms of 2020, the approved budget is used as a basis.  Investments do not take into account time shifts or appreciation. These decisions are made in the framework of SBS.  With regard to the wage fund and management costs, the established state budget 2020 is taken into account; wage fund and management costs will not be increased in 2021-2023. Other prerequisites:  The increase of the share capital of AS Eesti Energia up to 125 and 115 million euros in 2020 and 2022, respectively, has been taken into account. This also applies to contributions in the share capital of Baltic Investment Fund, Kolme Mere Fond, AS Operail, AS RBE and AS DigInEst up to 70 million euros this year.  During the formation of the budgetary position of the Unemployment Insurance Fund, the Unemployment Insurance Fund’s latest expenditure forecast has been taken into account and the revenue forecast is based on the Ministry of Finance’s forecast of unemployment insurance premiums.  The EHIF’s budgetary position is based on the amount of expenditure approved in 2020 budget and the share of health insurance in social tax revenue based on the forecast. For years 2021–2024, it is based on the latest expenditure forecast and the Ministry of Finance’s forecast of the share of health insurance in social tax revenue.  The local authorities’ forecast is based on the actual results of 2019 and the macroeconomic forecast, incl. taking into account changes in the LG’s running costs due to inflation and changes in average wage.

Macroeconomic forecast Table 73. Gross domestic product forecast for 2020–2024 (percentage) Level 2019 2020* 2021* 2022* 2023* 2024* of 2019

1. Real GDP growth 24,789 5.0 -5.5 4.5 3.5 3.0 2.3 2. Nominal GDP growth 28,112 8.4 -5.6 6.4 6.0 5.8 4.6

138 STATE BUDGET STRATEGY 2021-2024

Level 2019 2020* 2021* 2022* 2023* 2024* of 2019 Growth sources 3. Private consumption expenditure

(incl. NGOs) 3.1 -4.9 2.7 2.5 1.9 2.0 4. Final consumption expenditure of

the general government 3.0 0.8 0.3 0.3 0.3 0.3 5. Total gross fixed capital formation 11.0 -10.1 5.1 7.9 9.8 4.1 6. Change in inventories (% of GDP) 1.5 -0.3 1.7 1.5 1.5 1.4 7. Export of goods and services 6.2 -8.5 5.8 4.5 3.2 3.0 8. Import of goods and services 3.7 -10.5 6.4 4.4 4.2 3.1 Contribution to GDP growth1 9. Domestic demand (excluding

inventories) 4.9 -4.9 2.7 3.2 3.5 2.1 10. Change in inventories -0.6 -1.8 1.9 -0.1 0.0 0.0 11. Balance of goods and services 2.0 1.0 -0.1 0.3 -0.5 0.1 Growth of value added 12. Primary sector 54.2 -13.5 9.6 2.2 2.1 1.8 13. Manufacturing -3.2 -8.7 4.5 3.8 3.6 2.4 14. Construction -8.2 5.4 -4.7 2.8 2.7 2.5 15. Other services 7.0 -4.6 4.5 3.5 3.0 2.4 1) Contribution to GDP growth indicates the proportion of specific sectors in economic growth . This is calculated by multiplying growth in the area by its proportion in GDP . The sum of the contributions of different sectors amounts to economic growth (the slight difference can be attributed to a statistical error – the part of GDP that cannot be divided between the areas ). Source: Ministry of Finance, Statistics Estonia.

Table 74. Forecast of prices for 2020–2024 (percentage) 2019 2019 2020* 2021* 2022* 2023* 2024*

2010=100 % % % % % %

1. GDP deflator 134.7 3.2 -0.1 1.7 2.5 2.7 2.2 2. Private consumption deflator 126.2 2.5 -0.4 1.6 2.4 2.3 2.1 3. Harmonised consumer price index 125.7 2.3 -0.4 1.4 2.3 2.2 2.0 3a. Consumer price index 122.0 2.3 -0.2 1.4 2.2 2.1 1.9 4. Consumption expenditure deflator of 154.3 6.2 1.3 2.0 3.7 3.4 3.0 the general government 5. Deflator of investments 124.1 4.1 -2.1 0.2 2.1 3.2 2.3 6. Export deflator 113.6 0.4 -1.9 1.5 1.7 1.9 1.9 7. Import deflator 110.2 0.6 -2.3 1.1 1.7 1.9 2.0 Source: Ministry of Finance, Statistics Estonia.

Table 75. Labour market forecast for 2020–2024 (aged 15–74) (percentage) Level of 2019 2020* 2021* 2022* 2023* 2024* 2019 % % % % % % 1. Employment, by number of employed 671.31) 1.0 -2.9 -0.3 0.8 0.8 0.7 persons 3. Unemployment rate 4.4 7.5 8.0 7.3 6.6 5.9 4. Labour productivity, by number of 36.92) employed persons 4.0 -2.7 4.8 2.7 2.2 1.6 6. Compensation of employees 13,785.13) 10.6 -2.7 1.0 5.1 5.6 4.6 7. Compensation per employee (6./1.) 20.54) 9.5 0.2 1.3 4.3 4.8 3.9 1) Thousand persons. 2)Thousand euros per employed person.

139 STATE BUDGET STRATEGY 2021-2024

3) Million euros. 4) Thousand euros. Source: Ministry of Finance, Statistics Estonia.

Table 76. Balance of payments forecast 2020–2024 (% of GDP) 2010– 2019 2020* 2021* 2022* 2023* 2024* 2019

1. External deficit 3.1 3.8 5.9 5.8 4.7 4.4 3.9 1a. Current account 1.0 2.8 4.3 4.0 3.7 2.9 2.6 2. Balance of goods and services 3.8 4.1 5.5 5.4 5.5 4.9 4.8 3. Balance of primary and -2.8 -1.4 -1.2 -1.4 -1.7 -1.9 -2.2 secondary income 4. Capital account 2.1 1.1 1.6 1.8 0.9 1.5 1.3 5. Net errors and omissions 0.2 -0.3

Source: Ministry of Finance, Eesti Pank, Statistics Estonia.

Public finance forecast Table 77. Budgetary position of the general government 2020-2024 State 2020 2021 2022 2023 2024 budget 2020 Structurally adjusted budgetary position of the -0.7 -5.7 -5.9 -4.9 -3.3 -2.0 general government (% of GDP) Nominal budgetary position of the general 0.0 -6.6 -6.0 -5.4 -4.3 -3.1 government (% of GDP) Central government 0.0 -5.4 -5.1 -4.6 -3.5 -2.5 Social security funds 0.1 -1.5 -0.8 -0.7 -0.6 -0.5 Local governments -0.2 0.3 -0.2 -0.2 -0.2 -0.1 Nominal budgetary position of the general 6 -1,745 -1,700 -1,623 -1,358 -1,021 government (million euros) Central government -1 -1,426 -1,429 -1,369 -1,116 -814 Social security funds 42 -411 -224 -194 -188 -165 Local governments -47 92 -47 -60 -54 -41 Source: Ministry of Finance.

Table 78. Revenue and expenditure of the budget of the general government in 2019–2024 2019 2019 2020 2021 2022 2023 2024 million % of % of % of % of % of % of euros GDP GDP GDP GDP GDP GDP Budgetary position by levels of general government 1. General government -90.4 -0.3 -6.6 -6.0 -5.4 -4.3 -3.1 2. Central government -131.0 -0.5 -5.4 -5.1 -4.6 -3.5 -2.5 4. Local governments -31.1 -0.1 0.3 -0.2 -0.2 -0.2 -0.1 5. Social security funds 71.7 0.3 -1.5 -0.8 -0.7 -0.6 -0.5 General government 6. Total revenue 10,848.6 38.6 39.3 37.7 36,9 37.6 37.2 7. Total expenditure 10,939.0 38.9 45.9 43.8 42,3 41.9 40.3

140 STATE BUDGET STRATEGY 2021-2024

2019 2019 2020 2021 2022 2023 2024 million % of % of % of % of % of % of euros GDP GDP GDP GDP GDP GDP 8. Budgetary position -90.4 -0.3 -6.6 -6.0 -5,4 -4.3 -3.1 9. Interest expenditure 10.2 0.0 0.0 0.0 0,1 0.1 0.1 10. Primary balance -80.2 -0.3 -6.6 -6.0 -5,4 -4.2 -3.0 11. One-off and temporary measures -21.4 -0.1 0.5 0.7 0,0 -0.5 -0.5 Revenue by components 12. Tax revenue (12=12a+12b+12c) 5,975.6 21.3 20.9 19.9 19.9 20.1 20.2 12a. Production and import taxes 3,934.9 14.0 13.4 13.2 13.1 13.2 13.1 12b. Income and wealth taxes 2,040.7 7.3 7.4 6.7 6.8 6.9 7.1 12c. Capital taxes 0 0 0 0 0 0 0 13. Social security contributions 3,321.9 11.8 13.0 12.5 11.4 11.3 11.4 14. Property income 182.5 0.6 0.7 0.4 0.4 0.5 0.5 15. Other revenue 1,368.6 4.9 4.7 4.8 5.1 5.7 5.2 16.=6. Total revenue 10,848.6 38.6 39.3 37.7 36.9 37.6 37.2 p.m.: Tax burden (D.2 (incl. paid to the 9,288.6 33.0 33.8 32.4 31.3 31.4 31.5 EU)+D.5+D.611+D.91-D.995) Expenditure by components 17. Compensation to employees + intermediate 5,033.9 17.9 20.4 18.5 18.2 17.9 17.8 consumption 17a. Compensation to employees 3,216.5 11.4 12.4 11.9 11.7 11.6 11.5 17b. Intermediate consumption 1,817.4 6.5 8.0 6.6 6.5 6.3 6.3 18. Social transfers (18=18a+18b) 3,772.5 13.4 17.0 14.8 14.0 13.5 13.4 of which unemployment benefits 132.8 0.5 1.0 0.8 0.7 0.6 0.6 18a. Social transfers in kind 541.8 1.9 2.2 2.1 2.0 1.9 1.9 18b. Financial social transfers 3,230.7 11.5 14.7 12.7 12.0 11.6 11.4 19.=9. Interest expenditure 10.2 0.0 0.0 0.0 0.1 0.1 0.1 20. Subsidies 112.4 0.4 0.4 0.4 0.4 0.4 0.3 21. Total capital investment 1,374.1 4.9 5.5 5.3 5.6 7.0 7.1 22. Capital movement 158.2 0.6 0.3 2.4 3.0 2.0 0.8 23. Other expenses 477.7 1.7 2.3 2.3 1.1 1.0 0.9 24.=7. Total expenditure 10,939.0 38.9 45.9 43.8 42.3 41.9 40.3 p.m. General government’s consumption 5,582.2 19.9 21.5 20.7 20.3 19.9 19.6 Sources: Statistics Estonia, Ministry of Finance.

Table 79. General government expenditure by government functions (COFOG) (% of GDP) COFOG 2016 2017 2018 2019 2023 code

1. General public services 1 3.9 3.8 3.9 3.5 4.2 2. National defence 2 2.3 2.0 2.0 2.3 2.3 3. Public order and security 3 1.9 1.9 1.9 1.7 2.2 4. Economy 4 4.2 4.7 4.0 4.2 7.4 5. Environmental protection 5 0.6 0.7 0.7 0.5 0.2 6. Housing and utilities 6 0.3 0.4 0.3 0.2 0.1 7. Healthcare 7 5.1 5.0 5.2 5.5 4.7 8. Recreation, culture and religion 8 2.0 2.1 2.0 1.7 1.7 9. Education 9 5.6 5.7 6.2 6.2 6.0 10. Social protection 10 13.0 12.9 13.1 13.1 13.2 11. Total expenditure of the general TE 41.9 government 39.1 39.2 39.3 38.9 Sources: Statistics Estonia, Ministry of Finance.

141 STATE BUDGET STRATEGY 2021-2024

Comparison of this SBS with the previous SBS forecast Table 80. Comparison with the Stability Programme 2019 and forecast of SBS 2020-2023 2019 2020* 2021* 2022* 2023* 2024* R eal GDP growth (%) Previous version 3.1 2.7 2.7 2.6 2.5 - Current update 5.0 -5.5 4.5 3.5 3.0 2.3 Difference 1.9 -8.2 1.8 0.9 0.5 - Nominal GDP growth (%) Previous version 6.0 5.5 5.3 5.0 4.9 - Current update 8.4 -5.6 6.4 6.0 5.8 4.6 Difference 2.4 -11.1 0.9 1.0 0.9 - Harmonised consumer price index (HICP) (%) Previous version 2.2 2.3 2.1 2.1 2.1 - Current update 2.3 -0.4 1.4 2.3 2.2 2.0 Difference 0.1 -2.7 -0.7 0.2 0.1 - Nominal budgetary position of the general government (% of GDP) Previous version -0.4 0.1 0.4 0.3 0.2 - Current update 0.1 -6.6 -6.7 -5.4 -4.3 -2.5 Difference 0.5 -6.7 -7.1 -5.7 -4.5 - General government debt (% of GDP) Previous version 8.2 7.7 7.1 6.5 5.9 - Current update 8.4 18.2 24.0 27.4 29.7 31.3 Difference 0.2 10.5 16.9 20.9 23.8 - Source: Ministry of Finance.

Sensitivity analysis of interest rates The Republic of Estonia will have to continue to borrow from both internal and external funds to finance its activities. The increase in interest rates and the resulting growth of interest expenditure has a direct and negative effect on the budget balance. The increase in interest rates also has a negative impact on investments and consumption. Therefore, it is important to use the sensitivity analysis to evaluate the sensitivity (vulnerability) of the Estonian economy and public finances in the case of fluctuating interest rates as well. In the case that interest rates applied to the general government increase by 100 basis points during 2020-2024 (which, however, is very unlikely considering negative interest rates of current money market), the direct effect on the budget will be 38.8 million euros (0.1% of GDP) in the first year and the cumulative interest expenditure during the last year of the forecast period will be a total of 339.9 million euros (1% of GDP).

Table 81. Impact of increased interest rates Impact of increased interest rates by 100 basis points (1%) 2020 2021 2022 2023 2024 Difference in interest expenditure compared to 38.8 54.9 71.4 83.4 91.4 baseline scenario, million Difference in interest expenditure compared to 0.1 the baseline scenario, % of GDP 0.2 0.2 0.3 0.3

Risk scenario As global recession due to coronavirus pandemics was not foreseen by anyone last autumn, the further progression of the virus is unpredictable. Uncertainty is larger than ever before. The

142 STATE BUDGET STRATEGY 2021-2024 baseline scenario of the economic forecast for summer foresees gradual reduction of virus control measures or they will not tighten significantly compared to current knowledge, although even then, some effects on the economy will manifest with a delay and unemployment rate has not yet peaked. Additionally, regardless of our own ability to keep the spread of the virus under control, we depend greatly on the measures taken in our neighbouring countries and on global level. Although the course of the crisis so far has been clearly beyond expectations and it cannot be excluded that the effect of the passing crisis will be much lighter than expected, the dominance of negative risks is obvious right now. In terms of the spread of the virus, we have reached to the situation slightly similar to the one in spring, where everything may change within days and former knowledge can be turned upside down. All that gives us reason to add a more negative development trajectory besides basic scenario of the forecast. Negative risk scenario foresees significant restrictions on the economy starting from the autumn this year, and the recovery of economy will not start before summer next year. By then, we will hopefully have a vaccine that would prevent the virus from spreading and reduce the need for further restrictions. According to this scenario, there would be more obstacles to export, especially with regard to services, but also lower domestic demand due to restrictions. Labour market situation would continue to deteriorate early next year. According to the risk scenario, the economic recession in Estonia will reach 6.5% this year (according to the baseline scenario the recession is 5.5%) and the speed of the recovery next year would be twice as slow compared to the baseline scenario. In that case, the volume of economy would be by more than 4% lower than compared to the expectation of the baseline forecast. The revenue and expenditure forecast of the risk scenario is based on the corresponding macroeconomic projection and foresees a deterioration of the general government’s budgetary position by up to 1.5% of GDP in 2020–2022. According to the risk scenario, the budgetary position for this year is in deficit 7.1% of GDP. Next year, the deficit will increase to 7.5% of GDP and reaches 6.7% a year later. The larger deficit in comparison to the baseline scenario results primarily from reduced receipt of tax revenue, which affects all levels of the general government. The largest decrease in the risk scenario concerns the forecast for the receipt of social tax, which is linked to deceleration of the growth of both employment and average wage. The forecast of VAT receipt has also been decreased due to the more moderate growth in private consumption and intermediate consumption of the general government. The tax burden will increase slightly as the GDP level falls faster than expected tax revenues. The deterioration of the budgetary position is somewhat hampered by the decrease of the state budget expenditure related to tax revenue (Estonian Health Insurance Fund allocation, pension expenditure). Additionally, the level of defence expenditure decreases due to the decreased nominal GDP level. The increase in deficit of the Unemployment Insurance Fund is caused both by the decrease in the unemployment insurance premium and increase in expenditure. The position of the Health Insurance Fund is reduced by a drop in social tax revenue. The budgetary position of local governments deteriorates due to the decrease in the personal income tax received by them. The budget position of the rest of the central government is not related to the economic environment as much, which means that no changes are expected there. The budgetary positions of the central government, local governments, as well as the social security funds, that are negative compared to the baseline scenario, reduce the level of reserves in their general government sector in the risk scenario, leading to a reduction in government reserves by up to 0.7% of GDP. In the risk scenario, the government debt burden is expected to

143 STATE BUDGET STRATEGY 2021-2024 rise by up to 1.8% due to additional financing needs. As a result of overall impact of the changes, the net assets will decrease by 1.5% next year and 2.5% of GDP in 2022.

