STATE BUDGET STRATEGY 2020– 2023 AND STABILITY PROGRAMME

May 2019

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Table of Contents Table of Contents 21. PRIORITIES OF THE GOVERNMENT OF THE REPUBLIC 10 2. OBJECTIVES OF PERFORMANCE AREAS 16 2.1 National security and defence 17 2.1.1. Military defence programme 21 2.1.2. Programme for developing defence policy and supporting activities 23 2.1.3. Collective defence programme 24 2.1.4. Intelligence and early warning programme 25 2.2. Foreign policy 25 2.2.1. Foreign policy programme 28 2.2.2. Development cooperation and humanitarian aid programme 30 2.3. Internal security 31 2.3.1. Internal security programme 33 2.4. Public administration 34 2.4.1. Programme for supporting the Government of the Republic and the prime minister 36 2.4.2. Public finance programme 37 2.4.3. Administrative policy programme 38 2.4.4. Regional policy programme 40 2.4.5. Financial policy programme 41 2.4.6. Civil society programme 42 2.4.7. Archiving programme 43 2.5. Legal order 44 2.5.1.Reliable and effective judicial area 48 2.6. Agriculture and fishing 49 2.6.1. Agriculture, food and rural life programme 51 2.6.2. Fishery programme 52 2.7. Health 54 2.7.1. Environmental health programme 56 2.7.2. Health risk programme 57

2.7.3. Health care system programme 60 2.8. Social protection 62 2.8.1. Social security programme 64 2.8.2. Welfare programme 66 2.8.3. Gender equality programme 68 2.9. Education 69 2.9.1. Digital Focus programme 72 2.9.2. Programme on better connection between labour market and studies 72 2.9.3. School network programme 73 2.9.4. General education programme 74 2.9.5. Vocational education programme 76 2.9.6. Higher education programme 77 2.9.7. Adult learning programme 78 2.9.8. Youth programme 79 2.10. Research 80 2.10.1. Estonian Research, Development and Innovation programme 82 2.11. Culture 83 2.11.1 Culture programme 86 2.12. Sports 89 2.12.1. Sports programme 90 2.13. Integration 92 2.13.1. Integration programme 93 2.14. Family policy 95 2.14.1. Programme for children and families 97 3.15. and identity 99 2.15.1. Language programme 101 2.16. Enterprise and innovation 102 2.16.1. Competitive business environment programme 104 2.16.2. Construction programme 106 2.17. Labour market 107

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2.17.1. Labour market programme 108 2.18. Information society 110 2.18.1. E-government development and telecommunications programme 112 2.18.2. Cybersecurity programme 114 2.19. Transport 115 2.19.1. Transport programme 117 2.20. Energy 119 2.20.1. Energy programme 121 2.21. Environment 122 2.21.1 The environmental protection and use programme 124 3. FISCAL FRAMEWORK 125 APPENDICES 158

Introduction Essence of State Budget Strategy The objective of the State Budget Strategy is to ensure fiscal sustainability and to enhance the effectiveness of the government in steering national and sectoral policies. 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. According to the State Budget Act, the budget strategy must be approved by the Government of the Republic no later than eight months before the beginning of the next budgetary year. In the year of the regular elections to the , the Government of the Republic must approve the budget strategy no later than seven months before the beginning of the next budgetary year. The current 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 budget strategy includes the main directions of the state’s fiscal policy for the next four years, a forecast of economic development, priorities of the Government of the Republic, situation analysis of performance areas, targets with indicators, main policy changes, and a funding plan for line ministries. Implementation and updating of State Budget Strategy The State Budget Strategy is implemented via the implementation and action plans of sectoral development plans and via the state budget. For drafting the state budget, constitutional agencies, the Government Office and ministries submit draft budgets to the Ministry of Finance for the following year, i.e. action plans and financial plans for the first year of the development plans. In the year of the regular elections to the Riigikogu, the Government of the Republic will approve the draft state budget no later than seven months before the beginning of the next budgetary year. The Government of the Republic may continue with the draft state budget discussions after the economic forecast of the summer is published. The Government of the Republic will submit the draft state budget together with explanatory memorandum to the Riigikogu not later than three months before the beginning of the 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 a 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 no later than by 1 March. State Budget Strategy and monitoring thereof Over the course of the current financial year, regular overviews of the state’s financial situation are compiled. Monthly overviews of accrual of revenue, the use of budgetary instruments, 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.

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At the end of each financial year, each governmental agency will prepare annual accounts and submit a report on the performance of action plans for that year to the Ministry of Finance. The State Shared Service Centre will prepare an overview of the state’s financial situation, financial performance and cash flows as well as the implementation of state budget. Based on those inputs, the Ministry of Finance prepares the annual accounts of the state, reflecting comprehensive information about the performance and resources of the general government. The Government of the Republic will approve the annual accounts of the state and submit those together with the audit report of the National Audit Office to the Riigikogu for approval.

Preparation of State Budget Strategy 2020–2023 The State Budget Strategy 2020–2023 was prepared simultaneously and in substantive consistency with the preparation of the Government of the Republic Action Plan and the updating of the national competitiveness plan 2020 and the Stability Programme. The ministries presented their programmes for implementation of the objectives together with the financing plan to the Ministry of Finance on 30 April. The data received from the ministries was used as an input for preparing the economic forecast, the Stability Programme 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. Cabinet meetings were held to discuss economic and fiscal policy objectives as well as budget priorities in May. The State Budget Strategy 2020-2023 was submitted to the Government of the Republic for approval on 30 May 2019. The document will also be introduced to the commissions of the Riigikogu. Inclusion of partners in preparation of the State Budget Strategy 2020–2023 The participation of partners in the preparation of 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 view 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 2020–2023 This State Budget Strategy comprises three chapters. 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 part includes a table of indicators and their target levels from the baseline to the next four years, as well as important activities by sectors for the next four years to achieve the objectives.

The third part 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, including the Stability Programme. Stability Programme The objective of the State Budget Strategy and Stability Programme is to express government policies in regard to fulfilment of requirements arising from the Stability and Growth Pact (SGP). The specific parts of the Stability Programme can be found in the fiscal framework chapter and Appendix 1 of this document. The submission and evaluation of Stability and Convergence Programmes is an integral part of the coordination and supervision of the economic policy of the European Semester. In regard to the European Semester, the Commission and the Council evaluate Stability and Convergence Programmes before making integral decisions regarding the preparation of next year’s budgets of Member States, so that policy recommendations could be given in regard to fiscal policy plans, if necessary. The medium-term budget plan provided in the document is in compliance with the provisions of article 4 of Regulation No. 473/2013 of the European Parliament and of the Council. The State Budget Strategy and Stability Programme are based on the 2019 spring economic forecast of the Ministry of Finance published on 4 April.

The document has eight appendices setting out the following: 1. the main indicators of the economic forecast prepared by the Ministry of Finance in spring 2019; 2. Funding Plan 2020–2023; 3. external funds across funds and areas of government; 4. estimated costs 2019–2023; 5. use of revenue from the EU scheme for greenhouse gas emission allowance trading in 2013–2020; 6. personnel and salary analysis of the general government; 7. four-year plan of investments and investment subsidies, including real estate investments made via Riigi Kinnisvara AS; 8. Rail Baltic construction action plan for 2020 and the subsequent years

Abbreviations used in the document: MoJ – Ministry of Justice MoER – 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 7

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 – Estonia Rural Development Plan 2014–2020 EMFF – European Maritime and Fisheries Fund 2014–2020 ESF – European Social Fund EAFRD – European Agricultural Fund for Rural Development ERDF – European Regional Development Fund CF – Cohesion Fund RKAS – Riigi Kinnisvara AS R&D – research and development PA – Performance area MFF 2020+ – EU's multi-annual financial framework OSCE - Organisation for Security and Cooperation in 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 2020–2023 The sectoral view provided in the State Budget Strategy is guided by the Government’s political directions and based on that, the sectoral view in the state’s financial management is updated. In compliance with the State Budget Act, the State Budget Strategy sets out the performance areas in which the state is active. The 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. VVTP policy field SBS performance area Foreign and national security policy National security and defence Foreign policy Internal security Internal security Public administration and civil society Public administration (including civil society) Rule of law and direct democracy Legal order Local life and regional policy Regional policy is one of the programmes in the governing performance area Rural life, agriculture and fishing Agriculture and fishing Healthcare Health Social security Social protection Research and education policy Education Research Culture, sports, and youth work Culture Sports Youth work is one of the programmes in the education performance area Coherent society and population Integration Family policy Estonian language and identity Economy, entrepreneurship and taxes Enterprise and innovation Labour market Tax policy is one of the programme activities in the state finances’ performance area E-government and information society Information society Transportation and infrastructure Transport Environment and energy Energy 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 of 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. As follows, we are outlining the most important objectives and activities that the Government is planning to take in order to achieve the objectives and for which the financing of resources is planned in the strategy.

1. FAMILY-FRIENDLY ESTONIA • Total fertility rate by 2023 will be 1.67 (1.67 in 2018). • The absolute poverty rate in children will be 3.1% by 2023 (3.2% in 2017) The Government deems it important that Estonia would be a place to start a family and to where everyone who have once left to live abroad, are welcomed back. Planned activities: ● The Government plans to map the impact and cost-effectiveness of the family policy measures taken and if necessary, develop suggestions for improving support and services for families. ● The Government will analyse a possibility of creating 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 the possibilities of providing loan sureties without own contribution for young families and families with many children will be analysed. ● The government will prepare an action plan for prevention of domestic violence and analyse the development of a system that helps children that have fallen victim of sexual of physical abuse . ● In order to ensure availability and quality of the support services for children, the support system for children with special needs will be rearranged and the national curriculum for pre-school education updated . ● To support improving children’s moving habit, give schools more discretion and improving the IT studies at schools, proposals are prepared for amending the national curricula of basic schools and upper secondary schools. ● One of the priorities 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. One way of improving the physical activeness 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 plans to develop counselling services for the people returning, for the living abroad, and for the new immigrants , and to analyse the

integration promoting services currently provided to people whose mother tongue is not Estonian.

