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 2 STATE BUDGET STRATEGY 2021-2024 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. 3 STATE BUDGET STRATEGY 2021-2024 State Budget Strategy and