Table 82. Risk scenario (percentage) Difference from Risk scenario baseline forecast 2019 2020* 2021* 2022* 2020* 2021* 2022* GDP in current prices (billion euros) 28.11 26.23 27.01 28.71 -0.30 -1.21 -1.20 Real GDP growth 5.0 -6.5 2.0 4.0 -1.0 -2.5 0.5 Nominal GDP growth 8.4 -6.7 3.0 6.3 -1.1 -3.4 0.3 CPI 2.3 -0.4 0.6 1.9 -0.2 -0.8 -0.3 Real growth of domestic demand 4.5 -7.5 1.7 3.8 -0.6 -3.1 0.5 Real export growth 6.2 -11.0 1.8 6.5 -2.5 -4.0 2.0 Employment growth 1.0 -3.3 -1.4 1.6 -0.4 -1.1 0.8 Nominal wage growth 7.5 0.5 -0.8 3.7 -0.6 -1.2 -0.8 Unemployment rate 4.4 7.9 9.4 8.0 0.4 1.4 0.7 General government Tax burden (% of GDP) 33.0 33.8 33.0 31.6 0.0 0.3 0.1 Budgetary position of the general government (% of GDP 0.1 -7.1 -7.5 -6.7 -0.5 -1.5 -1.3 Debt burden of the general government (% of GDP) 8.4 18.2 24.4 28.9 0.0 0.9 1.8 Source: Ministry of Finance, Statistics Estonia.

144 Appendix 2. Funding Plan of the State Budget Strategy 2021- 2024 (thousand euros)

SBS 2021 SBS 2022 SBS 2023 SBS 2024 Total 12,481,770 13,178,492 13,819,410 13,844,710 Subsidies added nationwide to external funds for 313,000 543,000 745,000 862,000 new period (new funds) Nationwide revision 0 -260,000 -258,000 -460,000

Office of Riigikogu 22,383 21,972 27,996 23,165 Expenses 21,660 21,470 25,518 22,222 including funds with limits 12,878 12,646 14,709 12,793 including funds without limits 8,782 8,824 10,809 9,429 Investments 723 502 2,478 943 including funds with limits 723 502 2,478 943 Office of the President of the Republic 4,956 4,523 4,537 4,557 Expenses 4,599 4,512 4,526 4,547 including funds with limits 3,965 3,923 3,923 3,923 including funds without limits 634 589 602 623 Investments 357 11 11 11 including funds with limits 357 11 11 11 National Audit Office 5,210 5,188 5,188 5,188 Expenses 5,210 5,188 5,188 5,188 including funds with limits 5,058 5,058 5,058 5,058 including funds without limits 152 130 130 130 Office of the Chancellor of Justice 2,849 2,896 2,854 2,858 Expenses 2,849 2,896 2,854 2,858 including funds with limits 2,735 2,735 2,735 2,735 including funds without limits 114 161 119 123 Supreme Court 5,411 5,421 5,477 5,566 Expenses 5,411 5,421 5,477 5,566 including funds with limits 3,471 3,471 3,471 3,471 including funds without limits 1,941 1,950 2,007 2,095 Government of the Republic 2,326,871 2,419,260 2,521,789 2,632,707 Expenses 2,326,871 2,419,260 2,521,789 2,632,707 including funds with limits 654,233 685,484 704,942 733,717 including funds without limits 1,672,638 1,733,776 1,816,847 1,898,990 Government Office, area of administration 22,936 17,036 10,261 9,826 Effective government 22,936 17,036 10,261 9,826 Expenses 15,362 10,352 10,228 9,826 including funds with limits 13,553 8,855 8,854 8,854 including funds without limits 1,809 1,497 1,373 972 Investments 7,574 6,684 33 0 including funds without limits 7,532 6,643 0 0 including funds without limits 42 42 33 0 Ministry of Education and Research, area of 811,187 793,313 770,472 733,154 government including funds with limits 608,310 607,044 638,065 688,272 including funds without limits 202,877 186,269 132,407 44,882 Educated and active population 589,507 572,792 550,754 502,756 Education and youth programme 589,507 572,792 550,754 502,756 Expenses 581,496 563,981 532,562 474,027 including funds with limits 444,083 428,396 424,652 431,332 including funds without limits 137,413 135,585 107,910 42,695

STATE BUDGET STRATEGY 2021-2024

SBS 2021 SBS 2022 SBS 2023 SBS 2024 Investments 8,011 8,811 18,192 28,729 including funds with limits 7,447 8,325 17,730 28,257 including funds without limits 564 486 462 472 Research, development and enterprise 206,929 205,951 205,468 216,269 Research, development and innovation programme 206,929 205,951 205,468 216,269 Expenses 206,929 205,951 205,468 216,269 including funds with limits 143,873 157,415 182,775 215,775 including funds without limits 63,056 48,536 22,694 494 Estonian language and identity 5,853 5,864 5,864 5,864 Language programme 5,853 5,864 5,864 5,864 Expenses 5,853 5,864 5,864 5,864 including funds with limits 5,146 5,147 5,147 5,147 including funds without limits 707 717 717 717 Effective government 8,898 8,706 8,386 8,265 Archive programme 8,898 8,706 8,386 8,265 Expenses 8,848 8,656 8,336 8,215 including funds with limits 7,711 7,711 7,711 7,711 including funds without limits 1,137 945 625 504 Investments 50 50 50 50 including funds with limits 50 50 50 50 Ministry of Justice, area of government 173,964 172,067 172,303 172,754 including funds with limits 135,015 133,072 133,493 134,004 including funds without limits 38,949 38,996 38,810 38,749 State based on the rule of law 173,964 172,067 172,303 172,754 Reliable and effective legal system 173,964 172,067 172,303 172,754 Expenses 173,669 171,772 172,008 172,458 including funds with limits 134,824 132,881 133,302 133,813 including funds without limits 38,845 38,892 38,706 38,645 Investments 295 295 295 295 including funds with limits 191 191 191 191 including funds without limits 104 104 104 104 Ministry of Defence, area of government 663,017 726,840 721,493 715,595 including funds with limits 572,974 638,129 628,067 621,597 including funds without limits 90,043 88,710 93,426 93,998 National security and defence 663,017 726,840 721,493 715,595 Independent military defence capability 481,127 556,147 556,908 554,734 Expenses 398,993 450,080 395,586 439,272 including funds with limits 325,844 373,033 311,773 354,445 including funds without limits 73,149 77,047 83,813 84,827 Investments 82,134 106,066 161,322 115,462 including funds with limits 81,139 103,449 158,099 109,839 including funds without limits 995 2,618 3,224 5,623 Defence policy development and supporting 65,755 64,695 66,622 63,846 activities Expenses 57,485 58,847 61,783 61,186 including funds with limits 54,210 55,523 58,401 57,828 including funds without limits 3,275 3,324 3,382 3,359 Investments 8,270 5,847 4,839 2,660 including funds with limits 4,338 4,245 3,261 2,660 including funds without limits 3,931 1,602 1,578 0 Participating in collective defence 58,602 53,114 41,378 40,076

146 STATE BUDGET STRATEGY 2021-2024

SBS 2021 SBS 2022 SBS 2023 SBS 2024 Expenses 47,309 46,915 38,049 39,113 including funds with limits 46,888 46,687 37,860 38,924 including funds without limits 421 228 189 189 Investments 11,293 6,199 3,330 963 including funds with limits 3,023 2,308 2,090 963 including funds without limits 8,270 3,891 1,240 0 Intelligence and early warning 57,533 52,884 56,583 56,939 Ministry of the Environment, area of government 190,384 191,172 160,336 129,358 including funds with limits 82,556 79,909 80,114 80,114 including funds without limits 107,829 111,262 80,222 49,244 Environment 184,374 185,619 154,464 123,934 The environmental protection and use programme 184,374 185,619 154,464 123,934 Expenses 181,396 183,555 152,150 121,620 including funds with limits 75,449 73,079 72,493 72,493 including funds without limits 105,947 110,476 79,657 49,127 Investments 2,979 2,064 2,314 2,314 including funds with limits 2,715 2,064 2,314 2,314 including funds without limits 264 0 0 0 Agriculture and fishery 6,010 5,553 5,872 5,424 Fishery 6,010 5,553 5,872 5,424 Expenses 5,900 5,479 5,799 5,350 including funds with limits 4,282 4,693 5,233 5,233 including funds without limits 1,618 786 566 117 Investments 110 74 74 74 including funds with limits 110 74 74 74 Ministry of Culture, area of government 274,394 257,894 243,735 241,320 including funds with limits 230,183 215,549 200,999 200,310 including funds without limits 44,210 42,344 42,736 41,010 Culture and sport 266,651 251,539 236,388 231,520 Culture 219,372 218,980 203,659 198,644 Expenses 219,349 218,957 203,636 198,621 including funds with limits 184,407 184,210 168,483 165,293 including funds without limits 34,942 34,747 35,154 33,328 Investments 23 23 23 23 including funds with limits 23 23 23 23 Sport 47,279 32,559 32,729 32,876 Expenses 47,279 32,559 32,729 32,876 including funds with limits 40,276 25,218 25,195 25,195 including funds without limits 7,003 7,341 7,534 7,681 Population and cohesive society 7,742 6,354 7,347 9,799 Integration programme 7,742 6,354 7,347 9,799 Expenses 7,742 6,354 7,347 9,799 including funds with limits 5,478 6,098 7,298 9,798 including funds without limits 2,265 256 48 1 Ministry of Rural Affairs, area of government 437,620 501,261 432,882 417,044 including funds with limits 57,618 53,036 52,844 52,844 including funds without limits 380,002 448,224 380,037 364,200 Agriculture and fishery 437,620 501,261 432,882 417,044 Agriculture, food and rural life 409,148 468,646 406,816 400,075 Expenses 406,665 466,518 404,825 398,068 including funds with limits 53,276 49,008 48,996 48,996

147 STATE BUDGET STRATEGY 2021-2024

SBS 2021 SBS 2022 SBS 2023 SBS 2024 including funds without limits 353,389 417,511 355,830 349,072 Investments 2,483 2,128 1,990 2,007 including funds with limits 2,189 1,863 1,713 1,713 including funds without limits 294 265 278 294 Fishery 28,472 32,614 26,066 16,969 Expenses 28,428 32,570 26,022 16,925 including funds with limits 2,109 2,122 2,092 2,092 including funds without limits 26,319 30,449 23,930 14,833 Investments 44 44 44 44 including funds with limits 44 44 44 44 Ministry of Economic Affairs and 1,049,815 894,932 1,072,361 1,023,839 Communications, area of government including funds with limits 524,641 451,523 432,593 428,456 including funds without limits 525,174 443,408 639,768 595,383 Information society 62,194 60,759 58,661 22,188 E-government and telecommunications market 55,958 55,081 53,247 17,894 development programme Expenses 53,423 52,654 50,820 15,925 including funds with limits 18,260 18,303 19,212 14,104 including funds without limits 35,163 34,350 31,607 1,821 Investments 2,535 2,427 2,427 1,969 including funds with limits 1,869 1,869 1,869 1,869 including funds without limits 666 558 558 100 Cybersecurity programme 6,236 5,678 5,414 4,294 Expenses 6,086 5,678 5,414 4,294 including funds with limits 4,256 4,256 4,257 4,256 including funds without limits 1,829 1,422 1,157 38 Investments 150 0 0 0 including funds without limits 150 0 0 0 Energy 31,156 22,816 6,741 2,397 Energy 31,156 22,816 6,741 2,397 Expenses 31,156 22,816 6,741 2,397 including funds with limits 2,433 2,344 2,356 2,352 including funds without limits 28,723 20,472 4,385 45 Research and development and enterprise 259,264 166,333 123,031 86,074 Construction 111,496 21,452 16,314 11,367 Expenses 111,496 21,452 16,314 11,367 including funds with limits 20,232 11,197 10,208 9,839 including funds without limits 91,264 10,254 6,106 1,527 Competitive business environment 147,769 144,881 106,718 74,708 Expenses 146,775 144,196 106,223 74,228 including funds with limits 48,515 63,195 71,377 73,316 including funds without limits 98,261 81,001 34,847 912 Investments 993 685 494 479 including funds with limits 375 375 375 375 including funds without limits 618 310 119 104 Transport 697,201 645,024 883,929 913,179 Transport 697,201 645,024 883,929 913,179 Expenses 474,773 463,982 766,538 798,397 including funds with limits 254,274 208,367 208,407 208,441 including funds without limits 220,499 255,615 558,130 589,956

148 STATE BUDGET STRATEGY 2021-2024

SBS 2021 SBS 2022 SBS 2023 SBS 2024 Investments 222,428 181,042 117,391 114,783 including funds with limits 174,426 141,616 114,533 113,903 including funds without limits 48,002 39,426 2,859 879 Ministry of Finance, area of government 235,751 217,563 192,368 167,034 including funds with limits 130,794 119,017 118,138 118,178 including funds without limits 104,957 98,546 74,230 48,856 Effective government 235,751 217,513 192,318 166,984 Financial policy 4,278 4,335 4,336 4,329 Expenses 4,278 4,335 4,336 4,329 including funds with limits 4,271 4,328 4,329 4,329 including funds without limits 7 7 7 0 Administrative policy 68,558 65,197 63,076 54,780 Expenses 63,452 61,638 59,516 52,221 including funds with limits 41,510 40,335 39,444 39,444 including funds without limits 21,942 21,302 20,073 12,778 Investments 5,106 3,560 3,560 2,558 including funds with limits 4,005 2,558 2,558 2,558 including funds without limits 1,101 1,001 1,001 0 Regional policy 88,292 73,896 51,493 38,825 Expenses 88,292 73,896 51,493 38,825 including funds with limits 25,935 16,507 16,512 16,512 including funds without limits 62,357 57,390 34,981 22,313 Public finance 74,623 74,135 73,463 69,101 Expenses 74,292 73,804 73,132 68,770 including funds with limits 54,744 54,959 54,965 55,005 including funds without limits 19,549 18,845 18,167 13,765 Investments 331 331 331 331 including funds with limits 331 331 331 331 Ministry of the Interior, area of government 446,004 451,860 438,223 414,452 including funds with limits 395,850 409,016 404,734 384,176 including funds without limits 50,153 42,844 33,489 30,277 Population and cohesive society 20,741 16,752 16,225 15,575 Strong civil society 4,784 2,996 2,989 2,964 Expenses 4,781 2,993 2,986 2,962 including funds with limits 4,751 2,963 2,956 2,956 including funds without limits 31 30 30 5 Investments 3 3 3 3 including funds with limits 3 3 3 3 Global Estonian identity 391 198 193 193 Expenses 389 196 192 192 including funds with limits 386 193 189 189 including funds without limits 3 3 3 3 Investments 2 2 2 2 including funds with limits 2 2 2 2 Effective adaptation and integration poliy 1,570 1,582 1,116 472 Expenses 1,566 1,578 1,113 468 including funds with limits 453 470 461 461 including funds without limits 1,112 1,107 652 7 Investments 4 4 4 4 including funds with limits 4 4 4 4

149 STATE BUDGET STRATEGY 2021-2024

SBS 2021 SBS 2022 SBS 2023 SBS 2024 Continuous Estonia and effective population 8,584 6,564 6,514 6,533 administration Expenses 8,038 5,973 5,958 5,977 including funds with limits 7,068 4,960 5,051 5,016 including funds without limits 970 1,013 907 961 Investments 546 591 556 556 including funds with limits 545 591 556 556 including funds without limits 1 0 0 0 Financing of political parties represented in 5,413 5,413 5,413 5,413 Riigikogu Expenses 5,413 5,413 5,413 5,413 including funds with limits 5,413 5,413 5,413 5,413 Internal security 425,262 435,107 421,997 398,877 Internal security 425,262 435,107 421,997 398,877 Expenses 401,300 408,822 396,691 373,795 including funds with limits 359,162 368,558 364,878 344,577 including funds without limits 42,138 40,264 31,814 29,217 Investments 23,962 26,285 25,306 25,082 including funds with limits 18,064 25,860 25,222 24,999 including funds without limits 5,898 425 83 83 Ministry of Social Affairs, area of government 5,886,176 6,197,983 6,514,772 6,703,732 including funds with limits 277,445 271,805 259,646 251,746 including funds without limits 5,608,731 5,926,177 6,255,126 6,451,985 Well-being 4,095,380 4,389,389 4,658,469 4,814,261 Social security programme 2,459,197 2,755,751 3,035,083 3,177,190 Expenses 2,459,127 2,755,751 3,035,083 3,177,190 including funds with limits 4,892 4 834 4,838 4,841 including funds without limits 2,454,234 2 750 916 3,030,245 3,172,349 Investments 70 0 0 0 including funds with limits 70 0 0 0 Children and families programme 788,678 811,218 812,702 819,076 Expenses 788,678 811,218 812,702 819,076 including funds with limits 16,988 16,709 18,807 18,807 including funds without limits 771,690 794,509 793,895 800,269 Labour market programme 760,475 739,720 729,341 746,324 Expenses 760,404 739,641 729,261 746,245 including funds with limits 9,116 8,917 8,916 8,916 including funds without limits 751,288 730,724 720,346 737,329 Investments 71 80 80 80 including funds with limits 71 80 80 80 Welfare services programme 85,110 81,530 80,265 70,764 Expenses 85,110 81,530 80,265 70,764 including funds with limits 51,059 50,245 52,185 52,185 including funds without limits 34,051 31,285 28,079 18,579 Gender equality programme 1,920 1,170 1,078 907 Expenses 1,920 1,170 1,078 907 including funds with limits 1,218 893 893 893 including funds without limits 702 277 185 14 Health 1,790,796 1,808,594 1,856,304 1,889,471 Human-centred healthcare programme 1,763,443 1,785,169 1,834,116 1,867,518 Expenses 1,758,904 1,783,461 1,832,572 1,866,006