2. 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 time in the medicine 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: ● The Government plans to carry out a reform of the II pension pillar which would enable people to exit the mandatory II pillar of the pension scheme, if they wish to do so. If the state budget allows, the government will consider 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, organisation of long-term care and policy regarding people with special needs will be brought 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 prepare a green book on the use of technological solutions in social protection . Innovative technological solutions enable to help people who need care manage without leaving home. ● 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 created to approach the topic in a coordinated manner. ● 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). ● 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. ● Ida-Viru and South Eastern Estonia programmes will continue in the full extent of 14.7 million euros and 3.2 million euros respectively until year 2023.

3. KNOWLEDGE-BASED ECONOMY

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● Productivity per employed person as a ratio to the EU average is 80% (base level: 74.4% in 2017) ● Employment participation (20–64 y-o) is more than 79.5% (base level: 79.2%) 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. ● The Government has set the long-term target of increasing the private sector’s R&D expenditure to 2% and the public sector’s R&D expenditure to 1% of GDP. One of the priorities is to significantly increase the share of private sector investments , which is why emphasis is placed on supporting applied research of businesses. In the following four years, additional 152.4 million euros will be directed to public sector research and development expenses. Enterprise Estonia will continue providing product development aid (19.5 million euros) and enterprise development programme (39.3 million euros), and offer financing for applied research and product development via its NUTIKAS measure. Possibilities are analysed for reorganisation of applied research of enterprises and future possible increase of the support according to the budgetary possibilities. ● Support for digitalisation of enterprises continues (2.4 million euros) to increase investments into digital technologies, automatics, and robots. Construction sector processes will be digitalised to improve the productivity of the construction sector and e-construction infrastructure will be developed. ● As a new measure, support fund will be opened for research and development intensive start-ups . Support of development advisors for branches of enterprises will be initiated. Development advisor helps enterprises to find out the most important branches of research and development in their field and to cooperate with officials, researchers, and other parties. ● 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 government wishes to support increasing the value of Estonian raw materials locally and thus create high additional value jobs all across Estonia. A research programme will be compiled based on the needs and interests of the enterprise to add value to the local resources (food, timber, natural resources). 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 and to promote youth employment, which will support the inclusion of inactive people in the labour market.

● Different financing options are analysed to ensure competitive salaries for university professors and a free and high-quality Estonian language education for students, helping to mitigate the issue of lack of qualified work force. ● In order to enhance the effectiveness of doctorate studies, a reform is 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. ● In the course of 2019, an analysis will be carried out on the competitiveness of the Estonian taxation system, including a comparison of the taxes and fees impacting the production input costs of Estonian industrial companies compared to the ones in the neighbouring countries. As a result of the analysis, policy suggestions will be made for improving the Estonian tax system and industrial competitiveness. ● To recover both internal and external trade, alcohol excise duty will be lowered by 25 percent on both strong and low-alcohol beverages. Additionally, excise duty on tobacco will increase less than originally planned – instead of a previously declared 10 percent increase in 2020, the excise duty will be raised by 5 percent annually for the next four years. ● Possibilities are analysed to increase the export opportunities of enterprises and expand the network of economic diplomats. ● 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. Also, capacity will be increased to process and analyse large data volumes to better detect cyber and economic crimes. ● A common point of contact will be created for entrepreneurs for accessing state services, simplifying communication with the state registries. Via a common web- based contact point, the state is also able to provide entrepreneurs with so-called event-based services based on their specific needs, thus reducing bureaucracy considerably. Agriculture ● The government will stand for equal competitive conditions for Estonian agricultural and food producers in the . State funding of animal breeding and transitional support will continue. ● Clean nature is seen as a competitive advantage of Estonia, which is why implementation of Estonia’s programme for eco-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. ● In order to improve risk management capabilities of agricultural undertakings and better the access to credit needed for development, preparations are made to create an investment fund with the help of the Rural Development Foundation. Investments in the infrastructure support economic growth, incl.: ● Investments will be made to road construction with the largest projects being the following:

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- construction of Kanama- and -Juuliku sections of ring road, 19.3 million euros; - construction of - 2+2 section, 11 million euros; - construction of Via Baltica on Tallinn-Pärnu highway, 29 million euros; - construction of the Kose-Mäo section of Tallinn- highway into 2+2 lanes, 67.4 million euros; - construction of Väo traffic node of Tallinn- highway, 10 million euros. ● A total of 437 million euros has been set aside 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 and mainland will improve because a larger aircraft will be added to the route to . ● 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 as well. Technical planning and purchase of lands for the railway track, building of Pärnu and Ülemiste passenger terminal, development of a sustainable and integrated environment between the and down-town, and reconstruction of a transit road passing through Narva will continue. 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. Supporting investments in the housing stock of local governments will continue in the extent of 27.5 million euros. ● To ensure energy security, the Government is making preparations for synchronising the Estonian power network with the European frequency band by 2025. ● Conduct of energy and resource audits, investments in the best available resource-efficient technology and resource management systems and in IT applications supporting thereof, preparation of waste for reuse and recycling is supported to improve resource productivity.

4. EFFICIENT GOVERNING

● The proportion 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 services 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. For that, it is agreed how to consolidate and take state administrative agencies out of the capital, and a State reform action plan is prepared up until 2023. ● Broad revision of the state budget will be carried out to review all the sources of income and expenditure 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 of 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.

5. 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%. The share of people who consider Estonia a safe country is at least 94%. Willingness to defend, that is, the willingness of Estonian people to personally participate in defence in case of an attack against Estonia remains above 54%. The most important task of the government is to ensure the survival of the people of Estonia and an independent and defended Estonia. One of the important pillars of a free state is membership in international organisations. Strong bilateral and regional relationships ensure a favourable foreign environment for Estonia.

Planned activities: 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 focus will be on activities necessary for developing the field of civil defence, which will create better opportunities for protecting the residents in case of various crises and will improve the awareness and crisis behaviour skills of residents. Cyber defence capacity is 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 co- operation 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. Estonia will man posts in Multinational Division Northern Headquarters at Adaži (Latvia). The task of the headquarters is to coordinate the defence of Estonian and Latvian territories. Participation in international operations ensuring national security and peace together with allies and partners will continue. Cooperation with the allies will also continue with the French operation Barkhane in Mali and the NATO’s mission Resolute Support Mission in Afghanistan in 2019. The national defence investments programme will be extended until 2023. Special attention will be given to procurement of ammunition , development of indirect fire, including self-propelled howitzers and development of brigade's anti-tank companies .

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According to the possibilities, the structure of the Defence Forces will increase by 2023. Among other things, additional companies will be formed to strengthen territorial 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 readiness and mobilisation readiness of combat forces of the Defence Forces. The current plans of building the eastern border will continue according to budgetary possibilities. The capability of the Border Guard will be enhanced by the establishment of a separate structural unit and a crisis reserve will be created at the Police and Border Guard Board.

2. OBJECTIVES OF PERFORMANCE AREAS This chapter provides an overview of the current situation in performance areas. All the performance areas together cover the entire activities of the state and all funds reflected in the State Budget Strategy. The overall objectives of the Government of the Republic as well as their target levels and indicators describing their achievement are presented under performance areas. The aims of the performance areas will be implemented via programmes whose aims, measures and the most important 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 as well as their central indicators. A more detailed overview of the content of performance areas can be found in the relevant sectoral development plans and the development plans of the areas of government of ministries. 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. A more detailed overview of the planned actions is provided by the Action Plan of the Government of the Republic.

2.1 National security and defence Aim of the performance area Plausible deterrence against a military aggressor. Ability to withstand an attack with the actions of the entire society. If necessary, quick and effective implementation of collective defence and international crisis management. Table 1. Indicators and target levels of the security and national defence performance area.

Previous Indicator / Target level actual level 2020 2021 2022 2023 (2018)

The units are manned, YES, based YES, based YES, based YES, based YES, based equipped, trained in on the NDDP on the on the on the on the accordance with the 2017-2026 NDDP NDDP NDDP NDDP National Defence implementat 2017-2026 2017-2026 2017-2026 2017-2026 Development Plan ion plan implement implement implement implement decisions. ation plan ation plan ation plan ation plan Source: Ministry of Defence Coalition troops are YES YES YES YES YES permanently located in Estonia. Source: Ministry of Defence

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The level of defence 2.00% 1 >2.0% >2.0% >2.0% >2.0% expenditure of GDP by the NATO method (%). Source: Ministry of Defence Willingness of residents 60% >50% >50% >50% >50% to participate in defence activities. Source: survey Public Opinion and National Defence Number of active 3,422 3,510 3,560 3,610 3,660 servicemen at the end of the year (at least) 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 – 2026 2, implemented through the Ministry of Defence’s performance area development plan for 2020-2023. Short analysis of the situation of the performance area In 2018, Estonia was one of five NATO countries with a defence expenditure of at least 2% of GDP. Almost 3/4 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 18% of the defence expenditure in 2018. 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), we need to annually enlist approximately 50 more active servicemen than leave the service. This is a target that was met by the end of 2018 – the number of active servicemen increased in 2018 by 135 and as of 31 December 2018, there were 3,422 active servicemen in service (objective was 3,410). An important step in improving the capacity of the Defence Forces in 2018 was accepting the last 16 infantry vehicles of 44 in total, and signing a contract for the purchase of 12 K9

1 Actual level of defence expenditure of GDP by the NATO method is 2.0% (GDP value in current prices according to data published by Statistics Estonia on 28 February 2019). Level allocated when planning the budget was 2.07%

2 http://www.kaitseministeerium.ee/sites/default/files/elfinder/article_files/rkak_2017_2026_avalik_osa.pdf

Thunder howitzers. Large-caliber (120 mm, 155 mm) ammunition was purchased, also additional amount of Javelin anti-tank missiles, and vehicles from and the Netherlands. Creation of the infrastructure of the Defence Forces and the Defence League continued in 2018. Among other things, Männiku shooting range of the Defence League was renovated, developing of the Tapa military base continued, the first stage of Tapa close-range practice area was completed and the building of a regional air operations’ control centre was started at the Juhkentali base. With the support of the United States, an additional air plane maintenance hangar, staff rooms, freight handling platform and dormitory-style barracks were completed at Ämari Air Base. Presence of the allies is guaranteed via various different cooperation initiatives. Starting from the spring of 2017, NATO enhanced Forward Presence (eFP) is located in Tapa. Great Britain holds 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 2018, 4-month rotating air policing missions were held by Italy, France, and Germany. 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 2018, the volume of international cooperation grew significantly. Estonia took part in activities pertaining to membership in NATO and the EU. At a NATO Summit, the Defence Ministers of Estonia, Latvia and Denmark signed a common declaration of intent to establish Multinational Division’s North headquarters. The task of the headquarters is to coordinate the defence of the territory under its command, plan and lead military operations, and carry out the necessary training. Coordination of cooperation projects and joint funding on the direction of Ukraine, Georgia, and Afghanistan continued. As at the end of 2018, 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 112 servicemen. In reaction units (NATO reaction forces, Great Britain’s joint expedition forces, 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. Estonia significantly increased its contribution in the NATO operation Resolute Support in Afghanistan and started a new mission in a military operation Barkhane in Mali, led by France. Total volume of defence expenditure The calculation in activity-based state budget and in international reporting is not entirely uniform. In international reporting, the definition of defence expenditure 3 is seen mostly in accordance with the NATO method that does not take into account external support directed