150 STATE BUDGET STRATEGY 2021-2024

SBS 2021 SBS 2022 SBS 2023 SBS 2024 including funds with limits 168,721 169,293 153,092 145,190 including funds without limits 1,590,183 1,614,169 1,679,480 1,720,817 Investments 4,539 1,708 1,543 1,511 including funds with limits 4,343 1,511 1,511 1,511 including funds without limits 196 196 32 0 Healthy choices programme 20,322 17,290 16,070 15,863 Expenses 20,322 17,290 16,070 15,863 including funds with limits 15,862 15,091 15,091 15,091 including funds without limits 4,460 2,199 979 772 Environmental health programme 7,031 6,135 6,118 6,090 Expenses 7,031 6,135 6,118 6,090 including funds with limits 5,105 4,232 4,233 4,232 including funds without limits 1,926 1,902 1,885 1,858 Ministry of Foreign Affairs 93,829 88,116 88,354 88,354 including funds with limits 89,610 83,897 84,135 84,135 including funds without limits 4,219 4,219 4,219 4,219 Foreign policy 93,829 88,116 88,354 88,354 Foreign policy 78,827 73,367 73,579 73,569 Expenses 72,473 70,313 70,525 70,515 including funds with limits 68,391 66,231 66,443 66,433 including funds without limits 4,082 4,082 4,082 4,082 Investments 6,354 3,054 3,054 3,054 including funds with limits 6,354 3,054 3,054 3,054 Development cooperation and humanitarian aid 15,002 14,749 14,775 14,785 Expenses 15,002 14,749 14,775 14,785 including funds with limits 14,864 14,612 14,638 14,648 including funds without limits 137 137 137 137

151 Appendix 3. External grants across funds and areas of government

SBS 2021, SBS 2022, SBS 2023, SBS 2024, By funds thousand thousand thousand thousand euros euros euros euros TOTAL 1,418,723 1,510,923 1,635,373 1,482,403 European Regional Development Fund 327,587 291,233 184,704 0 European Social Fund 95,671 68,991 20,472 0 Technical assistance provided for by the 15,479 15,260 16,292 0 Structural Funds Fund for European Aid to the Most Deprived 660 144 17 0 Cohesion Fund 143,299 101,301 33,389 0 CO2 0 0 0 0 European Maritime and Fisheries Fund 19,642 22,069 16,221 9,165 European Agricultural Guarantee Fund 171,255 176,447 181,366 186,312 European Agricultural Fund for Rural 140,678 167,704 118,867 100,135 Development Norwegian and EEA financial instrument 15,726 13,504 11,387 3,398 European Neighbourhood Instrument 231 3 0 0 programme European Territorial Cooperation Programme 15,807 19,089 11,659 15,651 Nationwide undistributed allowances 283,600 484,070 641,200 730,900 Others (direct payments to institutions) 172,703 142,235 397,303 435,140 Internal security funds 16,387 8,872 2,496 1,701 SBS 2021, SBS 2022, SBS 2023, SBS 2024, By areas of government thousand thousand thousand thousand euros euros euros euros TOTAL 1,418,723 1,510,923 1,635,373 1,482,403 Area of administration of the Government 854 552 422 0 Office Ministry of Education and Research, area of 142,900 127,546 78,454 2,968 government Ministry of Defence, area of government 14,134 8,819 6,750 6,281 Ministry of the Environment, area of 71,275 63,327 34,505 3,434 government Ministry of Culture, area of government 5,239 2,646 2,164 0 Ministry of Economic Affairs and 372,644 293,241 456,386 422,576 Communications, area of government Ministry of Rural Affairs, area of government 331,610 366,263 316,460 295,612 Ministry of Finance, area of government 69,781 64,730 42,240 17,954 Ministry of the Interior, area of government 18,070 10,609 3,763 1,606 Ministry of Social Affairs, area of government 106,356 86,973 51,678 610 Ministry of Justice, area of government 2,261 2,146 1,351 462 Nationwide undistributed allowances 283,600 484,070 641,200 730,900

STATE BUDGET STRATEGY 2021-2024

153 Appendix 4. Calculated and transferred costs 2020 – 2024 (thousand euros)

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 TOTAL -6,745,575 -7,278,266 -7,682,783 -8,139,489 -8,472,538 Office of the Riigikogu -7,608 -7,751 -7,815 -9,818 -8,455 Wage fund of members of the -7,608 -7,751 -7,815 -9,818 -8,455 https://www.riigiteataja.ee/akt/12 Salaries of Higher State Servants Act

Riigikogu 8122017011 Office of the President of -338 -469 -424 -437 -458

the Republic President’s wage fund -191 -304 -212 -219 -229 https://www.riigiteataja.ee/akt/12 Salaries of Higher State Servants Act; 8122017011 President of the Republic Official https://www.riigiteataja.ee/akt/12 Benefits Act 7062017010 Special pensions paid during -147 -165 -212 -219 -229 https://www.riigiteataja.ee/akt/12 Salaries of Higher State Servants Act; the financial year and pension 8122017011; President of the Republic Official increases https://www.riigiteataja.ee/akt/12 Benefits Act 7062017010 National Audit Office -102 -104 -105 -108 -113 Wage Fund of the Auditor -102 -104 -105 -108 -113 https://www.riigiteataja.ee/akt/12 General Salaries of Higher State Servants Act; 8122017011 State Audit Office Act https://www.riigiteataja.ee/akt/11 9122019013 Office of the Chancellor of -103 -105 -152 -110 -114

Justice Wage fund of the Chancellor -103 -105 -152 -110 -114 https://www.riigiteataja.ee/akt/12 of Justice Salaries of Higher State Servants Act; 8122017011 Chancellor of Justice Act https://www.riigiteataja.ee/akt/12 6052020011 Supreme Court -1,757 -1,790 -1,804 -1,864 -1,952 Judges’ wage fund -1,757 -1,790 -1,804 -1,864 -1,952 Salaries of Higher State Servants Act. https://www.riigiteataja.ee/akt/12 Chief Justice of the Supreme Court is 8122017011 paid representation allowance pursuant https://www.riigiteataja.ee/akt/12 to subsection 76(1) of the Courts Act. 769841?leiaKehtiv Government of the -1,463,158 -1,672,638 -1,733,776 -1,816,847 -1,898,990

Republic

STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 EU payment, incl. share from -289,310 -337,120 -348,380 -360,640 -372,240 EU Budgetary Framework 2014-2020. customs revenue Based on adopted EU budget 2020, Letter of the European Commission of 31.01.20 on VAT base and GNP settlements, European Commission’s recent payment forecast 2020-2024 and current status at negotiations for 2021- 2027 EU Financial Framework. Tax revenues transferred to -1,157,422 -1,315,104 -1,364,435 -1,433,442 -1,503,108 Income tax, land tax, environmental LGs taxes Subsistence benefit in LG -16,426 -20,414 -20,961 -22,765 -23,642 Subsistence benefit for local support fund government units is intended for https://www.riigiteataja.ee/akt/12 families whose net income during the 1042020038?leiaKehtiv preceding month after deducing housing expenses payable during the given month remains under established subsistence level. Subsistence level was increased from 140 euros to 150 euros from 01.01.2019 onwards. Basis: Social Welfare Act Ministry of Education and -11,341 -11,028 -11,250 -11,351 -11,452 Research, area of government

155 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 Beginner’s allowances for -3,514 -2,914 -2,914 -2,914 -2,914 Beginner’s allowance is paid to a teachers teacher upon graduation of teacher https://www.riigiteataja.ee/akt/10 training on the level of higher education 2032018001 and to a support specialist upon obtaining professional higher education when commencing work at a school for the first time. "Procedure for application, payment and reclamation of beginner’s allowance for teachers and support specialists" The procedure of the beginner’s allowance for teachers and support specialists was amended in the regulation, instead of former three instalments, the allowance will be paid as a single payment. Both single payments and payments according to former procedure will take place in 2020. Social tax payable for -4,604 -4,608 -4,608 -4,608 -4,608 Social tax payable for Doctoral Doctoral allowance allowance https://www.riigiteataja.ee/akt/10 Clause 6 (1) 14) of the Social Tax Act 6042016013 (Special cases of paying social tax) "persons who receive a Doctoral allowance pursuant to the terms and conditions provided for in subsection 5(3) and subsection 41(1) of the Study Allowances and study Loans Act".

156 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 Estonian language -400 -420 -430 -430 -430 Organising language proficiency exams proficiency exams and is an obligation arising from the https://www.riigiteataja.ee/akt/11 reimbursement of language Language Act. Costs comprise 8032011001?leiaKehtiv learning costs preparation, organisation and assessment of language proficiency examinations. Subsection 28(3) of the Language Act establishes the right to apply for compensation of the tuition fee for preparation for the language proficiency examination to the extent of up to 100%. Costs related to repayment of -5 -5 -5 -5 -5 Study Allowances and study Loans Act. student loans The conditions and procedure for https://www.riigiteataja.ee/akt/83 repaying and writing off study loans. 4802?leiaKehtiv For writing off study loans of public service employees of the Ministry of Education. Reduced budget is associated with the amendment of the Study Allowances and study Loans Act, resulting in discontinuation of receiving new applications for writing off study loans of public service employees from 01.07.2009 onwards. Support to youth projects -2,818 -3,081 -3,293 -3,394 -3,495 Clause 7 (2) 3) of the Gambling Tax Act https://www.riigiteataja.ee/akt/13 establishes support for research, 315648?leiaKehtiv education, children’s and youth projects Ministry of Justice, area of -24,541 -25,512 -25,742 -26,461 -27,536 government Postage expenses for courts -457 -1,610 -1,610 -1,610 -1,610 Increase in postage expenses of courts is due to new procurement contract, which caused increase in the cost of procedural documents by ca 3.5 times.

157 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 Advance payments to bailiffs -21 -5 -5 -5 -5 Advance payments to bailiffs represent fees paid to bailiffs. Budget has been significantly reduced compared to previous period because, in recent years, the bailiffs have received payments to a much lower extent than expected. Budget calculation for new period builds on the forecast based on the performance of budget for the previous two years. Legal fees of third parties -496 -700 -700 -700 -700 Legal fees of third parties represent the expenses of extra-judicial parties to a proceeding (e.g. magistrates, trustees in bankruptcy, victim, witness, translation, expert assessment, etc.). It is difficult to predict the expenses as the need for expenditure depends on particular case. Budget calculation for new period builds on the forecast based on the performance of budget for the previous two years. Judges’ wage fund -15,596 -15,060 -15,185 -15,683 -16,429 Basis for calculated expenditure of https://www.riigiteataja.ee/akt/12

judges derives from the Salaries of 8122017011?leiaKehtiv Higher State Servants Act and changes in the index of Salaries of Higher State Servants Act. Prosecutors’ wage fund -6,922 -6,687 -6,742 -6,963 -7,292 Basis for calculated expenditure of https://www.riigiteataja.ee/akt/12

prosecutors derives from the Salaries of 8122017011?leiaKehtiv Higher State Servants Act and changes in the index of Salaries of Higher State Servants Act. State fee of activities of the -1,050 -1,450 -1,500 -1,500 -1,500 State fee of activities of the Patent https://www.riigiteataja.ee/akt/12

Patent Office – to the Office to the European Patent Office. 8122011003?leiaKehtiv European Patent Office

158 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 Ministry of Defence, area of -10,938 -12,223 -12,759 -13,756 -14,700 government Compensation in the case of a -295 -200 -219 -238 -251 Basis: Regulation no. 33 of the death or injury Government of the Republic of 21.05.2013 "Conditions and procedure for application for, determination and payment of lump-sum compensation in https://www.riigiteataja.ee/akt/11 case of death or incapacity for work in 7102019014?leiaKehtiv the line of duty" established on the basis of the Military Service Act. Funds are planned to pay compensation for injuries and health damage incurred in the course of service. Social tax payable for -6,179 -7,068 -7,551 -8,309 -9,036 Basis: Social Tax Act. Social tax for conscripts conscripts is paid on the basis of section 6 of the Social Tax Act (Special cases of paying social tax). Expenditure is planned on the basis of the number of people called up for conscript service https://www.riigiteataja.ee/akt/12 and changes in the minimum wage 1042020041?leiaKehtiv which is the basis for payment of social tax. This comprises call-up for 3,500 conscripts in 2021-2022 call-up for 3,800 conscripts in 2023-2024 (the number established by the regulation may be exceeded by up to five percent). Allowance paid to conscripts -3,719 -4,177 -4,177 -4,365 -4,535 Basis: Regulation no. 1 of the Government of the Republic of 03.01.2017 "Extent and procedure for the payment of allowance to a conscript https://www.riigiteataja.ee/akt/11 and person in alternative service, to 1122018007?leiaKehtiv reservist for the time spent in reservist training and for a child of a conscript and a person in alternative service" established on the basis of the Military

159 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 Service Act. Allowance is paid in the amount of 100 to 200 euros per month (according to rank and time spent in service). The purpose of the allowance of a conscript is to ensure daily subsistence of the conscript at the prescribed level. A conscript shall be paid a monthly allowance from the arrival at the conscript service unit until the end of conscript service. Expenditure is planned on the basis of the number of people called up for conscript service and changes in the minimum wage which is the basis for payment of social tax. This comprises call-up for 3,500 conscripts in 2021- 2022 call-up for 3,800 conscripts in 2023-2024. Social tax paid for people in -135 -146 -156 -164 -172 Basis: Social Tax Act. Social tax for alternative service people in alternative service is paid on the basis of section 6 of the Social Tax Act (Special cases of paying social tax). Alterative service is a compulsory national defence training of a person liable to national defence obligation https://www.riigiteataja.ee/akt/12 who refuses military service for 1042020041?leiaKehtiv religious or ethical reasons. Depending on the number of places of employment, estimated average number of persons invited to alternative service per month is 63 in 2021-2024. Expenses increase due to changes in minimum wage that is the basis for payment of social tax.

160 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 Support of people in -610 -632 -656 -681 -706 Basis: Regulation no. 1 of the alternative service and travel Government of the Republic of expenses of drafted persons 03.01.2017 "Extent and procedure for the payment of allowance to a conscript and person in alternative service, to reservist for the time spent in reservist training and for a child of a conscript and a person in alternative service" established on the basis of the Military Service Act and Regulation no. 4 of the Minister of Defence of 24.01.2013 "Conditions, extent and procedure for payment of compensation to conscripts and reservists for travel and meal expenses incurred in connection with https://www.riigiteataja.ee/akt/11 the appearance before the medical 1122018007?leiaKehtiv commission, attending additional https://www.riigiteataja.ee/akt/10 medical examination or upon 7052020003?leiaKehtiv assessment of the professional suitability”. Conscripts and reservists shall be paid compensation for travel and meal expenses incurred in connection with the appearance before the medical commission, attending additional medical examination or upon assessment of the professional suitability. Depending on the number of places of employment, estimated average number of persons invited to alternative service per month is 63 in 2021-2024. Expenses increase due to changes in minimum wage that is the basis for payment of social tax.

161 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 Ministry of the -1,516 -1,548 -1,554 -1,554 -1,548 Environment, area of government Family allowance arising 0 -32 -38 -38 -32 Basis: Subsections 223 (9) and 223 (10) https://www.riigiteataja.ee/akt/11 from the Land Reform Act of the Land Reform Act and 9052020009#para22b3 Government of the Republic Regulation no. 267 of 06.11.1996 "Approval of the procedure for privatisation of land by a right of pre-emption". Refund of overpaid amount to the extent of 1,600 euros per child born after 7 June 1996 of the landowner or of the person privatising the land and to the extent of 1,600 euros per a natural person who raises and maintains at least four children under 18 years of age. Land tax and maintenance -1,516 -1,516 -1,516 -1,516 -1,516 The basis for calculation of land tax is costs of state lands regulated by the Regulation no. 38 of the Minister of Finance of 16.10.2014 "Procedure for calculation and payment of land tax and application for tax incentive". Land tax and upkeep costs related to state land managed by the Land Board Ministry of Culture, area of -32,390 -34,741 -36,350 -37,291 -37,987 government Support allocated from -15,120 -15,861 -16,171 -16,493 -16,569 Basis: Alcohol, Tobacco, Fuel and https://www.riigiteataja.ee/akt/10 alcohol or tobacco excise Electricity Excise Duty Act 3062020006?leiaKehtiv Gambling Tax Act -17,270 -18,880 -20,179 -20,798 -21,417 Basis: Subsection 7 (2) of the Gambling https://www.riigiteataja.ee/akt/13 Tax Act 315648?leiaKehtiv Ministry of Finance, area of -12,706 -16,504 -16,756 -16,784 -17,191 government

162 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 State guarantee for study -350 -290 -290 -290 -290 Study Allowances and Study Loans Act. loans Funds for state guarantee for study loans https://www.riigiteataja.ee/akt/83 for payment of the principal amount of 4802?leiaKehtiv the study loan and interest to credit institutions in the event of the death of the recipient of a study loan, and for payment of interest for the period during which the recipient of the loan is serving compulsory military service, for one parent until the child attains 3 years of age, and for a resident physician until completion of residency. In addition, the state ensures the difference between the commercial interest rate and the interest rate payable to the credit institution by the recipient of a loan. Costs related to repayment of -41 -18 -10 -6 -5 Study Allowances and Study Loans Act. student loans The conditions and procedure for https://www.riigiteataja.ee/akt/83 repaying and writing off study loan. 4802?leiaKehtiv Funds for writing off study loans of persons employed in a local government authority and agencies administered by such authority and employed at a legal person in public law. Budget reduction is due to the amendment of the Study Allowances and Study Loans Act, as a result of which new applications for writing off study loans of public sector employees will no longer be received from 01.07.2009 onwards.

163 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 Legal aid and compensation -1,000 -1,300 -1,300 -1,300 -1,300 Compensation for damage as a result of for unjust deprivation of acquittal by courts, Prosecutor’s Office liberty and police. The basis for compensation: Code of Misdemeanour Procedure, Code of Criminal Procedure, Code of Civil Procedure, Code of Administrative Court Procedure, Penal Code, and Compensation for Damage Caused in Offence Proceedings Act. Organisation of settlements -767 -922 -957 -993 -1,031 Expenditure related to the organisation of governmental payments of settlements of governmental and management of financial payments and management of financial assets and liabilities of the assets and liabilities of the state, as well state as rating expenses and Tax and Customs Board credit card and bank link payments. Increase is due to elevated Nasdaq administration fees as a result of increased volume of T-bills and the fee for the third Bloomberg terminal. Increase in credit card and bank link payments for Tax and Customs Board. Land tax expenditure of -1,300 -1,000 -1,000 -1,000 -1,000 Calculation basis is regulated by the unreformed lands Regulation no. 38 of the Minister of Finance of 16.10.2014 "Procedure for calculation and payment of land tax and application for tax incentive". Budget decreases due to sales of state land and its transfer to local governments. Ordering of revenue stamps -460 -471 -471 -471 -471 Sections 49 and 61 of the Alcohol, https://www.riigiteataja.ee/akt/10 Tobacco, Fuel and Electricity Excise 3062020006?leiaKehtiv Duty Act. Issue of alcohol revenue stamps and ordering of tobacco revenue stamps.

164 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 Financial expenses -5,003 -8,630 -8,588 -8,457 -8,700 Long-term bond interest rate, interest paid to the health Insurance Fund and the Unemployment Insurance Fund, interest on advance payments paid by tax authority to taxpayer pursuant to the Taxation Act. Regional investment -3,785 -3,874 -4,140 -4,267 -4,394 For allocation of regional investment https://www.riigiteataja.ee/akt/13 subsidies subsidies pursuant to section 7 of the 315648?leiaKehtiv Gambling Tax Act. Ministry of the Interior, -10,568 -6,845 -7,183 -7,740 -7,469 area of government Allowance of a rescue -188 -146 -110 -221 -221 servant waiting for old-age Section 19 of the Rescue Service Act https://www.riigiteataja.ee/akt/11 pension 9032019069?leiaKehtiv Advance payments to bailiffs -251 -251 -251 -251 -251 Reflects the payments to bailiffs. Budget has been significantly reduced compared to previous period because, in recent years, the bailiffs have received payments to a much lower extent than expected. Budget calculation for new period builds on the forecast based on the performance of budget for the previous two years. Compensations in the case of -297 -297 -297 -297 -297 death and injury Lump-sum compensation allocated in case of death or permanent incapacity for work, illness or bodily injury of a police officer or rescue servant. Basis: Civil Service Act https://www.riigiteataja.ee/akt/12 6032013005?leiaKehtiv Issuing of personal -9,562 -5,868 -6,229 -6,675 -6,404 Issuing of various personal identification documents https://www.riigiteataja.ee/akt/13 identification documents 1012020014?leiaKehtiv Postage expenses of fine -219 -233 -246 -246 -246 Cost of fines issued by the Police and notices https://www.riigiteataja.ee/akt/10 Border Guard Board sent by post 6052020049?leiaKehtiv

165 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 IT Agency benefits -50 -50 -50 -50 -50 Compensation is paid from 2016 onwards, pursuant to the agreement ratified by Riigikogu on 18.02.2015 between European Union Agency for the Operational Management of Large- Scale IT Systems in the Area of Freedom, Security and Justice, Government of the Republic of Estonia and IT Agency. Compensation is paid to the staff employees of the agency for settling in Estonia. the compensation can be applied for acquisition of certain durable goods for personal use in the first year of employment at the agency to the extent of VAT paid in Estonia. Ministry of Social Affairs, -5,168,510 -5,487,009 -5,827,113 -6,195,366 -6,444,572 area of government -1,982,143 -2,083,516 -2,110,386 -2,184,418 -2,292,716 Total expenditure on state pension insurance (I pillar) -1,837,277 -1,941,842 -1,977,124 -2,047,275 -2,149,611 Changes in expenditure are mostly due https://www.riigiteataja.ee/akt/12 to addition of working time and 1042020033?leiaKehtiv indexation of pension. including old-age pension Basis: State Pension Insurance Act

166 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 -71,490 -50,612 -36,915 -37,704 -39,123 - Superannuated pension is granted to https://www.riigiteataja.ee/akt/10 employees who work in professions 6072018023?leiaKehtivhttps://w which involve loss or reduction of ww.riigiteataja.ee/akt/121042020 professional capacity for work before 033?leiaKehtiv attaining the pensionable age which hinders continued work in such professions or positions. Effect on change in expenditure is mostly due to changes in pension index and number of persons. Basis: Superannuated Pensions Act - Pension for incapacity for work is paid in case of incapacity for work to the extent of 40–100%. In connection with reform of capacity for work, new pensions for incapacity for work will not be added after 1 July 2016, and as of 1 January 2017, the capacity for work is assessed and the allowance for incapacity for work is paid by the Estonian Unemployment Insurance Fund. Effect on change in expenditure is mostly due to changes in pension index and number of persons. -Upon the death of a provider, family members who were maintained by him or her have the right to receive a including superannuated survivor’s pension. Effect on change in pension, pension for expenditure is mostly due to changes in incapacity for work, pension index and number of persons. survivor’s pension Basis: State Pension Insurance Act.

167 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 -56,319 -72,916 -77,869 -80,330 -83,940 Persons have the right to receive a https://www.riigiteataja.ee/akt/12 national pension if they have attained 1042020033?leiaKehtiv the pensionable age, but whose pension qualifying period is insufficient for receiving old-age pension. Claimant must have resided in Estonia for at least five years immediately before making a pension claim. Effect on change in expenditure is mostly due to changes in pension index and number of persons. Pension increase is paid to persons who acquired relevant right prior to amendment of the Act. Effect on change in expenditure is including national pension mostly due to changes in pension index and pension supplements or and number of persons. increases Basis: State Pension Insurance Act -17,057 -18,146 -18,479 -19,109 -20,043 Prior to entry into force of the https://www.riigiteataja.ee/akt/12 amendment of the Civil Service Act in 6032013005?leiaKehtiv April 2013, the servants had the right for the increase of the state old-age pension based on their length of service. Pension increase is paid to persons who acquired relevant right prior to including pension increase amendment of the Act. for civil servant Basis: Civil Service Act -290,750 -236,300 -505,800 -706,800 -734,100 II pillar of funded pension of old-age https://www.riigiteataja.ee/akt/13 pension, transferable part of social tax 1122016028?leiaKehtiv and funded pension of old age pension, State contribution to part withheld from employee’s salary mandatory funded pension (2%) . funds Basis: Funded Pensions Act

168 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 -22,079 -22,765 -22,275 -22,811 -23,317 Contributions are made for one person https://www.riigiteataja.ee/akt/13 raising a child under the age of 3 years, 1122016028?leiaKehtiv who has joined mandatory funded pension. Budget change is due to income subject to average social tax in Estonia, and increased number of Contribution to the parents who have joined II pillar mandatory funded pension (raising a child under the age of 3 fund for a parent raising a years). child under the age of 3 years Basis: Funded Pensions Act -6,553 -6,454 -6,348 -6,411 -6,482 If an employer is liquidated without https://www.riigiteataja.ee/akt/10 having a legal successor, the Social 9072020007?leiaKehtiv Insurance Board shall compensate for proprietary damage caused to a person by their employer through health damage or death arising from an occupational accident or occupational disease. Social Insurance Board shall establish the loss of a person’s work ability in percentage and pay compensation. Budget change is connected to pension index and number of recipients. Damages paid in relation to Basis: Occupational Health and Safety accidents at work Act -95 -102 -104 -100 -104 Persons who have settled in Estonia from foreign states who have attained https://www.riigiteataja.ee/akt/12 the pensionable age have the right to 9062017007?leiaKehtiv receive a benefit at the national pension rate, changes in which depend on the pension index and number of recipients. The purpose of the benefit is to ensure Social benefit for persons income for returnees at the pensionable returning to Estonia from age, if they have insufficient length of foreign state employment required for determining

169 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 old-age pension in Estonia. Basis: Social Welfare Act

-168 -165 -165 -172 -178 Support is paid to a winner of Olympic https://www.riigiteataja.ee/akt/10 Games on the basis of age (ten years 13701?leiaKehtiv before attaining the pensionable age) or on the basis of partial or no work ability. Changes in expenditure depend on the number of recipients and average gross monthly salary of the third quarter of Support for winners of the previous calendar year. Olympic Games Basis: Sport Act -89,115 -74,856 -74,390 -75,322 -76,827 Benefits include: disabled child https://www.riigiteataja.ee/akt/13 allowance, disability allowance for a 114771?leiaKehtiv person of working age, disability allowance for a person of retirement age, disabled parent’s allowance, education allowance, and in-service training allowance. The basis for the calculation of benefits for disabled persons is the rate of social benefits for disabled persons established by the State Budget Act for each budgetary year. Funds for 2020 also take into account the benefit for parents of children with special educational needs (10 million), allocated by supplementary budget. Monthly social benefits for Basis: Social Benefits for Disabled people with disabilities Persons Act.

170 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 -2,121 -2,042 -1,985 -1,909 -1,829 Payment of benefits for repressed https://www.riigiteataja.ee/akt/12 persons. Change in expenditure depends 8122017061?leiaKehtiv on the number of recipients. https://www.riigiteataja.ee/akt/12 Basis: Persons Repressed by Occupying 9062017007?leiaKehtiv Powers Act. Benefits for repressed Since 1 April 2018, social benefit is persons (incl. persons sent to paid to the persons sent to eliminate eliminate effects of nuclear effects of nuclear disaster. disaster at Chernobyl NPP) Basis: Social Welfare Act -10,061 -10,232 -9,939 -9,775 -9,722 Single pensioner allowance is paid once https://www.riigiteataja.ee/akt/12 per calendar year to a person who has 9062017007?leiaKehtiv attained pensionable age and who is living alone in Estonia in order to improve his or her financial independence and reduce poverty. Change in expenditure depends on the number of persons receiving old-age pension. Single pensioner allowance Basis: Social Welfare Act -106 -106 -106 -106 -106 Funds intended for allowance for a child of a conscript are recorded in the budget of the area of government of the Ministry of Social Affairs since 2020, but expenses are recorded under defence expenditure. Conscript’s child allowance Basis: Military Service Act -4,708 -5,019 -5,336 -5,654 -5,971 Increase in maintenance allowance is due to the increase in the number of https://www.riigiteataja.ee/akt/12 recipients (increased awareness) and 8122017062?leiaKehtiv transfer of the maintenance claim to the state. Maintenance allowance Basis: Family Benefits Act

171 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 -123 -101 -95 -89 -84 Compensation is paid to victims of crimes of violence committed in the territory of the Republic of Estonia and to their dependants. Compensation amount depends on established minimum wage and survivor’s pension Compensation for victims of or work ability allowance https://www.riigiteataja.ee/akt/12 crime Basis: Victim Support Act 791909?leiaKehtiv -259 -204 -204 -200 -200 Financial compensation is paid to a study loan recipient who has no work Writing off study loans ability or is a parent of a child under 5 (person with reduced ability years of age or is a parent of a child to work; a parent of a child with disability. under 5 years of age; a parent Basis: Study Allowances and Study https://www.riigiteataja.ee/akt/83 of a child with disability) Loans Act. 4802?leiaKehtiv -18,340 -14,518 -15,699 -17,163 -18,711 Changes in expenditure on additional holiday pay depends on the number of recipients and changes in minimum wage rate. Additional holiday pay (child Change in the amount of additional leave days, extended annual holiday pay of minors and working-age holiday, one additional persons with partial work ability holiday per month for a depends on nominal average wage parent of a disabled child and growth, number of recipients and days compensation for breaks for used. feeding times; fees for minors Additional holidays for an employee and working-age persons caring for an adult with a profound with partial work ability; disability – up to 5 days additional compensation for additional holiday for an employee who takes care holidays for caretaker of a of an adult family member with a person with profound profound disability at home. https://www.riigiteataja.ee/akt/11 disability) Basis: Employment Contracts Act 2072014146?leiaKehtiv

172 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 -300,876 -298,087 -294,062 -289,927 -289,022 Changes in family allowances mainly depend on the number of recipients of https://www.riigiteataja.ee/akt/12 child allowance and allowance for 8122017062?leiaKehtiv families with many children (overestimated in previous forecast). From 2018 onwards, conscript’s child allowance is recorded under general family allowance budget Family allowances Basis: Family Benefits Act -289,265 -307,179 -360,302 -378,948 -381,168 Change in expenditure on parental https://www.riigiteataja.ee/akt/12 benefit depends on average benefit 8122017062?leiaKehtiv increase (effect of changes in average wage and minimum wage). Basis: as of 01.01.2017 Family Benefits Act (until the end of 2016 Parental Parental benefit Benefits Act) -14,432 -38,026 -34,186 -30,278 -28,848 Unemployment allowance is paid by the Estonian Unemployment Insurance https://www.riigiteataja.ee/akt/94 Fund. Expenditure depends on the 8762?leiaKehtiv number of unemployed, daily rate and minimum wage rate. Daily rate of unemployment allowance in 2021 is 9.42 euros. Basis: Labour Market Services and Unemployment allowance Benefits Act

173 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 -325,436 -350,878 -357,895 -367,417 -379,042 Estonian Unemployment Insurance https://www.riigiteataja.ee/akt/12 Fund pays work ability allowance to 4122016018?leiaKehtiv persons with partial or no work ability. Unemployment Insurance Fund has prepared its forecasts, presuming that persons who according to currently valid system have major loss of capacity for work (90-100% and some persons with 80% loss of capacity for work) will be assessed as persons with no work ability in new system, and persons with minor loss of capacity for work (10- 30%) will not have any loss of capacity for work according to new system. The amount of work ability allowance per calendar day is 57% of the daily rate for a person with partial work ability and 100% of the daily rate for a person with no work ability; pursuant to section 14 of the Work Ability Allowance Act, the daily rate is 14.81 euros Work ability allowance Basis: Work Ability Allowance Act -37 -40 -39 -40 -41 Social allowance for persons returning https://www.riigiteataja.ee/akt/12 Social tax paid by the state, in from a foreign state, change of which 1042020041?leiaKehtiv special cases (person depends on the effect of minimum returning from a foreign wage. state) Basis: Social Tax Act -88,091 -95,691 -68,862 -60,822 -63,424 Change in expenditure depends on the https://www.riigiteataja.ee/akt/12 Social tax paid by the state, in monthly rate on the basis of which 1042020041?leiaKehtiv special cases, for the social tax is paid. recipients of social benefits Basis: Social Tax Act

174 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 -18,439 -30,223 -29,140 -28,935 -27,981 In special cases, the state pays social tax https://www.riigiteataja.ee/akt/12 for persons registered as unemployed 1042020041?leiaKehtiv with the Estonian Unemployment https://www.riigiteataja.ee/akt/94 Insurance Fund, who receive 8762?leiaKehtiv unemployment allowance, participates in labour market training or coaching for working life or in work practice or is registered as long-term unemployed. Change in expenditure depends on the increase in monthly rate of social tax paid by the state, in special cases, and Social tax paid by the state, in number of recipients. special cases, for registered Basis: Labour Market Services and unemployed persons Benefits Act; Social Tax Act -53,115 -64,277 -47,571 -42,439 -43,732 As of 01.07.2016, due to the capacity of https://www.riigiteataja.ee/akt/12 work reform, the Unemployment 1042020041?leiaKehtiv Insurance Fund took over from the Social Insurance Board the obligation to compensate the monthly established Social tax paid by the state, in social tax to a company, non-profit special cases, for a person organisation, foundation or sole receiving pension for proprietor for an employee receiving incapacity for work while pension for incapacity for work working Basis: Social Tax Act -150 -150 -150 -150 -150 Beginner’s allowance for medical specialist is intended for a physician https://www.riigiteataja.ee/akt/11 who commences work as a family 7052020012?leiaKehtiv physician after completion of residency and outside Tartu and Tallinn or at Beginner’s allowance for central, general or local hospital. medical specialist Basis: Health Services Organisation Act