3 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. 19

into national defence, the own revenue earned, nor the annual depreciation, but indicates the relation of 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 the percentage of defence expenditure in 2020-2023 is calculated based on the economic forecast published in April 2019. The actual defence expenditure will become clear afterwards, when the actual GDP of the state is calculated by Statistics Estonia. Table 2. Total volume of defence expenditure 2018* 2019 2020 2021 2022 2023 2% of the GDP for implementation of the 1 National Defence 491.8 539.8 574.1 604.8 635.1 666.2 Development Plan 2017- 2026 4 Incl. activity support allocated 36.5 34.6 39.5 40.8 42.2 43.6 to the Defence League 5 2 Expenditure related to allies 21.7 15.0 10.5 10.0 9.9 9.9 Incl. operation and maintenance costs related to 5.9 5.9 5.9 5.5 5.5 5.5 allies Incl. infrastructure related to 15.8 9.1 4.6 4.5 4.4 4.4 allies Other additional allocations 3 intended for a specific 7.7 0.9 0.0 0.6 0.2 0.0 purpose Into National defence 4 10.0 30.0 20.0 20.0 20.0 20.0 investments programme (KIP) Total defence expenditure 5 513.9* 585.6 604.6 635.3 665.2 696.1 by NATO method 6 % of GDP 2.00% 2.15% 2.11% 2.10% 2.09% 2.09% Total financial assets in the use 7 of the Ministry of Defence 545.9 614.9 627.1 649.3 668.1 696.7 together with foreign support * Actual level of defence expenditure in 2018 from GDP based on the NATO method (%).

4 According to the spring economic forecast by the Ministry of Finance (incl. VAT).

5 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 Participation in Collective Defence and Development of Defence Policy and Supporting Actions. The total support to the Defence League is (2020) 39.5 million EUR, (2021) 40.8 million EUR (2022) 42.2 million EUR (2023) 43.6 million EUR.

The supranational expense and investment saving measures indicated in the State Budget Strategy 2020-2023 do not extend to the jurisdiction of the Ministry of Defence and the level of defence expenditure will not be lowered in comparison with the defence expenditure components indicated in Table 2 of this chapter.

2.1.1. Military defence programme Aim of the programme Prevent attacks against Estonia and ensure Estonia’s ability to defend itself from external threats. Table 3. Independent military defence capability programme indicator and target levels. Previous Indicator / Target actual 2020 2021 2022 2023 level level (2018) The units are manned, YES, YES, based YES, based YES, based YES, based equipped, trained in based on on the NDDP on the on the on the accordance with the the NDDP 2017-2026 NDDP NDDP NDDP 2017- National Defence 2017- implementat 2017-2026 2017-2026 2026 Development Plan 2026 ion plan implement implement implementa decisions. implemen ation plan ation plan tion plan Source: Ministry of tation Defence plan

Important activities to achieve the objectives of 2020–2023 In years 2020-2023, actions approved in the National Defence Development Plan 2017-2026 will continue to be implemented, incl. ● by the end of the period, will be equipped with modern communication and guidance systems. Cyber command will be completely equipped. ● The Defence forces will be better protected at the individual level (bullet and splinter proof vests), equipped with modern firearms and machine guns and with night vision equipment; replacement of grenade launchers will begin. ● The antitank companies of the brigades have switched to modern antitank systems. ● has started using infantry vehicles CV9035 and supporting armoured vehicles, Kalevi and Viru battalions have switched to PASI armoured vehicles by the end of the period. ● The very short range air defence (VSHORAD) capabilities of the 2nd infantry brigade is equal to the one of the 1st brigade.

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● By the end of the period, the pioneering capacities of the brigades will be developed as required. ● During the period, the self-propelled howitzers will start to be added to the weaponry; unit-based training will begin in 2021. ● Combat support and combat service support will improve. The combat support battalion of both brigades is equipped, the modular field hospital solution will be completed for the first brigade. The logistics battalion will continue to be equipped with appropriate transportation, i.e., capacity to receive, concentrate and move forwards will be ensured and the service life of the armoured vehicles will be extended. ● Ammunition procurements will continue to equip all units. Between 2020 and 2023, ammunition will be procured for 146 million euros (VAT included), to which funds from the National Defence Investment programme will be added (20 million per year, totalling 80 million in the period of 2020-2023). In total 226 million (incl. VAT). ● In order to ensure the training, the central training area will continue to be developed in order to create suitable conditions for the infantry combat equipment, investments in the bases at Tapa, Jõhvi and Võru will continue. Ämari Base will be developed with the help of the NATO and the ally resources. ACCS Software Based Element (ASBE) will be introduced. ● During the period, NATO’s BRASS (Broadcast and Ship to Shore) building project will be completed. ● 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 and to recruit active servicemen. By the end of the period, approximately 3,660 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 987 million euros, with 646 million euros spent on basic procurement for NATO, 102 million (incl. VAT) for infrastructure construction and land acquisition. ● The volume of training increases significantly, with resources for up to 4,500 participants in 2020 and 2021, and up to 7,000 participants in 2022.

2.1.2. 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 4. Indicators and target levels of defence policy development and the supporting programme. Previous actual Indicator / Target level 2020 2021 2022 2023 level (2018) Level of military defence 2.00% >2.0% >2.0% >2.0% >2.0% expenditure of GDP by NATO method (%) Source: Ministry of Defence Willingness of the 60% >50% >50% >50% >50% residents to participate in defence operations Source: Public opinion and national defence Number of active 3,422 3,510 3,560 3,610 3,660 servicemen at the end of the year (at least) Source: Ministry of Defence

Important activities to achieve the objectives of 2020–2023 The most important activities of the programme on developing the defence policy and the supporting activities are as follows. ● The policy on national defence education invests in people’s awareness and preparedness. The allocation of grants to schools for national defence training for organising outdoor camps will continue. In 2023, 6,300 persons will undergo defence training. ● Defence expenditure will be used to ensure social security for active service in case of injury, and the best possible treatment. Training and retraining of active servicemen is supported. Let Us Salute! campaign will continue. ● The Defence League will support national and local government structures in performing comprehensive defence tasks. ● The Defence Forces Academy will prepare the leadership of the Defence Forces and conduct further training.

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● During the planning period, operating grants will continue to be used to finance audio- visual projects and support NGOs. Support for think tanks, including the International Centre for Defence Studies, remains at the same level. ● Communication and recruitment campaigns that introduce/value conscript service will play an important role. The programme to invite more women into the Defence Forces will continue, as well as the patriotic education programme.

2.1.3. 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 5. Indicator and target levels of the programme on participating in collective defence. Previo us Indicator / Target level actual 2020 2021 2022 2023 level (2018) Coalition troops are YES YES YES YES YES permanently located in Estonia. Source: Ministry of Defence

Important activities to achieve the objectives of 2020–2023 ● 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. ● 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 NATO’s Multinational Division North Headquarters. Participation includes 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 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 approximately 4.5 million euros, the actual cost will be determined during the period according to the actual mandates. ● Estonia maintains membership in 20 international organisations; the largest financial contributions are to the NATO, the UN, and the Strategic Air Transport initiative. ● 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.

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

2.2. Foreign policy Aim of the performance area - 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 6. Indicators and target levels of the foreign policy performance area. Previou s actual Indicator / Target level 2020 2021 2022 2023 level (2018)

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Regional security. Source: Ministry of Foreign Affairs stable stable stable stable stable EU unity. Source: European Foreign Policy B B B B B Scorecard (measured once a year on a scale A-C) Estonia’s share in world trade. 0.08% 0.11% 0.11% 0.11% 0.11% Source: World Trade Organisation Estonia’s position in the world’s competitiveness ranking. 32 25 25 25 25 Source: The World Economic Forum Estonian presence and impact in the world. 82 80 80 80 80 Source: Elcano Global Presence (2017) Report Estonia’s performance of its international obligations in 0.16% 0.17% 0.19% 0.21% 0.23% development cooperation* Source: OECD DAC Long-term sovereign rating. AA- AA- AA- AA- AA- Source: Standard & Poor’s *objective to be pursued in accordance with the budgetary possibilities. 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. 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 Positive tendencies in the dynamics of reaching objectives and sub-objectives: ● Acting in a changing security situation was operative and effective. ● Crises in Europe and abroad were handled quickly and effectively. ● Estonia is one of the world’s leading voices on cyber security. ● Estonia is a valued development cooperation partner. ● The number of activities supporting export and investments increased. ● Estonian citizens are protected, they receive quick and high-quality aid.

Main challenges to address: ● Tensions in international relationships are growing and cooperation based on international institutions and rules is weakening. ● In this tense security situation, better cooperation with allies, partners in international organisations, bilaterally and under regional formats has become 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 (next to the more traditional ones). ● More complicated map of potential threats and more diverse sources of danger, including cyber threats. ● Safeguarding Estonia’s role as an international speaker (competition among countries is intensifying), which requires increasing the capacities of foreign services pertaining to cyber and hybrid threats. ● Handling the impacts of Brexit. ● 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. ● Increasing 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. ● 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. ● Impacts of the polarising society on the foreign policy.