175 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 -45 -150 -150 -150 -150 This beginner’s allowance is paid to a pharmacist and assistant pharmacist https://www.riigiteataja.ee/akt/10 who commences work or operation in a 4052016004?leiaKehtiv general pharmacy or a structural unit thereof that is located in a city or that is a settlement unit where there is no other general pharmacy or branch pharmacy or that is located in another settlement unit at least 10 kilometres from a city and at least five kilometres from an existing general pharmacy or branch Beginner’s allowance for pharmacy. pharmacist Basis: Medicinal Products Act -9,839 -10,265 -11,739 -14,172 -14,172 Change in expenditure depends on the number of recipients and consumer https://www.riigiteataja.ee/akt/10 Technical aid service for price index. 8072016006?leiaKehtiv persons with a disability Basis: Social Welfare Act -83 -85 -85 -85 -85 Expenditure depends on the number of https://www.riigiteataja.ee/akt/11 people staying at the refugee centre or 7062020004?leiaKehtiv people who have been granted international protection. Basis: Act on Granting International Support for refugees Protection to Aliens. -6,235 -7,361 -7,532 -7,894 -8,086 https://www.riigiteataja.ee/akt/10 Pensions of the members of Basis: Social Welfare Act 8072016006?leiaKehtiv Riigikogu -622 -634 -626 -646 -658 https://www.riigiteataja.ee/akt/11 Pensions of the officials of Basis: State Audit Office Act 9122019013?leiaKehtiv the State Audit Office -36 -84 -85 -88 -91 The amount of occupational pension of https://www.riigiteataja.ee/akt/12 former Chancellor of Justice is 70% of 788991?leiaKehtiv the salary of the Chancellor of Justice and pension of Deputy Chancellor of Occupational pension of the Justice-Adviser is 65% of the salary of Chancellor of Justice the Deputy Chancellor of Justice-

176 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 Adviser. Basis: Chancellor of Justice Act Pensions of the justices of the -1,348 -1,373 -1,386 -1,482 -1,483 https://www.riigiteataja.ee/akt/12 Basis: Courts Act Supreme Court 769841?leiaKehtiv -1,021 -1,065 -1,180 -1,217 -1,326 The amount of pension is 65% of the https://www.riigiteataja.ee/akt/12 last salary of prosecutors. 749278?leiaKehtiv Basis: Prosecutor’s Office Act Pensions of prosecutors -4,370 -4,716 -5,005 -5,164 -5,586 https://www.riigiteataja.ee/akt/12 The amount of pension is 75% of the 769841?leiaKehtiv last salary of judges. Pensions of judges of the I Basis: Courts Act and II instance -13,283 -14,403 -15,270 -17,174 -19,741 https://www.riigiteataja.ee/akt/10 Pensions are indexed by pension index. 6052020009?leiaKehtiv; Basis: Military Service Act; Military https://www.riigiteataja.ee/akt/11 Service Act Implementation Act. 9122019007?leiaKehtiv Pensions of servicemen -27,521 -28,784 -29,825 -31,812 -34,647 https://www.riigiteataja.ee/akt/10 Pensions of policemen and Basis: Police and Border Guard Act 4072020002?leiaKehtiv border guards -354 -464 -552 -569 -599 https://www.riigiteataja.ee/akt/11 Pension increase for rescue Basis: Rescue Service Act 9032019069?leiaKehtiv servants

177 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 -191,173 -215,000 -225,000 -238,000 -250,000 Transferable unemployment insurance https://www.riigiteataja.ee/akt/13 premium for Estonian Unemployment 198680?leiaKehtiv Insurance Fund will be transferred to the foundation of labour market services and benefits from the payments received by the unemployment insurance benefit trust fund, the trust fund for benefits upon lay-offs and insolvency of employers. Trust fund resources are used for payment of unemployment insurance benefits and benefit upon lay- offs and insolvency of employers. Foundation funds are used for provision of active labour market services and payment of labour market benefits Unemployment insurance (except for unemployment allowance). premium Basis: Unemployment Insurance Act -739 -785 -977 -1,216 -1,516 Victim of an offence (which is not a crime of violence) has the right to https://www.riigiteataja.ee/akt/12 receive, if necessary, compensation for 791909?leiaKehtiv cost of psychological care in an amount equal to up to one minimum monthly wage. Compensation is paid in an amount equal to up to one minimum monthly wage per family member, however not more than in an amount equal to up to three times the minimum monthly wage per family. Forecast takes into account increase in the number of Psychological care for victim victims. of an offence Basis: Victim Support Act

178 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 -4,248 -4,667 -4,988 -5,141 -5,294 The Ministry of Social Affairs uses gambling tax budget to allocate support to various projects aimed at medicine, welfare, families, the elderly and people with disabilities. https://www.riigiteataja.ee/akt/13 Gambling tax Basis: Gambling Tax Act 315648?leiaKehtiv -1,224,550 -1,362,881 -1,364,441 -1,420,199 -1,486,184 Pursuant to the Social Tax Act, Tax and Customs Board allocates to state health https://www.riigiteataja.ee/akt/11 insurance funds in the state budget the 7052020009?leiaKehtiv health insurance part of social tax, Securing obligations arising which will be received by Estonian from the Health Insurance Health Insurance Fund. Act Basis: Health Insurance Act -165,591 -192,304 -212,192 -219,444 -230,170 Pursuant to the decision of the Government of the Republic, a monthly https://www.riigiteataja.ee/akt/11 allocation is made from the budget of 7052020012?leiaKehtiv the Social Insurance Board to the Estonian Health Insurance Fund (based on SIB data) on the pension calculated for non-working recipients of old-age pension and persons of retirement age receiving national pension, i.e. payment of health insurance part according to agreed percentage. Basis: Health Services Organisation Act; Government of the Republic Regulation "The bases for calculation of the state budget allocation, non-working Health Insurance Fund recipients of state pension included in allocation (for non-working the calculation of the allocation and the recipients of state pension) procedure for submission of data".

179 STATE BUDGET STRATEGY 2021-2024

SB 2020 Draft SB SBS 2022 SBS 2023 SBS 2024 Explanation Legal basis 2021 -500 -500 -500 -500 -500 Financial support paid to asylum seekers is equal to the current subsistence limit established on the basis of minimum consumption expenditure. Basis: Act on Granting International https://www.riigiteataja.ee/akt/11 Services for asylum seekers Protection to Aliens 7062020004?leiaKehtiv -491 -491 -475 -458 -458 The state will pay for home delivery by post only on the basis of applicable law (RPKS and PISTS) and a reasoned application. Home delivery is ensured only to a person whose movement is restricted, who lives in low density area and who has scarce access to bank services, and to a person of retirement age or a person with a profound Home delivery of pensions disability who has been established to and benefits by post have partial or no work ability. Fees for lay assessors of 0 -65 -66 -68 -71 https://www.riigiteataja.ee/akt/12 Labour Dispute Resolution Act labour dispute committees 8122017018

180

Appendix 5. Use of revenue from the EU scheme for greenhouse gas emission allowance trading In order to achieve the objectives of the international climate policy, the European Union has established a scheme for auctioning of greenhouse gas emissions allowances (hereinafter allowances). Within the scheme, Member States must auction92 all the allowances that are not allocated free of charge to stationary sources of pollution in accordance with Articles 3e, 10a and 10c of Directive 2003/87/EC. Allowances auctioned in Estonia in 2013-2020 and the expected revenue from auctioning allowances based on the baseline scenario of the economic forecast of summer 2020 of the Ministry of Finance are as follows: 2013 2014 2015 2016 2017 2018 2019 2020 Total Auctioned amount (data from the Ministry of the Environment) 4.0910 1.2445 2.7675 4.4795 6.8215 9.0824 6.7640 5.8640 41.1144 excluding free- of-charge electricity (million allowances) Revenue forecast (million 18.074 7.409 21.125 23.569 39.308 141.147 141.390 117.200 509.222 euros)

2021 2022 2023 2024 Total Auctioned amount (data from the Ministry of the Environment), 4.11 3.98 3.93 4.41 16.43 excluding free-of- charge electricity (million allowances) Revenue forecast (million euros) 86.310 83.580 78.600 83.790 332.28

In accordance with Article 10 of Directive 2003/87/EC93 and the Atmospheric Air Protection Act94, at least 50% of the revenue generated from the auctioning should be used to achieve the following overall objectives: 1) encourage a shift to low-emission and public transport; 2) develop renewable energies and contribute to increasing energy efficiency; 3) finance research and development in energy efficiency and clean technologies in the sectors covered by the European Parliament and Council Directive 2009/29/EC;

92 The procedure for auctioning is defined in the Commission Regulation (EU) No 1031/2010, which specifies the timing, administration and other aspects of auctioning allowances. 93 The Directive can be found at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2003L0087:20090625:et:PDF 94 The Act can be found at: https://www.riigiteataja.ee/akt/103062020002; see subsection 161 (4)

STATE BUDGET STRATEGY 2021-2024

4) improve energy efficiency and measure energy savings; 5) fund research and development as well as demonstration projects for reducing greenhouse gas emissions and for adaptation to climate change, 6) contribute to the Global Energy Efficiency and Renewable Energy Fund and to the Adaptation Fund; 7) adapt to climate change and climate change mitigation; 8) participate in Estonian and European initiatives within the framework of the European Strategic Energy Technology Plan and the European Technology Platforms; also, participate in the planning of climate change mitigation and energy policies as well as int the monitoring of the effectiveness of these policies; 9) measures to avoid deforestation and increase afforestation and reforestation, as well as adapt to climate change in developing countries that have ratified the international agreement on climate change, including meeting Estonia’s international climate-related financing obligations; 10) carbon sequestration in forestry; 11) covering the administrative costs of EU emission allowance trading related to Estonia. Pursuant to subsection 161 (1) of the Atmospheric Air Protection Act, the climate-related measures designed to achieve these objectives form a part of the State Budget Strategy, guided by the national and sectoral development plan objectives. In that, the combined effect of the measures planned from the funds of European Union programming period 2014–2020 and other measures and activities financed with other domestic and external funds will be taken into account. These are expenses dependent on revenue, i.e. the funds can be used depending on the actual accrual of revenue. The need for state aid is assessed separately for every measure and, if necessary, the permit for state aid is applied for by the party responsible for the implementation of the measure. The forecast of revenue generated from auctioning allowances is updated at least twice a year, when the Ministry of Finance is preparing its economic forecast. If necessary, the list of measures to be funded with the revenue from auctioning is also updated. The EU climate policy objectives are implemented during the budget strategy period through the performance areas of energy and environmental protection, utilising the funds received from auctioning allowances. The list of measures planned from the auctioning revenue of trading period 2013-2020 (based on the revenue forecast in the previous table) is presented in the table below.95

95 As an exception among other data of the State Budget Strategy, the forecast has been presented as a revenue- dependent expenditure – both the volume of revenue and expenses is based on revenue forecast; records of the 50% use of auctioning revenue (see reference in the footnote preceding the previous) according to the EU Directive 2003/87/EC are kept on a cash basis. ** Adjusted amount of 1.258 million euros due to returning of erroneous payment on auctioning platform in 2019 is added to revenue forecast 2020.

182 STATE BUDGET STRATEGY 2021-2024

Measures in the SBS 2021-2024 performance areas to be funded with revenue from the EU greenhouse gas emissions allowance trading system in 2013-2020 (preliminary amount of funding, million euros)

Total in Performance area, 2019 2020 2013- Responsible measure 2013 2014 2015 2016 2017 2018 ** ** 2020 authority 50% of the revenue forecast for climate policy objectives (million euros) 9.037 3.704 10.563 11.784 19.654 70.573 70.695 59.229 254.610 6. Energy 9.037 3.200 8.410 10.784 18.654 53.166 51.349 23.592 177.564 Minister of Energy saving Economic measures in Affairs and apartment buildings 9.037 0.000 0.000 0.000 0.000 6.189 1.796 4.863 21.885 Infrastructure Minister of Increasing he use of Economic alternative fuels in Affairs and transport (biogas) 0.000 0.000 0.000 2.584 8.952 15.902 7.998 2.060 37.496 Infrastructure Promoting energy efficiency and the use of renewable Minister of energy in public Public sector buildings96 0.000 0.000 8.410 8.201 9.702 31.075 41.556 16.668 114.983 Administration Supporting small residences in taking renewable energy Minister of into use and Economic updating their Affairs and heating systems 0.000 3.200 0.000 0.000 0.000 0.000 0.000 0.000 3.200 Infrastructure 14. Environmental protection 0.000 0.423 1.000 1.000 1.000 17.407 19.346 35.637 75.814 Estonia’s contribution to international climate change co- Minister of the operation 0.000 0.423 1.000 1.000 1.000 2.906 1.000 1.000 8.329 Environment Managing the risk Minister of the of flooding 0.000 0.000 0.000 0.000 0.000 2.847 1.238 1.058 5.143 Environment Minister of the Pilot projects Environment, designed to Minister of implement the Economic climate policy Affairs and objectives97 0.000 0.000 0.000 0.000 0.000 11.655 17.108 8.186 36.949 Infrastructure

96 54% of auctioning revenue planned for its measures in the trading period 2013–2020 are allocated to improving the energy efficiency of the local government buildings (municipal kindergartens and welfare institutions) and 46% to improving the energy efficiency of the central government buildings and promoting the use of renewable energy. 97 The auctioning revenue of the trading period 2013–2020 planned for this measure will be divided as follows: 50% of the energy performance area will be allocated primarily into measures to increase the energy efficiency of apartment buildings and the amount of alternative fuels in transport, and 50% of the environmental performance area primarily into implementation of climate change adaptation and mitigation actions; incl. from the auctioning revenue of 2019, 0.1 million euros of the environmental protection performance area resources and 0.3 million

183 STATE BUDGET STRATEGY 2021-2024

Total in Performance area, 2019 2020 2013- Responsible measure 2013 2014 2015 2016 2017 2018 ** ** 2020 authority The dedicated use of 50% of the additional revenue/income in 2020 resulting from the renewal of the so-called forecast According to bases (state budget the decision of co-financing of Rail the Baltic project 2020; Government of sustainable the Republic; transport projects – Minister of railway transport Economic and water transport Affairs and (ferry)* 25.393 25.393 Infrastructure * The dedicated use of 50% of the additional revenue/income in 2020 resulting from the renewal of the so-called forecast bases is decided by the Government of the Republic in the course of preparing the state budget for 2020. ** The adjusted amount of 1.258 million euros, resulting from repayment of erroneous contributions made to the auctioning platform in 2019 has been added to the revenue forecast of 2020

The new period for trading with greenhouse gas emission allowances in the EU in 2021-2030 will start in 2021, the use of funds from that period is planned in the framework of the long- term strategic planning process as part of the process, similarly to the planning of the use of EU structural and rural development funds and other state budget funds for the period 2021-2027. Based on relevant decisions, the distribution of activities and measures will be planned in the State Budget Strategy and state budget in line with the Atmosphere Air Protection Act. Based on the aforementioned, the revenue forecast for 2021-2024 is initially planned as nationwide in the budget of the Ministry of the Environment and the cost estimate related to the revenue from trading during that period is initially planned as nationwide. As part of the process launched by the Communication of the European Commission on European Green Deal, another goal in 2020-2021, besides other initiatives and actions towards EU climate and energy objectives, is to review legislation determining the underlying principles of target levels of EU GHG emission allowance for 2030 and various trading systems sectors, which will have significant impact on the share of revenue from GHG trading in state budget over the next decade. Therefore, the error rate is high for any revenue forecast, even when based on international forecasts.

Starting with 2014, the so-called ordinary auctions described above are supplemented by auctions of aviation allowances. In accordance with Article 3d of Directive 2003/87/EC98 and

euros of the energy performance area resources will be allocated to research related to the development of renewable energy, and from the auctioning revenue of 2019 and 2020, 0.2 million euros from the environmental protection performance area resources and 0.2 million euros from the energy performance area resources will be allocated to the green technology business accelerator programme. 98 The Directive can be found at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2003L0087:20090625:et:PDF

184 STATE BUDGET STRATEGY 2021-2024 the Atmospheric Air Protection Act99, 100% of the revenue generated from the auctioning should be used to achieve the following overall objectives: 1) encourage a shift to low-emission and public transport; 2) fund research and development as well as demonstration projects for reducing greenhouse gas emissions and for adaptation to climate change, 3) contribute to the Global Energy Efficiency and Renewable Energy Fund and to the Adaptation Fund; 4) adapt to climate change and mitigate climate change; 5) participate in Estonian and European initiative within the framework of the European Strategic Energy Technology Plan and the European Technology Platforms; also, participate in the planning of climate change mitigation and energy policies as well as in the monitoring of the effectiveness of these policies; 6) measures to avoid deforestation and increase afforestation and reforestation in developing countries that have ratified the international agreement on climate change, including meeting Estonia’s international climate-related financing obligations; 7) carbon sequestration in forestry; 8) research and development in climate change mitigation and adaptation, especially in aeronautics and air transport; 9) support such joint projects that concern reduction of greenhouse gas emission in aviation sector and improve aeronavigation infrastructure, provision of aeronavigation services and use of air space; 10) mitigation of the effects of climate change in the European Union and third countries, inter alia, reduction of greenhouse gas emissions and adaptation to climate change in the European Union and third countries, especially in developing countries.