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2.2.1. Foreign policy programme Aim of the programme The security and well-being of Estonian people and state will increase. Table 7. Indicators and target levels of the foreign policy programme. Previous actual Indicator / Target level 2020 2021 2022 2023 level (2018) Regional security Source: expert evaluation stable stable stable stable stable based on sub-criteria Support of Estonian people to EU Source: Awareness and attitude of Estonian 79% ≥79% ≥79% ≥79% ≥79% population in the matters pertaining to the European Union Support of Estonian people to NATO Source: Public opinion and 76% ≥76% ≥76% ≥76% ≥76% national defence Cyber security index 2nd place Source: NCSI (position in the 2nd place 2nd place 2nd place 1st place (2018) ranking) Work force productivity compared to EU average 74% 80% 80% 80% 80% Source: Eurostat Estonia’s representation in the world and availability of services abroad Source: Ministry of Foreign 64% 70% 75% 78% 80% Affairs (combined indicator that considers relevant sub- criteria) Client-friendliness of consular services and compliance with the reputation of a digital state 45% 45% 45% 50% 50% Source: Ministry of Foreign Affairs (combined indicator that considers relevant sub- criteria)

Better involvement of the Estonian community and its to be return specified growing growing growing growing Source: Ministry of Finance / in 2019 Statistics Estonia

Important activities to achieve the objectives of 2020–2023 ● Promoting Estonian interests in international organisations, bi- and multilateral relationships, regional formats. ● Increasing and strengthening cyber security capacity in accordance with the budgetary possibilities. ● 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. ● 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. ● Higher 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.

2.2.2. Development cooperation and humanitarian aid programme Aim of the programme Estonia’s contribution to global security and sustainable development has grown and, inter alia , the impact and effectiveness of its development cooperation and humanitarian aid have broadened. Table 8 . Indicators and target levels of the development cooperation and humanitarian aid programme. Previou Indicator / Target level 2020 2021 2022 2023 s actual

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level (2018) The international obligations have been carried out in development cooperation* (0.33% of the GNP by 0.16% 0.17% 0.19% 0.21% 0.23% 2030) Source: Ministry of Foreign Affairs Support of Estonian people to development cooperation. 68% ≥68% ≥68% ≥68% ≥68% Source: Eurobarometer Estonia’s representation in the world and availability of services abroad. 64% 70% 75% 78% 80% Source: Ministry of Foreign Affairs *objective to be pursued in accordance with the budgetary possibilities.

Important activities to achieve the objectives of 2020–2023 ● 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 international donors. ● A uniform impact assessment system will be developed and implemented. ● We will separate policy making from its implementation. ● Strengthening the capacity of reacting to humanitarian crises and increasing the share of prevention.

2.3. 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.

Table 9. Indicators and target levels of the internal security performance area. Indicator / Target level 2020 2021 2022 2023

Previous actual level The share of people who consider Estonia a safe country, % Source: Ministry of the Interior, 94 ≥ 94 ≥ 94 ≥ 94 ≥ 94 survey on public opinion on internal security People considering their place of residence safe, % Source: Ministry of the Interior, 96 ≥ 96 ≥ 96 ≥ 96 ≥ 96 survey on public opinion on internal security Share of people who consider - crime, 3 ≤ 3 ≤ 3 ≤ 3 ≤ 3 - migration, 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, % Source: Ministry of the Interior, 30 ˃ 30 ˃ 30 ≥ 50 ≥ 50 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 Source: Statistics Estonia 761 ˂ 760 ˂ 740 ˂ 720 ˂ 680 In order to achieve the goal of the internal security performance plan, Internal Security programme has been prepared, which is based on both the current Internal Security Development Plan 6 (STAK 2015–2020) and the possible goals of the future STAK 2020– 2030. The Ministry of Interior and the Ministry of Social Affairs are responsible for the planning of activities and allocating financial resources to achieve the objectives of the

6 https://www.siseministeerium.ee/et/stak 31

programme. The Ministry of Social Affairs will contribute to the internal security programme via its Efficient Population Administration measure. Short analysis of the situation of the performance area People in Estonia assess their safety highly. The number of people who consider Estonia a safe place to live has increased in the recent years. According to the 2015 Eurobarometer survey, 92% of the respondents found that Estonia is a safe country to live in. In 2018, 94% of the people who responded to the public opinion survey on internal security saw Estonia as a safe place to live. The share of people who deem their neighbourhood safe has remained steadily high (92% in 2015 and 96% in 2018). Residents of North-East Estonia asses the safety of Estonia lower than the rest of the respondents (83% in 2018), but do not see the safety of their own neighbourhood considerably differently than the others (92% in 2018). In 2015, due to the European migration crisis, the most important issue for Estonia according to the respondents became immigration. During 2016, the concern over immigration dropped significantly (from 45% to 19%) and continued to decline in 2017 (from 19% to 14%). In 2018, 12% of the respondents saw this as the main problem for the country. 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 (47% of the respondents) and immigration (62% of the respondents) are the most pressing issues that need to be handled 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 and 30% in 2018). The main factors preventing from participating in security-related voluntary activities were other obligations and lack of spare time (58%) and requirements to physical capabilities (40%). 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 (93%). There is also potential to increase participation in security-related volunteer activities. This is shown by people’s willingness to contribute to volunteer activities: 9% of the residents have participated in neighbourhood watch while 56% of the respondents are willing to take part in it again; only 1% of the respondents have participated in the work of police and rescue workers, 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 injury 7 was lower in 2018 (268 in 2017 and 220 in 2018). The number of fatalities in road traffic accidents increased and reached the level of 2015 and 2016 (48 in 2017 and 67 in 2018). However, the number of traffic accidents with human casualties has stayed approximately the same since 2014 (1,400–1,500 injured persons per year).

7 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.

2.3.1. 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. The aim, measures and target levels of the internal security programme and its performance area are identical. See above, table 9.

Important activities to achieve the objectives of 2020–2023 ● Conditions are created to keep the law enforcement agencies’ and the rescue network’s capacity to respond on an adequate level. For that, means are sought to raise the salaries of internal security workers to ensure sufficient number of employees. In addition, work environment is improved. Among other things, Narva College of the Estonian Academy of Security Sciences will be completed in 2020. The structural units of the PBG fleet, marine rescue, marine pollution monitoring and control, and maritime border guarding and servicing of these units will be transferred to Hundipea Harbor. Common building will be completed in Pärnu in 2021. In addition to salaries and the work environment, other conditions are created. For instance, accident and hazard reaction network is expanded and cooperation improved between different parts of the network. The number of people ensuring public order is also increased, also involving security companies and other qualified and authorised companies and agencies in 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 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. ● Reserve unit will be created for the purpose of internal security, able to operate also in case of 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. ● Capabilities of the Financial Intelligence Unit of the Police and Border Guard Board will be increased. Estonian success depends on the reliability of its business environment and for that, we need to focus on capturing financial criminals, confiscating criminal income and preventing money laundering.

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● ICT capabilities are 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 rescue workers 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. Among other things, a competence centre is selected on a national level to coordinate the setting of prevention objectives and the achievement of results across sectors. In addition to improving the system, evidence or knowledge-based prevention programmes are being implemented to reduce damage to life, health and property. 2.4. Public administration Aim of the performance area Unified and effective public administration, accounting for the population’s needs. Table 10. Indicators and target levels of the governance performance area. Previous Indicator / Target level actual level 2020 2021 2022 2023 (2017) Proportion of general government Did not expenditure in GDP shall not increase Does not Does not Does not Does not increase. increase increase increase increase (39.3%) Source: Eurostat Proportion of general government employees in employment-age Up to Up to Up to Up to

population (20-64 y-o). 17.7% 17.7% 17.7% 17.7% Source: Ministry of Finance Retaine Retaine Retaine Retained Government effectiveness. d the d the d the the Source: Institute for Management 4th place position position position position Development in the in the in the in the top five top five top five top five Population’s satisfaction with public The measure is being developed. services.

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 The most important challenges in governance arise from the demographic developments like reduction of the population, ageing and urbanisation, the resulting impacts on the labour market, and impacts on the regional balance. These trends have a significant impact on both the administrative and the regional policy, causing the need to constantly reduce the number of government sector employees and establish balancing measures to mitigate the growing regional inequality. That is why the state has set an aim of keeping the number of government sector employees less than 17.7% of the working age population (20–64-year-olds) and less than 18.9% of the employment (20–64-year-olds) and maintain the share of government sector expenditure at less than 40% of the GDP to ensure reasonable balance between the sectors. The share of Estonian local governments’ expenses in the government sector expenditure is half (23%) of what it is in the Northern 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 studies 8 have shown a clear positive connection between the wealth of a state and its fiscal and administrative decentralisation. Estonia’s ability to withstand the potential negative external impacts has improved, the public finances are in a good condition and the economic policy framework is strong. In 2016– 2018, Estonia’s economic growth has remained steadily above three percent, reaching 3.9 percent in 2018. According to the forecasts, Estonian economy will continue to grow in 2020–2022 at the average rate of 2.8% per year. The growth is supported by a relatively fast increase in export, but the contribution of internal demand will also remain stable due to growth in private consumption and investments. The main challenge in the system for combating money laundering that is currently under heightened 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 challenges arising from the Estonia’s new image (digital image, e-residency, etc.) in a balanced but efficient way.

8 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. 35

2.4.1. Programme for supporting the Government of the Republic and the prime minister Aim of the programme The overall government objectives have been carried out. Table 11. Indicator and target levels of the programme. Previous Indicator / 202 202 202 actual level 2023 Target level 0 1 2 (2019) Success in carrying The Government The general out the general of the republic objectives indicated objectives of the has five overall in the Government - - - government Source: goals 9 action plan 2019- Government Office 2023 are achieved by 2023

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 2020–2023 In support of the general objectives, the Government of the Republic and the Prime Minister will focus on the Estonia 2035 strategy for better planning and coordination of government policy during the budget strategy period.

2.4.2. Public finance programme Aim of the programme Public finance is sustainable and balances the economic cycle.

Table 12. Indicators and target levels of the programme. Previous actual Indicator / Target level 2020 2021 2022 2023 level (2018)

9 The base levels of the objectives set out by the Government of the Republic are as follows: Total fertility rate 1.59, absolute poverty rate for children 3.2%, relative poverty 22.6%, absolute poverty 3.4%, productivity per employed 74.7% of the EU average, participation in employment (20-64 y-o) 79.2, the share of general government employees in the working age population (15-74 y-o) 11.9%, share of general government expenditure in GDP 39.3%, 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 54%

The structural budgetary position of the general 0.7 0.0 0.0 0.0 0.1 government, % of GDP Source: Statistics Estonia Correspondence of the government sector’s Countercycli Countercycli Countercycli Pro- Countercycli cyclical budgetary position cal or cal or cal or cyclical cal or neutral change with the economic neutral neutral neutral cycle. Share of taxes in GDP, % 32.8 33.6 33.4 33.3 33.0 Source: Statistics Estonia Real growth of general government expenditure according to the European 2.2 <2.8 <2.8 <2.8 <2.8 Commission methodology compared to potential economic growth, % 10 Debt in GDP, % 8.7% <6.9% <6.2% <5.3% <5.3% Share of liquid financial 8.7% >7.4% >7.1% >6.5% >6.5% reserves in GDP, % Estonian macroeconomic The The number The number The number The number indicators are in number of of indicators of indicators of indicators of indicators compliance with the levels indicators not in not in not in not in agreed in the EU not in compliance compliance compliance compliance scoreboards to identify and complianc is 0 is 0 is 0 is 0 monitor macroeconomic e is 0 imbalances, or do not exceed these levels without a valid reason. 11 Long-term sustainability of Low risk Low risk Low risk Low risk Low risk the budget policy (European Commission’s evaluation) 12

10 Description of the methodology Box 1.11 p. 52 https://ec.europa.eu/info/sites/info/files/economy- finance/ip075_en.pdf

11 https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic- governance-monitoring-prevention-correction/macroeconomic-imbalance-procedure/scoreboard_en

12 The respective level is indicated in the annual assessment on the stability programme. See sect. 5 - https://ec.europa.eu/info/sites/info/files/economy-finance/06_ee_2018_sp.pdf 37

Important activities to achieve the objectives of 2020–2023 ● 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 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. ● Carrying out a broad-based state budget audit revision is prepared. ● State’s strategic planning framework will be strengthened and strategic performance areas consolidated into fewer strategic documents.

2.4.3. Administrative policy programme Aim of the programme Improving the administrative capacity of the state - bettering the quality of state administration in limited budgetary conditions together with improving the efficiency of the use of resources. Table 13. Indicators and target levels of the programme. Previous Indicator / Target level actual level 2020 2021 2022 2023 (2019) Share of central government 33.5% Does not Does not Does not Does not expenditure of GDP. increase increase increase increase Source: Eurostat Share of central government in 6.8% / 8.7% Up to Up to Up to Up to working-age population (20-64)/ 7% / up 7% / up 7% / up 7% / up share of central government in to 9% to 9% to 9% to 9% employment (20-64) 13 Central government compensations 6.5% Does not Does not Does not Does not for employees (of GDP) 14 increase increase increase increase Source: Eurostat

13 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.

14 Compensation of employees consists of wages and salaries and employer's social contributions https://ec.europa.eu/eurostat/statistics-explained/index.php/Glossary:Compensation_of_employees

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. 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 2020–2023 ● A state reform action plan for the following years is prepared and implemented. As a part of this, an important position is given to consolidation of state offices and the state’s record keeping service, and continuous implementation of a uniform support implementation service at the State Shared Service Centre. ● In the field of ICT, the possibility of cross-country consolidation of basic computer workstations is analysed and a workable model for consolidating the base workstation of a computer workstation is developed. ● In the area of data management, personalised statistics and data sources will start to be provided to consumers.

2.4.4. 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 14. Indicators and target levels of the programme. Previous Indicator / Target actual 2020 2021 2022 2023 level level (2018) Share of population of 44.5% =<44.7% =<45.0% =<45.1% =<45.4% Harju County in the (forecast 44.0%)

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population of Estonia (%) 15 Source: Statistics Estonia Share of GDP created 36.3% >=36% >=36% >=36% >=36% outside of the total GDP (%) 16 Source: Statistics Estonia Regional difference of 4.9 =<5.0 =<5.0 =<5.0 =<5.0 real estate prices (Harju, Tartu, Pärnu Counties vs the average of the rest of Estonia, in times) 17 Source: Land Board Satisfaction with living Increase Increase Increase Increase environment on a level from the from the from the from the of an administrative base level base level base level base level unit (indicator since 2020) Regional differences in Decrease Decrease Decrease Decrease the level of satisfaction from the from the from the from the with the living base level base level base level base level environment (indicator since 2020) Share of local 23% ≥23% ≥23% ≥23% ≥23% government expenses in public sector expenditure Source: OECD

Important activities to achieve the objectives of 2020–2023 ● 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

15 Source: Statistics Estonia RV028U and RV092. The target level indicates a more modest migration to Harju County than estimated.

16 Source: Statistics Estonia RAA0050. The target level shows that the decreasing of the contribution of other counties has slowed down.

17 Source: Land Board, transaction data on apartment ownerships (living spaces), average transaction cost (eur/m2). The target level indicates that increase in regional differences has slowed down.

business environment. OECD studies 18 have shown that there is a clear positive connection between fiscal and administrative decentralisation. ● Analysis and proposals to local governments to support performance of joint tasks and deliver them with financing to achieve better services for local people through cooperation. ● 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.

2.4.5. Financial policy programme Aim of the programme Competitive and trustworthy business and finance environment. Table 15. Indicators and target levels of the programme. Previous Indicator / Target level actual level 2020 2021 2022 2023 (2018) Capital market volume (stock 21% of the More More More More exchange, single funding, other GDP than than than than 25% financial intermediation outside 23% of 23% of 25% of of the banking, except pension funds and the GDP the GDP the GDP GDP insurance) to GDP Share of financial and insurance 3.8% More than 3.5% activities in the added value of GDP (2017) Private persons’ net financial assets 9.7% (2017) More More More More (financial assets – financial than than than than 12% obligations) towards GDP 10% 10% 11% Long-term actual performance of No (0.3%) No Yes Yes Yes the II pillar funds (rolling average of 20 years equals or exceeds 2%) Basel Anti-Money Laundering Index Yes (2) Yes Yes Yes Yes (place in the top ten) High quality of reporting and Yes (28) Yes Yes Yes Yes auditing standards (ranking in top 30) (The Global Competitiveness Report)

18 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. 41

Competition among banks - interest rate on home loans 2.4% Less than 3% - interest rate on long-term loans 2.0% Less than 3% issued to real sector entrepreneurs

Important activities to achieve the objectives of 2020–2023 ● Carrying out a national risk assessment on money laundering and terrorist financing and passing the respective evaluation by Moneyval. Developing a strategic monitoring and analysis capacity to better understand and address the activities and risks pertaining to money laundering and terrorist financing. ● Preparation and implementation of the II pillar pension reform. Simultaneously, an analysis and proposals for promoting pension payments by employers to employees, including reforming the Old-Age Pensions under Favourable Conditions Act and superannuated pensions.

2.4.6. Civil society programme Aim of the programme Action-capable citizen associations and socially active residents. Table 16. Indicators and target levels of the civil society programme. Previous Indicator / Target level actual level 2020 2021 2022 2023 Proportion of citizen associations receiving aid from three or more funding sources, % 33 45 45 45 45 Source: Impact analysis of the civil society development plan Level of participation in volunteer work, % Source: Survey on participation in 49 36 36 36 36 volunteer activities 2018 Overall sustainability of Estonian civil society, % Source: The United States Agency for 2.1 1.9 1.9 1.9 1.9 International Development (USAID)

Achieving the aim of the programme is the responsibility of the Minister of Population and the programme will be carried out by the Ministry of the Interior.

Important activities to achieve the objectives of 2020–2023 ● A strategic partnership cooperation form is being developed where a ministry, subordinate unit or local government finances a non-governmental organisation for a longer period of time and the NGO contributes to the development of the respective field or provides an agreed service. ● Financing of NGOs will be organised. It is important to keep the financing transparent, effective, accessible and not too administratively burdensome for NGOs. ● More attention will be turned to involving the elderly and the young into volunteer work to provide them an opportunity to get together and remain active. ● Project competitions and calls for proposals will continue to be organised to support the improvement of overall vitality of citizen’s associations.

2.4.7. Archiving programme Aim of the programme Sustainable preservation and use of the documented memory of the society, verifying rights of the citizens. Table 17 . Indicators and target levels of the archiving programme. Previous actual Indicator / Target level 2020 2021 2022 2023 level (2018) The number of archival creators (agencies) who have transferred the digital records to the National 9 To be specified in 2019 Archives. 19 Source: Estonian National Archive Share of archival documents preserved in required repositories in the National Archive, % Total volume as of the end of 2018 - 89 89 89 89 89 9,493,598 archive documents. Source: Estonian National Archive Availability of the documents online, 19.5 20.5 20.5 20.5 20.5 million images.

19 The indicator used so far (Share of archive creators (public service institutions that may produce documents of archiving value) whose main activity documents have been assessed, %) has been removed from the archive programme since the task is completed (result close to 100%). A new indicator has been added, following which will improve the efficiency of archive pedagogical activities in the National Archive. 43

Source: Estonian National Archive The Minister of Education is responsible for achieving the objective of the programme, which is carried out by the Ministry of Education and Research and the National Archive.

Important activities to achieve the objectives of 2020–2023 The state budget strategy period focuses on securing archival digital information and accessing digital archives to ensure access to different types of digital records and to preserve archival information.

2.5. Legal order Aim of the performance area Legally certain, well-functioning state with low crime rate and high-quality legal system. Table 18 . Indicators and target levels of the legal order performance area.

Indicator / Target Previous actual level 2020 2021 2022 2023 level* (2018)

Corruption Perceptions Index of Transparency 73 ≥71 ≥71 ≥73 ≥73 International 20 Proportion of victims of a crime among residents 6% <6% <6% <5% <5% (in the past 12 months), %

In most of the courts of first and second instance, The productivity of solving matters is More efficient the capacity to settle cases positive in all courts and all types of administration of justice is positive or near proceedings; appeal procedures in any (duration and positive. The share of county court, administrative court or a performance of proceedings that last for court of second instance are generally proceedings) * more than a year is up to no longer than 365 days. 15% of the total number of cases.

World Justice Project 0.81 >0.81 >0.81 >0.81 >0.81 rule of law index 21 (2019)

20 http://www.transparency.ee/

21 https://worldjusticeproject.org/our-work/research-and-data/wjp-rule-law-index-2019

Number of people who died from violent 26 <25 <25 <25 <25 attacks*

Duration of pre-trial With a victim: proceedings of a criminal With a victim: 6.3 months less than 6 months matter with a minor With a suspect: 2.9 Suspect: victim and a minor months less than 2.5 months suspect* *Source of indicators: Ministry of Justice A programme has been created to achieve the objective of the legal order performance area: Reliable and Effective Judicial Area. 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 order performance area are agreed upon in the following development plans: Õigusloomepoliitika põhialused aastani 2030 (draft) 22 , Kriminaalpoliitika põhialused aastani 2030 (draft) 23 and Esimese ja teise astme kohtute arengukava 2020-2023 24 .