The allowance amounts sold in Estonia and the forecast revenue from trading with aviation allowances in 2013-2020 based on the baseline scenario of the economic forecast of summer 2020 of the Ministry of Finance are as follows: 2013 2014 2015 2016 2017 2018 2019 2020 Total in 2013- 2020 Auctioned amount (data 7,000 7,500 7,500 8,000 6,500 7,500 8,000 7,000 59,000 from KKM) Revenue forecast 0.046 0.051 0.049 0.049 0.052 0.052 0.056 0.056 0.411 (million euros)

Pursuant to subsection 161 (1) of the Atmospheric Air Protection Act, the climate-related measures designed to achieve these objectives form a part of the State Budget Strategy and their planning and implementation is guided by the principles described above. The climate policy objectives are implemented during the budget strategy period through energy and

99 The Act can be found at: https://www.riigiteataja.ee/akt/123122016002; see subsection 161 (6)

185 STATE BUDGET STRATEGY 2021-2024 environmental performance areas, utilising the funds received from auctioning aviation allowances. The Ministry of the Environment has co-ordinated the use of the funds with the Government Office, the Ministry of Finance and the Ministry of Economic Affairs and Communications and, considering the low volume of the funds, has directed those to pilot activities that have used and are using ICT possibilities to achieve the climate policy objectives (e.g. climate-themed development event Garage48 and supporting the best IT solutions developed at its follow-up event; the EU’s largest competition on clean technology ideas, i.e. the so-called start-up business accelerator programme Climate Launchpad, etc.). The party responsible for the use of aviation auction funds is the Ministry of the Environment. In addition to the EU system of auctioning allowances, the Decision No. 406/2009/EC of the European Parliament and of the Council on the effort of Member States to reduce their greenhouse gas emissions100 sets an obligation for Estonia to limit the growth of its GHG emissions to +11% by 2020 (compared with the emissions of 2005) in sectors outside the EU system of auctioning allowances: transport, agriculture, waste, use of solvents and other products, the share of industrial processes and energy processes excluded from the EU system of emissions trading. The activities needed to fulfil this objective are defined in sectoral development plans (for example, the Energy Sector Development Plan, Transport Development Plan, etc.) and the State Budget Strategy based on them. The said decision establishes the annual emissions allocation or AEA, which equals to 1 tonne of CO2 equivalent (t CO2 eq), as a trading unit. The annual amount of AEAs indicates the amount of emissions that the relevant EU Member State is allowed to emit into the atmosphere from the aforementioned sectors in that year. Estonia’s AEA amounts are calculated pursuant to unified methods and fixed for the period of 2013-2020 across the years in Appendix101 to the decision of the European Commission dated 10.08.2017. Estonia’s growth of emission quantities in the aforesaid sectors was restricted linearly until 2020 when the maximum emission quantity in sectors outside the trading system may be 6,023,720 t CO2 eq. Actual emission quantities are compared with the annual emission allocations each year. The state must ensure that the factual emission quantities do not exceed the annual emission allocations for that year. To fulfil the state’s obligations, the flexibilities provided by the so- called shared responsibility decision can be used: e.g. trading with AEA units within EU Member States, transferring the surplus of units to subsequent years or borrowing from subsequent years (to a limited extent), use of project-based units (to a certain extent). So far, Estonia has not entered into any agreements for trading with AEA units under the shared effort system and, considering the market situation, it is likely that no agreements will be reached in the coming years (supply of units significantly exceeds their demand). Countries’ target levels of reducing greenhouse gas emissions in relevant sectors for the period 2021-2030 are determined by the so-called Effort Sharing Regulation102 – according to that

100 Decision No. 406/2009/EC of the European Parliament and of the Council on the effort of Member States to reduce their greenhouse gas emissions to meet the Community’s greenhouse gas emission reduction commitments up to 2020: https://eur-lex.europa.eu/legal-content/ET/TXT/PDF/?uri=CELEX:32009D0406&from=EN 101 Commission Decision (EU) 2017/1471 of 10 August 2017, amending Decision 2013/162/EU, to review annual emissions allocated to Member States for the period of 2017–2020. Available at: https://eur-lex.europa.eu/legal- content/ET/TXT/?qid=1523969949936&uri=CELEX:32017D1471 102 Regulation (EU) No 2018/842 of the European Parliament and of the Council of 30 May 2018 on binding annual greenhouse gas emission reductions by Member States from 2021 to 2030 contributing to climate action to meet commitments under the Paris Agreement and amending Regulation (EU) No 525/2013: https://eur- lex.europa.eu/legal-content/Et/TXT/?uri=celex:32018R0842

186 STATE BUDGET STRATEGY 2021-2024 regulation, Estonia is required to reduce GHG emissions in these sectors by 13% by 2030 (compared with the missions of 2005). In the trading period of 2021-2030, the country’s ability to trade with AEAs will depend primarily on whether the relevant Estonian sectors (incl. transport, waste, agriculture, small- scale energy and industrial processes) outside the system of auctioning allowances are able to achieve the mandatory annual CO2 emission targets based on the Energy Sector Development Plan until 2030, National Energy and Climate Plan until 2030, and the General Principles of Climate Policy until 2050. If the target level is exceeded, there would be a so-called surplus by which AEAs could be sold to other countries; however, in the event of a deficit, Estonia would have to buy them from other countries (which have exceeded their emissions reduction targets) using budgetary resources. Thus, the optimal planning and implementation of energy and climate policy measures will have an impact on the potential source of revenue or cost for the state budget, among others. When implementing one of the cooperation mechanisms provided for in the Renewable Energy Directive 2009/29/EC103, the so-called trade of statistical units of renewable energy, it is possible for one EU Member State to transfer to another Member State its surplus of renewable energy amounts of the year 2020 as well as amount that exceed the so-called trajectory planned to reach the objective, in order for the other Member State to be able to cover its deficit of its set renewable energy target. The transfers are made in the form of Eurostat calculations and only in the context of overall renewable energy of 2020. Therefore, it is possible to aid a country that has difficulties with reaching their target, by selling surplus to them in the form of the so- called statistical units. As the transfers can only be made with amounts certified with Eurostat, then it is only possible to trade on the basis of amounts produced during the year before the last (x-2) (e.g. trade with certified amounts from 2019 in 2021). As of 2014, Estonia had already exceeded its renewable energy target for 2020. As a result of preparatory work by the Ministry of Economic Affairs and Communications, a contract for using cooperation mechanisms of renewable energy was concluded with the Grand Duchy of Luxembourg (2017) and the Republic of Malta (2020). These contracts establish the sale of statistical units to these states in 2018-2020 (in case of using option for Malta, also in 2021). The funds received on the basis of these contracts will be used in accordance with the Electricity Market Act for decreasing the fee paid to the transmission network operator for domestic renewable energy during the years when the sales revenue is received, as a result of which the cost of electricity will be decreased for end customers. Pursuant to the fact that, according to a forecast, in addition to the units sold on the basis of these contracts, Estonia will have an additional surplus of statistical units of renewable energy in the coming years, work is continued with other potential buyers and negotiating over contracts with them. Since 2021, pursuant to Article 10d of Directive 2003/87/EC104 and section 1651 of the Atmospheric Air Protection Act105, the financial resources allocated to Estonia from the EU Modernisation Fund can be used to support activities contributing to the achievement of the climate and energy policy objectives (except those relating to energy generation using solid

103 Directive 2009/28/EC of 23 April 2009 on the promotion of the use of energy from renewable sources, available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:140:0016:0062:et:PDF 104 Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1598632425645&uri=CELEX:02003L0087-20200101 105 https://www.riigiteataja.ee/akt/103062020002

187 STATE BUDGET STRATEGY 2021-2024 fossil fuels). Using revenue from trading with Estonia’s share of GHG allowances106 to support climate and energy policy is planned in the framework of long-term strategic planning process as a single part of the process, similar to planning the use of funds for EU structural and rural development and other state budget resources in 2021-2027. Based on relevant decisions, the distribution of activities and measures to be financed is planned alongside with planning of measures supporting the achievement of other climate and energy objectives, optimising the use of funds and distribution in accordance with the rules of operation of the Modernisation Fund. On the basis of these decisions, use of funds will further be appropriately presented in State Budget Strategy and, if necessary, in state budget.

106 Pursuant to Annex IIb to Directive 2003/87/EC, the Estonia’s share is 2.78% of the fund’s total quantity of allowances.

188 Appendix 6. Personnel and salary analysis of the general government In 2019, average gross monthly wage of the general government increased by 9.9% and the average gross monthly wage in Estonia by 7.4%. Thus, the growth of average gross monthly wage of the general government was 2.5 percentage points faster than the growth of average gross monthly wage in Estonia and wage competitiveness of the general government improved. Figure 17. In 2019, the gross monthly wage of the general government was 2.5 percentage points faster than the growth of average gross monthly wage in Estonia.

Average gross monthly wage of the general government Central government (+89,2%) +9,5% +7,8% +8,2% +9,1% +9,6% +9,9% +6,0% +6,8% +6,0% +3,7% +10,3% 1494 -0,5% +6,5% 1360 +7,1% -6,2% +8,4% 1233 +7,8% 1158 +9,1% 1081 +4,7% 997 -5,6% -1,7% +3,8% 924 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 847 793 780 809 including state agencies(+90,5%) +11,2% +9,7% +7,6% +9,0% +7,6% +7,2% +5,5% +6,5% +3,6% -0,8% -9,4%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average gross monthly wage of the general government Change in the average gross monthly wage of the general government, % Local government units (+88,8%) +12,1% +10,4% +8,5% +8,1% +8,8% +7,9% +7,4% +3,6% +3,1%

+10,3% +9,9% -3,4% +9,1% +8,4% -4,6% +7,8% +7,1% +6,5% +5,9% +5,7% +7,0% +7,6% +7,3% +7,4% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 +4,7% +5,9% +6,0% +6,5% +1,1% +3,8% Social security funds (+63,6%)

+9,7% +8,2% +12,3% -5,0% -1,7% +4,9% +5,5% +6,7% 88,3% +2,8% +3,6% +3,9% -5,6% 79,5% -6,0%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 -17,0% Change in the average gross monthly wage of the general government Change in Estonian average gross monthly wage 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Growth of general government gross monthly wage 2009/2019 ------Change in general government compared to previous year Growth of Estonian average gross monthly wage 2009/2019 Change in group of agencies compared to previous year Source: Balance information system of the Ministry of Finance

In subsectors of the general government, the average monthly gross wage growth was the fastest in social security funds (12.3%). Average gross monthly wage growth in local government units and central government was 10.4% and 9.6%, respectively. Average gross monthly wage growth of state authorities within the central government was slightly more modest than general wage growth of the central government (9.0%). In view of long-term changes in the wages of general government, during the past 11 years or in 2009-2019, the annual general government wage growth has been on average 0.8 percentage points faster than the growth of average wage in Estonia. The general wage growth of the general government has been significantly influenced by the additional funds allocated to priority target groups to increase the wage competitiveness, which has amplified wage growth in general government in recent years. In 2019, the wage competitiveness of the central government improved in all areas, which means that the gross monthly wage growth in all areas was faster than the growth of average gross monthly wage in Estonia. Wage position improved most notably in the fields of social protection (5 percentage points), national defence (4 percentage points), health care and education (3 percentage points).

STATE BUDGET STRATEGY 2021-2024

Figure 18. Central government wage competitiveness improved the most in social protection, national defence, health and education.

NATIONAL DEFENCE GENERAL GOVERNMENT SERVICES ECONOMY 1,43 1,46 1,47 1,50 1,41 1,41 1,40 1,39 1,39 1,42 1,38 1,35 1,35 1,36 1,33 1,34 1,35 1,35 1,35 1,34 1,36 1,29 1,32 1,28 1,26 1,26 1,24 1,22 1,23 1,20 1,25 1,16 1,16 1,10 1,11

1,00 n = 4 000 n = 4 800 n = 4 400 0,75

0,50 PUBLIC ORDER AND SECURITY ENVIRONMENTAL PROTECTION HEALTH 1,50 1,34 1,31 1,32 1,32 1,34 1,32 1,33 1,27 1,29 1,28 1,23 1,24 1,25 1,23 1,22 1,22 1,24 1,24 1,23 1,21 1,17 1,20 1,20 1,25 1,17 1,14 1,14 1,14 1,15 1,15 1,17 1,16 1,15 1,10

1,00 n = 4 590

n = 10 400 n = 1 000 n = 11 000 0,75

0,50 Relative wage monthly grossaverage to Estonian Relative 1 2 3 4EDUCATION5 6 7 8 9 10 11 SOCIAL PROTECTION 1 2 3 FREE4 TIME,5 6 CULTURE7 8 9 10 11 1,50

1,24 1,27 1,20 1,23 1,21 1,25 1,19 1,17 1,16 1,17 1,13 1,12 1,06 1,07 1,00 0,98 0,97 0,96 0,97 0,99 0,99 1,00 0,95 0,95 0,99 0,95 0,94 0,90 0,92 0,75 0,81 0,78 0,79 0,81 0,77 0,76 n = 1 900 n =4 000 n = 12 000 0,50 20092010201120122013201420152016201720182019 20092010201120122013201420152016201720182019 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Relevant sector relative to Estonian average gross monthly wage Central government relative to Estonian average gross monthly wage Source: Balance information system of the Ministry of Finance

The sectors with the fastest wage growth in 2019, also include target groups that were allocated more additional funds by government decision and thus, the wage position improvement has been as expected. In 2019, the government decided to allocate the following additional funds:  Social welfare sector 12%;  Internal security institutions: the Rescue Board 20%, Police and Border Guard Board 10.7%, the Emergency Response Centre 5% and the Estonian Academy of Security Sciences, the Environmental Inspectorate, prisons, Tax and Customs Board 4.5%;  Teachers in the area of administration of the Ministry of Education and Research 4.3%, teachers in the area of administration of the Ministry of Social Affairs 3.1%;  Cultural workers with higher education in the area of administration of the Ministry of Culture 5.7% and Estonian Agricultural Museum, Estonian Museum of Natural History and National Archives 7.9%;  IT agencies 20%;  Veterinaries of the Veterinary and Food Board (supervision direction) 29%;  Civil Aviation Administration 5%;  Ministry of Foreign Affairs 5.9%.

The general wage growth of the central government was also influenced by the wage agreement of health professionals, which prescribed the following increase in minimum hourly wage of

190 STATE BUDGET STRATEGY 2021-2024 health care professionals as of 1 April 2019: doctors 9.3%, nurses 8.8% and care workers 10.7%. Salaries of senior civil servants (incl. judges) also increased by 8.4% as of 1 April 2019 as a result of indexation of occupational salaries of senior civil servants. Through special acts, the salaries of senior civil servants are related to several other target groups (prosecutors, advocates general), and thus, indexation also affects the changes in their salary. In 2019, the government allocated 2.5% additional funds to the wage fund of institutions for general wage growth. As the labour market was characterised by lack of labour force in 2019, resulting in tight competition for the best employees, the organisations have also made attempts to find internal resources to allocate additional money to wage fund, among other things, on the account of management costs.

Wages in priority target groups The wage policy of cultural workers is based on the supporting document General Principles of Cultural Policy until 2020. According to this, the minimum wages of full-time employees with professional higher education and professionally qualified specialists employed by the state must increase to the level of average wage of Estonia by 2020. In this regard, the state sees foundations established by the state and legal persons in public law as equals to state authorities in the case of optimal configurations. In 2019, the average gross monthly wage of cultural workers with higher education was 1,560 euros and minimum wage was 1,300 euros. The minimum wage was 92% of the average gross monthly wage in Estonia.

Figure 19. The minimum wage of cultural workers with higher education in the area of administration of the Ministry of Culture was 92% of the average monthly gross wage in Estonia in 2019.

2 000 100% 92% 88% 1 800

77% 1560 1 600 1492 80%

1 400 1296

1 200 1300 1300 60% 1150 1 000

800 942 40%

600

400 20%

200

0 0% 2017 2018 2019 2020 Average gross monthly wages of cultural workers with higher education in the area of administration of the MoC, incl. ENB Minimum wage Proportion of minimum wage in Estonian average gross monthly wage Source: Ministry of Culture

For 2020, 2.5% additional funds were allocated to the wage fund of cultural workers with higher education and an additional 0.5 million euros for increasing the competitiveness of wages in the area of administration of the Ministry of Culture. The minimum wage of cultural workers with higher education did not increase this year compared to previous year. In 2020, the increase in average gross monthly wages of cultural workers with higher education employed in the

191 STATE BUDGET STRATEGY 2021-2024 institutions in the area of administration of the Ministry of Culture are mostly estimated to remain between 2-3%.

Similar to the area of administration of the Ministry of Culture, 2.5% additional funds were allocated to the wage fund of cultural workers for 2020 to increase wage competitiveness in the area of administration of the Ministry of Education and Research (Estonian Literary Museum, Institute of the Estonian Language, National Archives), the Ministry of Rural Affairs (Estonian Agricultural Museum Foundation) and the Ministry of the Environment (Estonian Museum of Natural History). As for trainers, the Ministry of Culture increased the wage fund of youth trainers with professional level 5 and higher through wage subsidy by 2.5 % or 177,000 euros. See increased the minimum monthly wage of trainers from former 1,000 euros to 1,020 euros in 2020. In 2019, in the case of teachers, the goal was to reach a level where the average gross salary of teachers comprises 120% of the average wage of Estonia. In 2019, the average wage of teachers was 112% of the average wage of Estonia, meaning that the wage position decreased by one percentage point compared to previous year. The average gross monthly wage of Estonia increased by 7.4% and average gross monthly wage of teachers by 7%. Although teachers target group has been allocated additional funds for each budgetary year by government decision since 2014, the achievement of the wage target level has been difficult due to the rapid growth of Estonia’s average monthly gross wage. In 2019, the average gross monthly wage of teachers was 1,582 euros and minimum wage 1,250 euros. Teachers’ wage fund was increased by an additional 2.5% in 2020. Minimum wage of teachers increased by 5.2% and is currently 1,315 euros.

Figure 20. Average gross monthly wage of teachers was 112% of the average monthly gross wage in Estonia in 2019.

2000 120% 113% 112% 107% 106% 106% 1800 103% 102% 99% 98% 95% 1582 100% 1600 92% 1481 1400 1292 80% 1210 1200 1136 1315 1250 1025 1150 1000 931 60% 1050 811 785 800 814 958 800 900 800 40% 600 715 670 644 644 644 400 20% 200

-4% -3% 2% 2% 14% 10% 11% 7% 7% 15% 7% 7% 0 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Average gross monthly wage of teachers of general education schools Minimum wage of teachers Share of teachers’ gross monthly wage in Estonian average gross monthly wage Source: Balance data information system of the Ministry of Finance

The wage position of the social welfare sector improved by 2 percentage points in 2019 and the ratio to the average wage in Estonia is now a percentage higher than in 2009. This means that the wage position that dropped in the meantime, has been restored during past couple of years due to allocation of additional funds, but unlike other target groups, wage competitiveness

192 STATE BUDGET STRATEGY 2021-2024 has not remarkably improved over the past 11 years. Social welfare is made up of social welfare institutions for the elderly, the disabled, risk groups, as well as social welfare institutions for children and youth, children’s homes, other social protection of people with disabilities – special care institutions and substitute homes. The overall level of wages in these institutions is relatively low. In 2019, the average wage in the social welfare sector increased by 11%, but the average gross monthly wage was only 962 euros. For 2020, a government decision allocated 2.5% additional funds to the wage fund of social workers, which – in view of decelerated growth of the average gross monthly wage in Estonia – may help to at least maintain current wage position in this sector.

Figure 21. The ratio of the average gross monthly wage in the social welfare sector to the Estonian average gross monthly wage improved by 2 percentage points in 2019.

1200 80% 68% 67% 66% 66% 65% 64% 64% 63% 1000 61% 61% 62% 962 866 60% 800 754 773 686 618 583 600 524 512 533 539 40%

400 20% 200

-5% -2% 4% 1% 8% 6% 11% 10% 3% 12% 11% 0 0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average gross monthly wage Average gross monthly wage as share of Estonian average gross monthly wage

Source: Balance data information system of the Ministry of Finance

Internal security target group includes the Police and Border Guard Board, the Estonian Academy of Security Sciences, the Emergency Response Centre, the Rescue Board, prisons, the Tax and Customs Board and the Environmental Inspectorate. The budget for 2020 included allocation of 2.5% additional funds to the Rescue Board, the Police and Border Guard Board, the Emergency Response Centre, the Tax and Customs Board and prisons. When comparing the wage positions of internal security institutions, the highest wage was paid in prisons and in the police and Border Guard Board for work of similar complexity. The level of wages for work of similar complexity107 is in the Police and Boarder Guard Board 6% and in prisons 3% higher than in the entire reference group. The wage position of the Emergency Response Centre and the Rescue Board is the worst, where the salary paid for work of similar complexity is respectively 10% and 9% lower than in the entire reference group. Within the year, the wage position has improved the most in prisons.

107 Comparison of the work is based on the methodology of work grouping; the value of the work is based on the following criteria: education, professional experience, regulation of work, complexity of thinking task, management and/or cooperation, responsibility for work processes, impact of decisions.

193 STATE BUDGET STRATEGY 2021-2024

Figure 22. In the target group of internal security institutions, the highest gross monthly wage is paid for work of similar complexity in the Police and Border Guard Board and in prisons; within a year, the wage position has improved the most in prisons.

110 106 105 103 99 100 94 94 95 90 91 90 85 80 Emergency Rescue Board (-1) Environmental Tax and Customs Academy of Security Prisons (+3) Police and Border Response Centre Inspectorate (+1) Board (+1) Sciences (+1) Guard Board (-1) (+1) Source: Fontes’ 2020 wage survey of state authorities

When looking at the change in gross monthly wages in internal security institutions this year, the wages increased the most in the Tax and Customs Board (+6.0%), the Police and Border Guard Board (+4.8%) and the Rescue Board (4.5%). Wage increase has been the most modest in the Estonian Academy of Security Sciences (1.6%) and the Emergency Response Centre (1.7%).

Figure 23. In the target group of internal security institutions, the increase in gross monthly basic wage in 2020 remains between 1.6%-6.6%.

3750 3750

3250 3250

2750 1 714 € 1 600 € 1 500 € 2750

1 250 € 1 545 € 1 545 € 2250 2250 1 196 €

1750 1750

1250 1250

750 750 1291 € 1440 € 1605 € 1609 € 1670 € 1688 € 1689 € 250 250 2020 (2088) 2020 (215) 2020 (4826) 2020 (1089) 2020 (245) 2020 (172) 2020 (1286) Rescue Board Emergency Police and Border Prisons (+4,2%) Academy of Environmental Tax and Customs (+4,5%) Response Centre Guard Board Security Sciences Inspectorate Board (+6,0%) (+1,7%) (+4,8%) (+1,6%) (+3,7%) Source: Fontes’ 2020 wage survey of state authorities

In terms of wage, the internal security institutions themselves mostly prioritize their so-called front line staff in 2020. In the Tax and Customs Board, the highest priority was to increase wage competitiveness on the eastern border, where the gross monthly basic wage of customs officers, shift managers and dog handlers increased by 16.3% (1,355 euros), 11.4% (1,705 euros) and 10.9% (1,602 euros), respectively. In addition, wage growth was prioritized for tax auditors, senior investigators and information management centre’s chief specialists. In the Police and Boarder Guard Board, wage growth was prioritized in case of various front line police officer posts, incl. increase in gross monthly basic wage of patrol officers 4.1% (1,458 euros) and border guards 4.8% (1,486 euros). In the Rescue Board, the increase in gross monthly basic wage of rescuers, team leaders, group leaders, operating officers and demining personnel

194 STATE BUDGET STRATEGY 2021-2024 ranged from 3.9% to 6.6%. The percentage of basic wage growth was the highest for rescuers (6.6%, 1,069 euros). In the Emergency Response Centre, gross monthly basic wage increased by 9.6% (1,220 euros) for rescue leaders and 5.5% (1,286 euros) for logistics. In the Environmental Inspectorate, gross monthly basic wage of investigative supervision office managers increased by 12.1% (2,162 euros) and three new positions for bodies conducting proceedings were created, with gross monthly basic wage of 1,750 euros. The wages of teachers of the Estonian Academy of Security Sciences changed by 0.8% (1,869 euros). Of the most important occupational groups, compared to other institutions, the rescuers of the Rescue Board (1,005 euros) and the rescue operators of the Emergency Response Centre (1,132 euros) have the lowest gross monthly basic wage.

Figure 24. In 2020, the priority of wage growth in the internal security institutions is mostly given to front line positions.

2500 2100 2162 1869 2000 1705 1703 1750 1602 1570 1594 1486 1485 1355 1462 1431 1458 1394 1379 1500 1239 1319 1220 1286 1069 1000

500

0

logistics (+5,5%)

rescuers (+6,6%)

teachers (+0,8%)

team leaders (+6,0%)

group leaders (+3,9%)

border guards (+4,8%)

patrol officers (+4,1%)

rescue leaders (+9,6%)

(+6,8%)

prison officer (+7 - +8%)

(+4,9% )

operating officers (+4,5%)

parole officer (+14 - +17%)

investigators (+6,3%)

(+12,1%)

border (+10,9%)

demining personnel (+4,1%)

border (+11,4%)

conducting conducting proceedings

Investigation Department, senior

border + Sillamäe (+16,3%)

establishment of the position of “body

Audit Department,Audit leading auditors tax

Audit Department, tax auditors (+5,9%)

CUSTOMS, dog handlers on the eastern

CUSTOMS,shift managers the on eastern

information management centre (+6,0%)

front line police officers, except for leaders

CUSTOMS, customs officers on the eastern

Intelligence Department, chief specialists of office managers (investigative supervision 5) Tax and Customs Board Police and Border Prisons Rescue Board Emergency Environmental Estonian Guard Board Response Centre Inspectorate Academy of Security Sciences

Source: Information from internal security institutions, March 2020; Fontes’ wage survey.

In 2019, 20% of additional funds were added to the wage fund of the IT institutions, which allowed improving wage competitiveness in the meantime. The wage fund of the target group did not receive additional funds in 2020; however, both the Ministry of Social Affairs and the Ministry of the Environment allocated part of additional money for the area of government to IT agencies (730,000 and 180,000 euros, respectively). Within a year, gross basic monthly wages have increased in all IT agencies and ranges from 1.6% to 11.2% depending on agency.

195 STATE BUDGET STRATEGY 2021-2024

Figure 25. Gross basic wage growth in IT agencies target group in 2020 remains between 1.6 and 11.2%.

4500 4 500 2525 € 4000 2500 € 2600 € 4 000 2200 € 2600 € 3500 1963 € 3 500

3000 3 000

2500 2 500

2000 2 000

1500 1 500 2626 € 2634 € 2676 € 1000 1 000 2122 € 2250 € 2515 € 500 500 2020 (254) 2020 (163) 2020 (352) 2020 (53) 2020 (138) 2020 (118) RIK (+1,6%) RMIT (+6,9%) SMIT (+7,4%) KEMIT (+7,5%) RIA (+5,4%) TEHIK (+11,2%)

Source: Fontes’ 2020 wage survey of state authorities

Equality of state agencies within sector In addition to the current target groups, for the wage growth of which more funds have been allocated than to the others, there are also several other state authorities whose wage levels are clearly below the level of wage paid in other state authorities for similarly complex work. Table 83. Institutions with the highest pay gap in the state authorities reference group.

Gap compared to Share of those Basic wage Number of Basic wage Change in Agency state basic falling behind 2019, EUR employees 2020, EUR basic wage median wage, % in service group, %

Folk Culture Centre 1,359 -23% 29 100% 1,387 2% Estonian Literary Museum 1,221 -19% 95 78% 1,240 2% Environmental Board 1,403 -17% 319 95% 1,483 6% Labour Inspectorate 1,366 -17% 113 82% 1,600 17%

ARIB 1,450 -17% 317 90% 1,547 7% Agricultural Board 1,471 -15% 179 96% 1,465 0% Statistics Estonia 1,525 -13% 285 83% 1,642 8%

Source: Fontes’ 2020 wage survey of state authorities

In the service groups that are important in relation to fulfilling the state’s main functions, i.e. in the areas of advisory and controlling supervision, policy implementation and data analysis and monitoring, the institutions distinguished from the others because of their low wage level continually include primarily those in the administrative area of the Ministry of the Environment (Environmental Board, Environmental Inspectorate, Environmental Agency, Land Board) and the Ministry of Rural Affairs (Agricultural Board, Veterinary and Food Board), but also Statistics Estonia in the administrative area of the Ministry of Finance and the Health Board in the administrative area of the Ministry of Social Affairs. By a government decision, additional funds were added to the wage fund for 2020 in the amount of 1.125 million euros in the area of government of the Ministry of the Environment and 0.5 million euros in the area of government of the Ministry of Rural Affairs and the Ministry of Social Affairs, which should help to improve wage competitiveness, but – as other institutions have also found partial resources for wage increase, the pay gap decreases, but still exists. In the area of

196 STATE BUDGET STRATEGY 2021-2024 administration of the Ministry of Rural Affairs and the Ministry of the Environment, wage competitiveness can be improved by searching opportunities for increased efficiency by merging the authorities, but the optimisation potential is expected to remain rather small.

197 Appendix 7. Four-year plan of investments and investment subsidies, and real estate investments made via Riigi Kinnisvara AS in the State Budget Strategy, thousand euros

2021 2022 2023 2024 Investments and investment subsidies planned in -1,040,716 -945,927 -1,131,985 -910,552 the state budget and by Riigi Kinnisvara AS Investments in state budget -398,794 -369,110 -379,521 -321,556 Investment subsidies -564,387 -494,515 -676,566 -525,499 Built-up real estate investments from the budget of -30,071 -35,973 -36,598 -21,598 Riigi Kinnisvara AS* Development of the joint building of Pärnu police and -2,015 0 0 0 rescue board (entire development) Renovation of buildings located at Rahukohtu 1 and 2 -1,823 0 0 0 Optimisation reserve -21,598 -21,598 -21,598 -21,598 Optimisation reserve (the Ministry of the Interior) -4,635 -14,375 -15,000 0 Projects financed from the sale of greenhouse gas -47,465 -46,330 -39,300 -41,900 emission quotas The Ministry of the Environment -28,910 -41,790 -39,300 -41,900 The Ministry of Economic Affairs and -18,555 -4,540 0 0 Communications Investments and investment subsidies planned in -963,180 -863,625 -1,056,087 -847,054 state budget and by Riigi Kinnisvara AS by groups Real estate -435,394 -328,714 -299,387 -180,248 Roads and facilities -207,447 -242,303 -485,370 -501,888 Other investments -210,194 -165,594 -83,644 -20,281 Defence-related special equipment -51,450 -77,412 -138,175 -97,443 IT investments -36,428 -25,760 -24,187 -22,249 Machinery and equipment -11,663 -5,596 -6,655 -6,372 Transport vehicles -9,185 -16,926 -16,955 -17,107 Inventory -1,420 -1,319 -1,716 -1,467 Investments and investment subsidies planned in -963,180 -863,625 -1,056,087 -847,054 state budget by sources From external funds -539,960 -473,453 -636,184 -507,935 From public revenues -423,220 -390,172 -419,903 -339,119 Investments of areas of government by types and -963,180 -857,175 -1,026,817 -829,494 objects: Riigikogu -723 -502 -2,478 -943 Inventory -9 -9 -9 -9 IT investments -307 -199 -199 -199 Renovation of Riigikogu buildings -395 -282 -2,258 -723 IT investments -12 -12 -12 -12 Office of the President of the Republic -428 -13 -13 -13 Inventory -13 -13 -13 -13 Main building of the Office of the President of the -415 0 0 0 Republic Area of administration of the Government Office -8,735 -8,020 -39 0 IT investments -1,809 -49 -39 0 Renovating the buildings located at Rahukohtu 1 and -2,272 -1,329 0 0 3 Reconstruction of the Estonian Knighthood House -4,654 -6,643 0 0

STATE BUDGET STRATEGY 2021-2024

2021 2022 2023 2024 Ministry of Education and Research, area of -66,059 -74,428 -69,102 -23,859 government Organisation of the network of upper secondary -25,294 -26,164 -44,277 -21,332 schools Organisation of the SEN school network -7,568 -15,137 -7,568 0 Investments of the area of government of the Ministry -583 -504 -479 -489 of Education and Research Other investments -2,366 -2,375 -2,038 -2,038 Organisation of basic school network -25,907 -25,907 -12,953 0 Scientific infrastructure of national importance -4,341 -4,341 -1,787 0 Ministry of Justice, area of government -295 -295 -295 -295 IT investments -217 -217 -217 -217 Machinery and equipment -78 -78 -78 -78 Ministry of Defence, area of government -103,064 -118,949 -169,529 -119,122 Renovation of garrison cemeteries -37 -37 -37 -37 Acquisition and renovation of buildings and facilities -39,852 -33,266 -20,697 -15,901 Inventory -149 -48 -444 -195 IT investments -1,936 -2,158 -2,493 -2,377 Defence-related special equipment -51,450 -77,412 -138,175 -97,443 Renovation of access roads of the Defence Forces -1,330 -800 0 0 Infrastructure of the allies -867 -1,667 -3 750 0 Acquisition of land -1,556 -696 -665 -250 Machinery and equipment -5,836 -2,798 -3,188 -2,885 Other investments -52 -69 -80 -34 Ministry of the Environment, area of government -54,676 -45,033 -19,723 -2,388 IT investments -1,846 -1,546 -1,046 -1,046 Circular economy of waste -5,187 -4,493 -1,000 0 Infrastructure of visiting organisation of protected -500 -480 -170 0 areas Machinery and equipment -633 -333 -1,167 -1,167 Other investments -347 -83 0 0 Conservation of semi-natural habitats -900 -1,150 -1,166 0 Increasing resource productivity -15,000 -12,632 -5,000 0 Transport vehicles -263 -175 -175 -175 Developing the infrastructure of water economy -30,000 -24,140 -10,000 0 Ministry of Culture, area of government -37,666 -25,890 -10,040 -8,440 Eesti Kontsert SA (Estonian Concert Foundation) -600 -500 -500 -500 Acquisition of fixed assets for the Estonian Children’s -23 -23 -23 -23 Literature Centre Building of the National Library of Estonia -336 0 0 0 IT investments -32 -32 -32 -32 Jõulumäe Tervisespordikeskus SA (Jõulumäe Sports -200 -150 -150 -150 Centre Foundation) National Heritage Board -3,864 -2,864 -2,864 -2,864 Other investments -18,356 -4,066 -1,016 -1,016 National Broadcasting -8,017 -16,417 -3,617 -2,017