Short analysis of the situation of the performance area The legal policy direction must strive for the Estonian legal environment to be modern, flexible, attractive, bureaucratic and economic competitiveness on the one hand and respecting and respecting the rights of individuals on the other:

● More flexible operation of the state - reform of the general part of administrative law in 1990, and in 2014, change of work organisation of the Government of the Republic; there is a need to further optimise the work of the administrative bodies and to facilitate communication with the state (taking into account privacy and data protection of individuals).

● Legislative quality and volume reduction - legislative volume does not appear to have lessened significantly based on various reviews 25 ; consistently requiring a thorough analysis before the draft is necessary (in 2017, it was done only in case of a quarter of the drafts).

22 https://www.just.ee/et/oiguspoliitika-pohialused-2030

23 https://www.kriminaalpoliitika.ee/et/kriminaalpoliitika-arengusuunad/kriminaalpoliitika-pohialused-aastani-2030- eelnou

24 https://www.kohus.ee/et/eesti-kohtud/eesti-kohtususteem

25 www.just.ee/oma 45

● Different areas of private law and personal life - since the restoration of independence in Estonia; still need to be updated: 1) private law actions and the realisation of rights and obligations generally without state intervention; 2) a legal environment that protects human rights and fundamental rights, is more understandable, more convenient and uses the possibilities of the digital world; 3) emphasis on prevention and support, and on the capacity and capacity of the Patent Office, the Competition Authority and the Data Protection Inspectorate.

The aim of criminal policy is to prevent offences based on knowledge and impact assessment and to treat offenders effectively by ensuring the needs of victims on the one hand and by supporting the return of the offender to a lawful path on the other:

● Preventing state-led crime and reducing the resulting damage - the criminal justice system alone is unable; a prerequisite for success is cooperation between health, education and social, cultural and sporting systems (e.g., treatment and counselling for addicted offenders, anti-bullying programmes, hobby and sports groups).

● Crime reduction - crime rate has halved over the last 15 years (especially thefts); good position in security and police trust category 26 ; a worse situation with regard to the number of prisoners and killings (among the most recent ones), the number of juvenile offences (albeit reduced in seven years and reaching to almost 1000) and the number of offenders with mental health problems and the rate of repeated crime.

● Criminal punishment - inclined towards long imprisonment (79% are conditional or complete imprisonment); should focus on the development of post-release law enforcement capacity through community-based sanctions, extensive use of restorative law, the content of imprisonment and post-release support and accommodation.

● Implementing Agencies - increasing the capacity and capability of the Prosecutor's Office, the Estonian Forensic Science Institute, prisons and probation supervision.

Changes in society and increasing expectations of people also require different solutions in the enforcement of rights in order to find a quick but high-quality solution to legal problems:

● Legal services - more accessible and effective legal assistance for the satisfaction of members of society and the services of sworn translators, bailiffs, lawyers, notaries, patent attorneys, trustees in bankruptcy.

● Effective and fair trial - the most simple European judicial system (no specialised courts); since 2006, mainly changes related to combining work areas; due to changes in the social situation and displacement of people (e.g., in 2017, the number of inhabitants

26 Eurobarometer 464b. 2017. Europeans’ attitudes towards security

is smaller than in all counties except Harju county) 27 , the proceedings need to be made more flexible and less burdensome for the participants of the proceedings: 1) specialisation of judges, 2) further centralisation of support services; 3) further development of digital solutions. achieving the above is supported throughout by international cooperation and technological solutions : ● The increasing role of international cooperation - in particular, agreeing on common rules at EU level and sharing experience with tried and tested solutions. ● Digital solutions - a threat to information systems development, the slowdown of processes and lack of user-friendliness and up-to-dateness; it is important to develop the technological possibilities that maximise workflows.

2.5.1. Reliable and effective judicial area Aim of the programme Create the conditions for the effective functioning of society and reduce the number of offences and the damage they cause.

Table 19 . Indicators and target levels of the reliable and effective judicial area programme Previous Indicator / Target level actual level 2020 2021 2022 2023 (2018) Ranking in the World Freedom Status Status Status Status Status “free” index 28 “free” “free” “free” “free” Estonia’s competitiveness ranking 29 32 30 29 28 27 Share of people who feel safe at their 76% >77 >77 >79% >79% neighbourhood after dark 30

Important activities to achieve the objectives of 2020–2023

27 http://andmebaas.stat.ee/index.aspx?DatasetCode=RV0291

28 https://freedomhouse.org/report/freedom-world/freedom-world-2019

29 http://reports.weforum.org/global-competitiveness-report-2018/

30 https://www.kriminaalpoliitika.ee/sites/krimipoliitika/files/elfinder/dokumendid/ovu_2010-2018.pdf 47

● Ensuring effective governance by implementing the digital legal procedure across the justice system and making the country's institutional performance better and more flexible. ● Supporting research-based economy by developing an entrepreneurial environment through a modern, attractive and competitive environment. ● Creating a cohesive society by providing those in need with reasonable and timely access to affordable and high-quality legal aid through the enhancement of the system and the improvement of sustainability and transparency. ● Ensuring independent, high-quality and accessible justice through the enhancement of court resource performance and more flexible and efficient litigation. ● Enhancing public justice and security on the one hand by preventing offences and, on the other, by addressing their consequences.

2.6. Agriculture and fishing Aim of the performance area Clean Estonian food is favoured by informed consumers, the environment and biodiversity are preserved, food companies are successful, and the vitality of rural and coastal communities is growing. Table 20 . Indicators and target levels of the agriculture and fishing performance area. Previous actual Indicator / Target level 2020 2021 2022 2023 level (2018) Additional value in agriculture and fishery per person employed, € 12 264 12 509 12 754 12 999 13 244 Source: Statistics Estonia Export and import value ratio of foodstuff, % 0.74 0.75 0.76 0.77 0.78 Source: Statistics Estonia Consumer confidence index to be growin growing growing growing Source: Ministry of Rural Affairs specified g Employment rate of rural residents aged 20–64, % 76.1 76.3 76.5 76.7 76.9 Source: Statistics Estonia Percentage of environmentally 80 80 80 80 80 managed land, (%)

Source: PRIA Fish stock in good condition, % 50 50 52 53 60 Source: Ministry of the Environment

Two programmes have been set up to achieve the agricultural and fisheries performance objective. 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. A development plan for agriculture and fisheries up to 2030 31 is being drafted, setting long- term development goals for the agricultural and fisheries performance area.

Short analysis of the situation of the performance area The agriculture, fisheries and food industries have an important role to play in the Estonian economy, because it is these areas that bring food to our table. These sectors account for ~ 5% of the value added in Estonia and employ around 6% of the employed population.

There are about one million hectares of agricultural land in Estonia, almost all agricultural land is connected to a compliance system. In order to further ensure environmental protection, the introduction and continued use of environmentally sound management practices in agriculture will be promoted, inter alia, with the support of the European Union's Common Agricultural Policy. The area of organic land was over 210,000 hectares compared to 2018, compared to 2017 the increase was over 10,000 ha and the number of organic farmers increased by 61 or by 4%.

Maintaining the reliability of food produced and consumed in Estonia, including imported and exported food, requires constant 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, with the aim of extending activities to existing and emerging risks, including mitigation of risks arising from antimicrobial resistance (AMR), food, feed and animal diseases.

Nearly one third of the Estonian population lives and works in rural areas. Rural areas employ 24% of total employment participants, i.e., 162,000 people, 71% of whom are rural and 29% urban. In 2018, 21,500 people were employed in agriculture, forestry and fisheries, or 3.6% less compared to the previous year. 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, the number of people dropping out of the labour market due to age is higher than the number of young people entering. Ensuring the diversity of entrepreneurship, creating new attractive jobs and promoting value-added

31 https://www.agri.ee/et/pollumajanduse-ja-kalanduse-valdkonna-arengukava-aastani-2030

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activities and sectors (e.g. bio-economy, circular economy, eco-tourism, innovative production methods, export of precious products, etc.) have been priorities in ensuring sustainable rural development, young people and generation change.

The main instrument for promoting the competitiveness of the fishing industry is the implementation of the European Maritime and Fisheries Fund Operational Programme 2014-2020, of which around 52.5% of the budget (almost 129 million euros) for the end of 2018 and 27.6% of the budget have been disbursed as support. In implementing the operational programme, the main emphasis is on adding value to fishing and aquaculture products, supporting the energy and resource efficiency of fisheries sector companies, and developing coastal fisheries.

2.6.1. 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 21 . Indicators and target levels of agriculture, food and rural life. Previous actual Indicator / Target level 2020 2021 2022 2023 level (2018) Area of utilised agricultural area, ha 1,001,40 1,001,40 1,001,40 1,001,50 1,001,50 Source: Statistics Estonia 2 2 2 0 0 Food safety barometer to be growing growing growing growing Source: Ministry of Rural Affairs specified Added value in the food industry per employee compared to the EU average, 50 51 52 52 53 % Source: Statistics Estonia The share of added value of farmers in the added value of the whole supply 28 31 32 33 35 chain, % Source: Eurostat Share of young people aged 21-40 living in rural areas in the total number of young people in the same 27.95 27.95 27.95 27.95 27.95 age group, % Source: Statistics Estonia

Important activities to achieve the objectives of 2020–2023

● 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 new markets. ● Antimicrobial resistance (AMR) 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 the 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. ● In order to promote exports in the food sector 32 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 go on. ● 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 certification in Estonia will be continued. The Agricultural Board and the Veterinary and Food Board will continue to carry out effective monitoring on organic farming. ● 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.

2.6.2. Fishery programme Aim of the programme Sustainable fishery that ensures the competitiveness of the sector and sustainable management of fish resources . Table 22 . Indicators and target levels of fishery programme. Previou s actual Indicator / Target level 2020 2021 2022 2023 level (2017)

32 „Eesti toidusektori ekspordi edendamise tegevuskava 2019–2022“

51

Stock in good condition, % 50 50 52 53 60 Source: Ministry of the Environment Added value per employee in fishing enterprises (professional fishing, 24 593 24 800 24 900 25 000 25 100 aquaculture and fish processing), € Source: Statistics Estonia Number of jobs in fisheries (professional fishing, aquaculture and 2 049 2 052 2 052 2 054 2 054 fish processing), € Source: Statistics Estonia

Important activities to achieve the objectives of 2020–2023 ● Creating conditions for the development of marine aquaculture. In aquaculture, we can expect increase in production mainly from launching 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 licenses and the submission of data related to fishing, electronic solutions will be introduced for the submission of data to operators. Thanks to modern IT 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. ● Promoting the production of products with higher added value 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 aquatic resources (including processing residues). In the development of innovative technological solutions for enhancement of living aquatic resources, cooperation of businesses with R&D institutions will continue to be supported, including 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 that are already working with well-established producer organisations in the trawling sector. A 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. In the aquaculture sector, where there is a high degree of fragmentation and divergence of interests between low-output products and production methods, the promotion of joint activities is one of the key factors for the sector's viability and competitiveness.

● 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. ● Improving the state of the stock, including opening the migratory route, restoring spawning grounds, bringing catch limits into line with fishing opportunities (reduction). ● Enhanced monitoring to reduce illegal fishing - more efficient use of electronic means (electronic logbook / PERK, extension of GPS usage in winter on the Peipsi, enabling the runway and form cameras and allowing use of evidence); simplifying the procedure for minor infringements.

2.7. Health Aim of the performance area The healthy life expectancy of Estonian people has increased.

Table 23 . Indicators and target levels in the health performance area. Previous Indicator / Target level actual 2020 2021 2022 2023 level

Men 73.7 Life expectancy (separately for men and Men 75 Men 75 Men 75 Men 75 women), in years Women Wome Women Women Women 82.3 Source: Statistics Estonia n 84 84 84 84 (2017)

Healthy (without limitations) life expectancy at birth (separately for men Men 54.5 Men 60 Men 60 Men 60 Men 60 and women), in years Women Wome Women Women Women 59 (2017) n 65 65 65 65 Source: Statistics Estonia

Programmes of the health performance area: Environmental Health Programme, Health Risk Programme and the Health Care System Programme have been prepared to implement the National Health Plan 2009-2020 33 and to achieve its objectives. The programmes focus on

33 ”Rahvastiku tervise arengukava 2009-2020” https://www.sm.ee/et/rahvastiku-tervise-arengukava-2009-2020

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promoting environmental health, reducing undesirable health effects and risk behaviour, and thereby improving the health outcomes of the population and ensuring the availability of quality health services that meet society's expectations and needs. 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 life expectancy of Estonian people has significantly increased in recent decades, but still remains below the EU average (78.4 in Estonia and 80.9 in the EU in 2017). The increase in the proportion of chronic patients in the population has delayed the increase in healthy life expectancy - one of the worst among the EU countries (59.0 in Estonian women and 54.4 in men and 64.2 and 63.5 in the EU, respectively). The number of avoidable early deaths and health loss due to risk behaviour is still high. In order to extend healthy life expectancy and life expectancy, it is necessary to ensure a functioning health system, including the availability of treatment services that meet the needs of the population, to reduce the impact of undesirable health effects and environmental factors that directly or indirectly affect health behaviour and health. For the years 2020– 2030, a new population health development plan is being prepared with the aim of maintaining and improving the mental and physical health of the Estonian people, prolonging the expected and healthy life expectancy by reducing premature mortality and morbidity, and reducing inequalities between different population groups. In the area of health, the need to optimise the hospital network, strengthen primary health care and secure the system with healthcare professionals is the bottleneck to be resolved. In order to improve the availability of primary health services, investments have been made in the establishment of primary health centres and now all county centres are covered. In the new primary health centres, a physiotherapist, a home nurse and a midwife are working alongside a family doctor and nurse, and other specialists if necessary. To promote a healthy lifestyle and reduce risk behaviour in cooperation with different life spheres, take measures to develop health awareness and a health-promoting environment. There is a need to increase access to mental well-being and opportunities for physical activity and full-fledged food, to reduce the availability and demand for physical and psychological addictive substances and to promote safe behaviour in domestic and leisure activities. It is estimated that up to one third of the population's health loss is directly related to the factors of the living environment, so it is important to pay attention to environmental risk factors, the assessment and management of the risks caused by them. Co-operation between different sectors is essential to prevent problems arising from environmental hazards and to manage the impacts that have occurred.

2.7.1. Environmental health programme Aim of the programme Health risks from the living environment have decreased. Table 24 . Indicators and target levels of the environmental health programme. Previous Indicator / Target level actual 2020 2021 2022 2023 level

Involvement of 2-y-o children in the measles, mumps, and rubella (MMR) 92.9% 95% 95% 95% 95% immunisation 34 (2018) Source: Health Board

Percentage of subjects vaccinated in the target group indicated in the 93.3% 95% 95% 95% 95% immunisation schedule 35 (2018) Source: Health Board Percentage of the population using public 88.9% water supply drinking water 91% 92% 93% 93% (2017) Source: Health Board

School compliance with lighting 96% requirements 97% 97% 99% 99% (2018) Source: Health Board Percentage of companies that market compliant chemicals among all the 54% 56% 57% 58% 58% controlled companies (2016) Source: Health Board

Important activities to achieve the objectives of 2020–2023 ● The system of public health, including measures and actions for the assessment and management of health risks from the environment, will be fully modernised and responsibilities for its development will be specified. To this end, the Public Health Development Plan for the period 2020-2030 will be updated and the new Public Health Act and its sub-acts procedure will be completed. Changes to the field practice will be

34 The indicator shows the percentage of two-year-old children who have received the MMR vaccine.

35 Involvement of 2-year-old children in the immunisation plan of 6 vaccines (average indicator of the involvement in various vaccines) 55

introduced, improving the collection of basic data (bio-monitoring) and the methodologies used, and improving the availability of information on health risks for the population. ● One of the important goals is to prevent outbreaks of infectious diseases and reduce treatment costs. To do this, it is necessary to increase the coverage of the population by vaccination and to control the increase in the proportion of those hesitating on vaccination. ● The modernisation of the chemicals monitoring procedure and the development and implementation of digital chemical monitoring procedures in cooperation with partners. It reduces the administrative burden on businesses and makes data uniformly available to policy makers and supervisors. ● In collaboration with partners, a cross-disciplinary approach is being developed and implemented to control antimicrobial resistance in order to prevent the spread of resistance in Estonia.

2.7.2. Health risk programme Aim of the programme Undesirable health effects and risk behaviours have decreased and health indicators have improved. Table 25 . Indicators and target levels of the health risk programme.

Previous Indicator / Target level 2020 2021 2022 2023 actual level

Number of people under 65 years of age who have died of cardiovascular disease per 100,000 inhabitants 36 82 (2017) 56 56 56 56 Source: Statistics Estonia

Infant mortality rate (deaths of children under 1 year of age per 1,000 live births) 37 2.2 (2017) 1.7 1.7 1.7 1.7 Source: Statistics Estonia

36 The indicator shows the number of deaths in cardiovascular diseases per 100,000 people of the same age among people under 65 years of age.

37 The indicator shows the number of deaths under one year of age per 1,000 live births. It is an internationally used public health indicator that reflects the level of care and monitoring of newborns (including the social situation of the mother and the child in developing countries).

Standardised early mortality rate due to chronic non-communicable diseases has decreased (mortality of 30–69-year-olds due to chronic non- 367 (2015) 345 338 338 338 communicable diseases per 100,000 inhabitants) 38 Source: World Health Organisation Mortality rate for children and young people aged 0-19 years per 100,000 inhabitants 39 29.5 (2017) 31 31 31 31 Source: Statistics Estonia Share of 11, 13 and 15-year-olds who consider their health very good 40 35.7 (2017/2018 34.7% 34.7% 34.7% 34.7% Source: National Institute for Health ) Development

Differences in life expectancy at birth 4.5 by counties 41 (2016/2017 3.4 3.4 3.4 3.4 Source: Statistics Estonia ) The number of new cases of mental and behavioural disorders per 100,000 inhabitants in children and 2336.7 1900 1900 1800 1800 adolescents aged 1-19 has decreased 42 (2017) Source: National Institute for Health Development and Statistics Estonia

38 The indicator reflects the number of deaths of 30-69-year-olds per 100,000 for the same age for the following reasons: diseases of the circulatory system, malignancies, diabetes and chronic respiratory diseases. These are standardised indicators.

39 The indicator shows the number of deaths per 100,000 inhabitants of the same age (0-19 years).

40 The indicator shows the share of children aged 11, 13, and 15 who give a very good assessment of their health, based on survey data.

41 The indicator shows how many years the population of the county with the highest life expectancy is expected to live more than the population with the lowest life expectancy.

42 The meter reflects new outpatient consultations. 57

The proportion of children aged 11, 13 and 15 who have not experienced 67.2 depressive episodes is increasing (2017/2018 70% 80% 80% 80% Source: National Institute for Health ) Development

Important activities to achieve the objectives of 2020–2023 ● The system of public health, including health risk prevention, management and harm reduction measures and activities, is modernised and responsibilities for its development and protection are specified. For that, a new Public Health Act and its sub-acts’ procedure will be completed. ● An important objective is to reduce the number of new infections and to improve the quality of life of the infected. For that, we need to continue with the National HIV and AIDS Action Plan 2017–2025 43 approved by the government. ● Pursuant to the Green Paper 44 on alcohol policy adopted in 2014, implementation of a comprehensive alcohol policy will continue. The aim is to develop and improve the availability and availability of alcohol abuse treatment and counselling, and to introduce early detection and short guidance of alcohol abuse in primary health care. ● Possibilities of addiction treatment for young people will be improved by transferring the service to the Ida-Viru Central Hospital. Alternative counselling programmes have been launched for offenders to reduce the risk behaviour. ● Introducing a mobile harm reduction service (syringe exchange), expanding the availability of naloxone, and developing and piloting a pharmacy-based service. The aim is to reduce drug-related deaths. ● A Green Paper on nutrition and movement will be presented to the Government of the Republic for approval, and necessary measures will be implemented. The aim is to control excessive weight gain, increase physical activity and thereby reduce the spread of chronic non-communicable diseases such as diabetes and cardiovascular disease. ● Programme of the Liikuma Kutsuv Kool initiative will be expanded and provided to all local governments together with the methodology by 2023. The aim is to increase the physical activity of children.