199 STATE BUDGET STRATEGY 2021-2024

2021 2022 2023 2024 Tehvandi Spordikeskus SA (Tehvandi Sports Centre -4,437 -1,837 -1,837 -1,837 Foundation) Hiiumaa Sports Centre -1,800 0 0 0 Ministry of Rural Affairs, area of government -82,314 -76,715 -38,049 -8,700 IT investments -2,284 -2,108 -2,108 -2,108 Investments in the operational programme of fishery -12,508 -8,456 -1,154 0 Laboratory equipment -80 -80 -80 -80 Investments of the development plan of rural life -66,832 -65,677 -34,478 -6,263 Machinery and equipment -575 -360 -195 -215 Transport vehicles -34 -34 -34 -34 Ministry of Economic Affairs and -466,969 -384,264 -613,412 -622,264 Communications, area of government Renovation of depreciated and inefficient heat -4,000 -3,000 -284 0 pipelines Arbavere drill core depositories -985 -656 -465 -450 Supporting the production of biomethane and its -3,000 -3,350 0 0 consumption in the transport sector Construction of traffic nodes of the E20 Tallinn - -5,100 0 0 0 Narva highway Stage II of the construction of E265 Tallinna ring road -8,500 -7,508 0 0 Upgrading residential electrical installations -91 0 0 0 Inventory -1,250 -1,250 -1,250 -1,250 IT investments -6,202 -5,326 -5,326 -4,776 Renovation and/or construction of district heating -4,000 -4,000 -1,986 0 boilers and replacement of fuel Home support to improve housing conditions for -3,040 -3,040 -3,040 -3,040 families with many children Supporting investments in the housing stock of local -9,389 -1,266 -1,266 -1,266 governments Reconstruction of apartment buildings -91,000 -10,000 -4,851 0 Construction of the Kose-Mäo highway section into -41,329 -27,040 0 0 2+2 lanes Construction of the broadband distribution network -4,200 -4,200 -5,100 0 Renovation of buildings of the Road Administration -417 -417 -417 -417 Purchase of land of the Land Administration -1,500 -1,500 -1,500 -1,500 Other investments -4,720 -495 -495 -495 Reconstruction of Pärnu Airport -17,300 0 0 0 Development of Rail Baltic -74,173 -142,664 -447,039 -494,691 Supporting regional companies for establishing -1,745 0 0 0 electrical connections Summary project of the renovation of national roads -131,963 -110,954 -107,167 -107,171 Key investor subsidy -2,500 -2,500 -2,500 -2,500 Implementation of renewable energy -1,879 -970 -970 -970 Renovation of the Tallinn City Hall 0 -20,000 -20,000 0 Reconstruction of the traffic management system of -6,576 -6,576 -3,288 0 Tallinn-Keila-Paldiski Tallinn-Keila-Paldiski; repair works II of Keila- -3,280 0 0 0 Riisipere railway Construction of Via Baltica on Tallinn-Pärnu highway -12,500 -11,667 0 0

200 STATE BUDGET STRATEGY 2021-2024

2021 2022 2023 2024 Reconstruction of the Tapa-Narva railway -3,683 0 0 0 Reconstruction of the Tapa-Tartu railway -1,153 0 0 0 Reconstruction works of the TEN-T transit roads in -2,992 -2,992 0 0 Narva Transport vehicles 0 -123 -123 -123 Lighthouses -1,973 -612 -360 -360 Renovation of street lighting infrastructure -10,000 -10,000 -1,975 0 Developing the mobility environment between the old -4,354 0 0 0 harbour and the city centre Renovation of buildings of the Maritime -120 -120 -120 -120 Administration Renovation of the Rohuküla production base of the 0 -167 -167 -167 Maritime Administration Deepening of waterways 0 -400 0 -400 Increasing energy efficiency of small houses -1,358 -1,358 -1,358 -1,358 Improving connectivity at public transport stops -478 0 0 0 Restoring the usability of berth at Rohuküla harbour -20 -113 -2,365 -1,210 Construction of Võhma-Reegoldi light traffic road -200 0 0 0 Ministry of Finance, area of government -61,413 -42,079 -27,678 -10,280 IT investments -6,349 -4,595 -4,595 -3,393 Machinery and equipment -397 -397 -397 -397 Other investments -47,805 -37,087 -22,686 -6,490 Regional property investment subsidies -6,862 0 0 0 Ministry of the Interior, area of government -28,576 -30,050 -28,844 -28,546 Issuing of personal identification documents -1,350 -1,350 -1,350 -1,350 IT investments -10,354 -7,331 -6,097 -6,097 Machinery and equipment -2,385 -60 -60 -60 Other investments -2,543 -2,175 -2,175 -2,175 Kase street complex of the Estonian Academy of -100 -100 -100 -100 Security Sciences Transport vehicles -8,558 -16,264 -16,292 -16,445 Maintenance and spare parts of aircraft -1,758 -1,570 -1,570 -1,570 Reconstruction of dormitories of the Estonian -1,200 -1,200 -1,200 -749 Academy of Security Sciences Establishment of inventory storage conditions at -327 0 0 0 Piirissaare border point Ministry of Social Affairs, area of government -45,909 -47,884 -44,560 -1,591 Special care institutions -12,168 -9,514 -7,840 0 Hospital network -7,000 -15,240 -19,295 0 Design works for the active treatment section of the -6,025 -3,606 -844 0 Ida-Viru Central Hospital IT investments -4,680 -1,787 -1,623 -1,591 Health centres -16,036 -13,237 -14,959 0 Design works for the active treatment building of the 0 -4,500 0 0 Viljandi Hospital Ministry of Foreign Affairs -6,354 -3,054 -3,054 -3,054 IT investments -400 -400 -400 -400 Other investments -170 -170 -170 -170

201 STATE BUDGET STRATEGY 2021-2024

2021 2022 2023 2024 Transport vehicles -330 -330 -330 -330 Construction investments of the Ministry of Foreign -5,454 -2,154 -2,154 -2,154 Affairs and of foreign representative offices *Only includes investments that have been decided by the Government of the Republic

202 Appendix 8. Rail Baltic construction action plan for 2021 and subsequent years This Appendix to the State Budget Strategy has been prepared pursuant to section 2 of the Law on Ratification of the Agreement between the Government of the Republic of Estonia, the Government of the Republic of Latvia and the Government of the Republic of Lithuania on the Development of the Rail Baltic / Rail Baltica Railway Connection (adopted on 19.06.2017). Design work activities In 2021108, the large-scale design works of RB, which began in 2019, will continue in Estonian territory. By early 2020, design contracts had been signed for all three design sections (Rapla- Pärnu, Tallinn-Rapla and Pärnu-Ikla). The design of the Ülemiste and Pärnu passenger terminals, which were started in 2019, will also continue.  Until 2022, the design of the RB railway will continue on all sections (Rapla-Pärnu, Tallinn- Rapla and Pärnu-Ikla): a basic and technical project is prepared, environmental impact assessment is carried out.  The design works of the Ülemiste and Pärnu passenger terminals will be continued until mid-2021 (contracts were concluded in 2020 and 2019, respectively). Design works of railway infrastructure in Ülemiste terminal area will be continued.  After planning stage, Muuga Multimodal Terminal design works will be continued (design contract was concluded in September 2020).  Preparation of detailed plan of Pärnu freight terminal will be continued and design works will be commenced. Design includes one infrastructure maintenance depot/ maintenance point in the location of Pärnu freight terminal.  Works will be commenced for designing the so-called dry port at Soodevahe, which serves as an additional terminal next to the terminal in Muuga port, where, due to capacity restrictions, additional infrastructure will be created for servicing 1435 mm, 1520 mm and road transport. Another infrastructure maintenance depot is planned for the same location.  Design works of the rolling stock maintenance depot in Ülemiste area started in 2020 will be continued.  Preparation of detailed plans and preliminary designs of local stops will be started.  Design works of the Tallinn Old City Harbour tram connection will commence. The estimated total cost of the design works is ca 40.9 million euros. State’s mandatory own contribution is 15% of total cost. Construction works In 2021, works will be continued for building so-called “fast schedule” structures (viaducts, ecoducts, crossing areas) (see table 3: RB structures to be built in 2020-2023). The said structures can be built earlier, separate from the solutions of RB basic project, to speed up the construction of RB in Estonian territory. Also, works will be commenced in construction of local sites.  In 2021, construction procurements or construction of 21 viaducts will be commenced in compliance with the completed and approved technical project and construction licences acquired. In addition to that, works will be performed on seven ecoducts and nine crossing areas (relocation of crossing high voltage lines and gas pipelines). Saustinõmme viaduct on the Saku-Luige section of the Tallinn ring road will be completed.  Construction of Ülemiste and Pärnu passenger terminals will be started (communications and access roads), as well as construction of railway section of Muuga multimodal terminal.

108 See Table 84: Budget 2021 for Estonia’s share of Rail Baltica project.

STATE BUDGET STRATEGY 2021-2024

 Completion of reconstruction works of Lelle-Pärnu 1520 mm railway connection. The said railway section is reconstructed for transport of mineral materials (incl. crushed stone made of slate as waste rock when from extracting oil shale) and superstructure materials required for the construction of RB.  The construction works of RB main route (track bed and structures)109 will commence in 2023. Estimated cost of construction works in 2021-2024110 (incl.) is ca 1.09 billion euros, which includes both CEF support and mandatory state’s own contribution. Ca 148111 million euros comes from the EU funds for fiscal period 2014-2020 (financing agreements concluded under Connecting Europe Facility or CEF), ca 8 million euros is anticipated from the funds of last CEF round in 2014-2020 (depends on the extent of the round and success of the application) and ca 931 million euros from funds forecasted for EU fiscal period 2021-2027 until 2024. The latter represents an indication of the capability of implementing Estonia’s activities of the project, but actual investment volume depends on the distribution of EU fiscal period 2021- 2027 by years and rounds, which is not yet known. State’s mandatory own contribution takes into account either known or estimated minimum own contribution rate, which is 15 or 19% of total investment in case of EU fiscal period 2014-2020 and 15% in case of EU fiscal period 2021-2027112.

Acquisition of land In 2021 and 2022, acquisition of land for RB construction started in 2018 will continue. Table 84. Budget 2021 of Estonian part of Rail Baltic project Project Project name 2021, euros Comment no A Ülemiste joint terminal 7,502,288 Detailed plan, design and construction works A.001 Ülemiste passenger terminal 1,973,642 A.003 Ülemiste railway infrastructure 5,528,646 B Muuga freight terminal 1,941,500 Design and construction works B.001 Railways and railway structures 1,353,000 B.002 Maardu road junction and utilities 242,000 B.003 Road structures, roads, yards 165,000 Maintenance depot with access roads B.004 and yards 181,500 C Dry port 357,500 Design works Dry Port – public railway and other 357,500 C.001 infrastructure D Main route 10,793,311 Construction works D.001 Main route, horizontal activities 406,250

109 See Table 87: Schedule for construction of RB main route by priority sections 110 Budget forecast 2021-2024 for Estonian part of RB project is shown in Table 2: Forecast 2021-2024 for Estonian part of Rail Baltic project 111 Contains funds under financing agreements concluded in 2015, 2016 and 2018, as well as funds allocated under the contract to be concluded in 2020. The latter has not been concluded as at 25.09.2020. 112 According to EU fiscal period 2021-2027 and current status of negotiations of CEF regulation.

204 STATE BUDGET STRATEGY 2021-2024

Project Project name 2021, euros Comment no D.002 Main route section no 2 (Tallinn-Rapla) 49,875 D.003 Main route section no 1 (Pärnu-Rapla) 49,875 Main route section no 3 (Pärnu-EE/LV 49,875 D.004 border) Crossings of high voltage lines and gas 4,541,661 D.005 mains D.006 Ecoducts (until 2022) 5,695,775 D* Design of main route 13,500,527 Design works Design: Main route section no 2 6,549,406 D.002* (Tallinn-Rapla) Design: Main route section no 1 (Pärnu- 3,317,295 D.003* Rapla) Design: Main route section no 3 (Pärnu- 3,633,826 D.004* Eesti/Läti border) E Pärnu passenger terminal 513,172 Design and construction works E.001 Pärnu passenger terminal 513,172 F Pärnu freight terminal 137,500 Detailed plan and design works F.001 Public railway of Pärnu freight terminal 85,000 Other infrastructure of Pärnu freight 52,500 F.002 terminal G Ülemiste (Rae) rolling stock depot 2,397,241 Design works G.002 Depot building 2,397,241 Infrastructure maintenance centre and Design works H points 286,000 Infrastructure maintenance centre and 121,000 H.001 points H.002 Infrastructure maintenance point no 1 88,000 Infrastructure maintenance point no 2 77,000

H.003 I Local stops 246,950 Detailed plan and design works I.001 Detailed plans and design 246,950 K Structures 13,179,891 Construction works K.001 Structures (Harju) 9,967,991 K.002 Structures (Rapla) 212,148 K.004 Structures (LG) 2,999,752 Contact line connections to electrical Construction works L network 236,830 L.001 Construction of Järveküla connection 236,830 N/A Costs of performing works 5,284,776 Project and site management and engineering staff costs. Services that are not related to particular construction sites. TOTAL RB BUDGET ACTIVITIES 56,377,486

TOTAL WITH RB BUDGET 61,662,262 ADMINISTRATION COSTS

205 STATE BUDGET STRATEGY 2021-2024

N/A Acquisition of land 3,221,500 Includes cost of land, charges for surveying, assessment and notary fees and administrative costs

N/A Reconstruction of Lelle-Pärnu railway 5,000,000 Construction works

N/A Costs of performing works 220,000 Personnel costs related to implementation of RB. Services not associated with particular construction sites.

N/A Old Harbour tramline 260,000 Design works TOTAL MoEAC ACTIVITIES 8,701,500

TOTAL RB BUDGET 70,363,762

Table 85. Budget forecast 2021-2024 for Estonian part of Rail Baltic project

EU budget period 2021, euros 2022, euros 2023, euros 2024, euros Budget period 2014- 2020 (financing 65,232,284 124,866,032 18,046,895 0 agreements concluded)1 Budget period 2014- 2020 (forecast for CEF 400,000 950,000 8,807,500 0 VII round)2 Budget period 2021- 2027 (indicative 4,731,478 22,865,978 429,845,158 494,839,044 application volume)3 TOTAL RB BUDGET 70,363,762 148,682,010 456,699,553 494,839,044 1 According to concluded financing agreements CEF I - CEF III and CEF VI (to be concluded) 2 Forecast regarding CEF VII round, depends on the volume of the round, which is not yet known 3 Indication of the implementation capability of Estonian activities of the project, actual investment volumes depend on the distribution of funds by years and rounds during EU 2021-2027 budgetary period, which is not yet known

Table 86. RB structures to be built in 2020-2023

CROSSINGS OWNER 2020 2021 2022 2023

VIADUCTS Kangru Road Administration T-2 Tartu road (Assaku) Road Administration Põrguvälja road Road Administration

Rukki road LG Tallinn-Rapla-Türi (Kohila) Road Administration Urge road LG Salutaguse road LG Tallinn-Rapla-Türi (Mälivere) Road Administration Rapla-Märjamaa road Road Administration Aluste-Kergu road Road Administration Kehtna-Põlma road Road Administration Tõdva-Hageri Road Administration Rapla-Varbola road Road Administration Kurtna road LG

206 STATE BUDGET STRATEGY 2021-2024

CROSSINGS OWNER 2020 2021 2022 2023 Hagudi-Kodila Road Administration Künka road LG Seli-Koigi-Alu road Road Administration Varbola road LG Saku-Tõdva Road Administration Rapla-Järvakandi-Kergu road Road Administration Tagadi-Kurtna Road Administration Kirdalu-Kiisa Road Administration Road to Aasu land improvement LG site

EC

ODU Urge ecoduct RB budget Loone ecoduct RB budget C

T

S RB budget Kalevi ecoduct RB budget Selja ecoduct RB budget Sanga ecoduct RB budget Tammiste ecoduct RB budget Kõnnu ecoduct

CROSSING AREAS CROSSING 110 kV L030 Sindi – Papiniidu RB budget 110kV L133B Vändra-Papiniidu RB budget 110kV L032B RB budget

Metsakombinaadi – Papiniidu 110 kV L032A Sindi – RB budget

Metsakombinaadi

Iru-Järveküla and Iru-Järve RB budget

L006A and L005 L100B/L182 Järve – Jüri / RB budget

Kiisa – Järve L006A/ L005 Iru -Järveküla - RB budget

/Iru – Järve L186 Kohila – Rapla RB budget

ümberehitus 110 kV L027 Järvakandi – RB budget

Valgu 110 kV L026 Kehtna – RB budget

Järvakandi Gas pipeline, Raudalu RB budget Gas pipeline, Karla RB budget Gas pipeline, Saku RB budget * Table contains so-called "fast schedule" structures that will be built first. The other structures are included in the general schedule for construction of main route (see Table 87).

Table 87. Schedule for construction of RB main route by priority sections

Priority section Section length (km) 2023 2024 2025 2026 Section 1 Pärnu- Priority section 1: 9.4 Rapla DPS1 Kohila

207 STATE BUDGET STRATEGY 2021-2024

Priority section Section length (km) 2023 2024 2025 2026 Priority section 2: 14.1 DPS2 Alu-Mälivere Priority section 3: 17.2 DPS3 Kärpla-Alu Priority section 4: 14.0 DPS4 Selja-Kärpla Priority section 5: 15.8 DPS5 Tootsi-Selja Priority section 1: DPS1 Ülemiste- 15.8 Kangru Priority section 2: Section 2 Tallinn- DPS2 Kangru-Harju 19.3 Rapla and Rapla country border Priority section 3: DPS3 Soodevahe- 12.0 Muuga Prioritey section 1: 36.6 DPS1 Tootsi-Pärnu Priority section 2: Section 3 Pärnu- DPS2 Saarde- 31.5 EE/LV border Häädemeeste Priority section 3: DPS3 Häädemeeste- 25.4 EE/LV border

208 STATE BUDGET STRATEGY 2021-2024

209