43 HIVi ja AIDSi riikliku tegevuskava 2017–2025 https://www.sm.ee/sites/default/files/content- editors/Tervishoid/rahvatervis/hiv_riiklik_tegevuskava_2017_2025.pdf

44 Alkoholipoliitika roheline raamat https://www.sm.ee/sites/default/files/content- editors/eesmargid_ja_tegevused/Tervis/Rahvatervis/Tervislik_eluviis/alkoholi_roheline_raamat-19.pdf

● Green paper on mental health will be prepared and implemented. The aim is to prevent mental health problems and provide the necessary support and treatment services. ● According to the green paper 45 on tobacco policy, one of the important objectives is to reduce tobacco consumption and the spread of nicotine addiction, including among young people.

2.7.3. Health care system programme Aim of the programme All people are guaranteed access to high-quality healthcare through optimal use of resources. Table 26 . Indicators and target levels of the health care system programme. Previous Indicator / Target level actual 2020 2021 2022 2023 level Share of health insurance coverage in the population 46 94.5% 99.0% 99.0% 99.0% 99.0% Source: Statistics Estonia, the health (2018) insurance fund Share of total public health expenditure in public sector 12.8 % expenditure 47 ≥15% ≥15% ≥15% ≥15% (2017) Source: National Institute for Health Development Households' share of total health expenditure 48 23.6% <25.0% <25.0% <25.0% <25.0% Source: National Institute for Health (2017) Development

45 Tubakapoliitika roheline raamat https://www.sm.ee/sites/default/files/content- editors/eesmargid_ja_tegevused/Tervis/tubakas_2014.pdf

46 The indicator shows the proportion of people covered by health insurance at the end of the year. Since there are no agreed targets for the improvement of this indicator for 2018 and 2019, the target level has been adjusted and the objective is to maintain the existing level.

47 The indicator shows how much the Estonian public sector contributes to health care as a share of total public spending, reflecting the public sector's priority level to the health system. Health system is mainly financed by public funds, of which nearly two-thirds comes from targeted health insurance contributions, and nearly a tenth from the state budget.

48 The indicator shows the residents' own contribution in using health services, i.e. the share of the total cost of health services provided by households from their own budget. It is made up of compulsory expenditure on medicines, the cost of paid services, etc., as well as the cost of health care used abroad. The indicator is used to assess the availability of health services. 59

Share of patient’s expenditure in 32.2% buying discount medicines 49 ≤30% ≤30% ≤30% ≤30% (2015) Source: Health Insurance Fund

Important activities to achieve the objectives of 2020–2023 ● The goal in the health sector is to move towards a human-centred healthcare that requires the provision of high-quality and accessible health services. To achieve this, the Public Health Development Plan for 2020-2030 will be updated. ● The development of a new hospital network development plan or analysis of the methodology and forecasting model for special medical care organisation and needs assessment will be started up to 2040. Based on the results and forecasts of the study, policy scenarios will be developed to organise the provision of specialised medical care and recommendations will be made for policy development. Scenarios describing the architecture and functions of the specialist care system at the local level allow for public investment. ● Entry into force of the pharmacy reform on 1 April 2020 implies a transformation of ownership of a large number of pharmacies, which may lead to the closure of pharmacies and a large number of license changing applications. The process of implementing the ownership reform also entails procedures for revoking licenses, cases and media interests. Pharmacists also need legal and financial advice and the need for high-quality legal assistance is increasing. Applying the pharmacy reform also increases the need to inform the public so that people do not get confused about where to buy the necessary medicines. ● Higher minimum rates for health care workers' salaries will be guaranteed from 1 April 2020. The minimum rates were established by the collective agreement of health care professionals signed on 30 November 2018.

2.8. Social protection Aim of the performance area Reducing social inequality and poverty, ensuring gender equality and increasing social inclusion. Table 27 . Indicators and target levels of the social protection performance area.

Previous Indicator / Target level 2020 2021 2022 2023 actual level

49 The indicator shows the proportion of the costs that patients have to pay themselves when purchasing the preferential medicines they receive, that is, the part of the cost of the medicine that is not covered by health insurance (by the Estonian Health Insurance Fund).

Rate of relative poverty, % 22.6% Source: Statistics Estonia; Estonian 15 15 15 15 (2017) Social Survey Absolute poverty rate, % 3.4% (2017) 3.0 3.0 2.9 2.8 Source: Statistics Estonia Difference between average hourly wages of women and men, i.e. gender pay gap, % 20.9% (2017) 19.7 19.3 18.9 18.5 Source: STAT, gender pay gap database

Social protection performance area programmes: Social Security Programme, Welfare Programme and the Gender Equality Programme have been prepared for the implementation of the Welfare Development Plan 2016-202 50 3 and for achieving its goals. The programmes focus on reducing social equity and 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 protection system is divided into social security and social welfare services. Under social welfare, people are provided on a needs-based basis 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 if necessary (subsistence benefit) and emergency assistance is provided. Assistance is based on 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. In order to reduce the daily burden of care-burdened family members and to provide better services for people in need of care, the government has approved the establishment of a sustainable long-term care system and a maintenance burden reduction plan, which aims to increase the volume of care services and reduce people's co-payment for general care services. The state has also invested in adapting homes for people with disabilities in order to improve their self-sufficiency. It is estimated that the cost of domestic violence in Estonia is over 116 million euros per year, which is why it is important to extend prevention activities and to provide a separate social programme for dealing with perpetrators, and a 24-hour emergency telephone helpline has

50 Welfare Development Plan 2016-2023 https://www.sm.ee/et/heaolu-arengukava-2016-2023 61

been opened. The aim is to improve the availability and impact of victim support services so that fewer people fall victim to violence. Social transfers, that is, cash benefits and allowances (incl. pensions) reduced the absolute poverty of the population by almost 85% in 2017 (by 19.4 percentage points), i.e., without financial support and compensation, an estimated 22.8% of the Estonian population would have lived in absolute poverty. The impact on relative poverty reduction is also important - in 2017, social transfers, including pensions, reduced the relative poverty rate of the population by almost 41% (15.9 percentage points). Of the various types of social transfers, old age pensions are affected by poverty the most. In 2017, the old-age pension reduced the absolute poverty of the entire population by 14.1 percentage points (81%) and relative poverty by 8.4 percentage points (27%). 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. From 2019, the subsistence level increased from 140 euros to 150 euros per month, for each subsequent adult member to 120 euros, and to each minor to 180 euros per month. This is the amount that has to be made available to the person after first meeting the cost of housing. The minimum wage also increased to 540 euros on the basis of an agreement between the Confederation of Estonian Trade Unions and the Estonian Employers' Confederation, on the basis of which the increase in the minimum wage is related to the expected increase in labour productivity. The increase of the minimum rate of wages together with changes to the minimum income tax-free amount will increase the standard of living of workers who earn low wages.

2.8.1. Social security programme Aim of the programme People's economic coping has improved with the help of activating, adequate and sustainable social protection. Table 28 . Indicators and target levels of the social security programme. Previous actual Indicator / Target level 2020 2021 2022 2023 level 3.0% 3.4 3.3 3.1 3.0% Men Absolute poverty rate in age (2017) % % % groups 0–17, 18–64 and 65+, %51 0– Wome 3.4% 3.7 3.6 3.4 3.3% 17 n (2017) % % % Source: Statistics Estonia, 3.2% 3.5 3.4 3.2 3.1% Estonian Social Survey Total (2017) % % %

51 Shows the proportion of people whose net income per household member (per unit of 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.

5.2% 4.2 4.1 4.1 4.0% Men (2017) % % % 18– Wome 2.8% 3.0 2.9 2.9 2.8% 64 n (2017) % % % 4.0% 3.6 3.5 3.5 3.4% Total (2017) % % % 1.6% 0.8 0.7 0.7 0.7% 65+ Total 52 (2017) % % % 3.7% 3.8% 3.8% 3.7% 3.7% Men Severe material deprivation rate in the (2018) total population, % 53 3.8% 3.8% 3.8% 3.7% 3.7% Women Source: Statistics Estonia, Estonian Social (2018) Survey 3.8% 3.8% 3.8% 3.7% 3.7% Total (2018)

Important activities to achieve the objectives of 2020–2023 ● As a result of the pension reform, retirement will become more flexible from 2021, giving people the opportunity to decide when to retire. To ensure sufficient pensions, the pension formula will be amended, whereby 50% of the I pillar pension rights 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 related 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, if necessary, makes proposals for amendments. The analysis deals with both the first and second pillars of the pension.

52 The restrictions of the sampling do not enable to determine data by gender.

53 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. 63

● 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 pension benefits 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 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 (i.e., 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.

2.8.2. Welfare programme Aim of the programme People’s ability to manage independently and live in a community has improved due to effective legal protection and assistance. Table 29 . Indicators and target levels of the welfare programme. Previous Indicator / Target level actual 2020 2021 2022 2023 level Ratio of people receiving out-patient care services that support independent living, and 24-hour institutional care 54 1.2 1.8 1.9 2.0 2.2 Source: Welfare statistics of the (2017) Ministry of Social Affairs, National Social Insurance Board

Important activities to achieve the objectives of 2020–2023 ● The main task is to develop a long-term care system with a main objective of reducing the care burden of family members. In doing so, it is important to ensure the smooth movement of people in need of care between social and health care services, to reduce

54 The indicator shows the number of 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.

the bureaucratic burden on the care patients and their relatives and to provide assistance to people in need as early as possible. To this end, 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. ● In order to improve the availability of public social services (special care services, rehabilitation services, assisting equipment service), the system will be made more efficient and need-based. For that, the current organisation is reviewed and the necessary organisational simplifications introduced (review of the assisting equipment system, development of SKAIS2 in terms of assistive services, if necessary, changes for the better implementation of the evaluation system of special care provided by NSIB in 2019, cross- sectoral review of the rehabilitation system and improvement of cooperation, including implementation of proposals from the pilot of first-time sufferers). Foreign-funded pilot projects on personalised service model and long-term work will continue, as well as various activities on the basis of the International Classification of Functioning (ICF). ● Consulting local governments in provision 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 and relieve the burden of care and coping difficulties. ● Developing a victim support system to provide appropriate assistance and support to all victims of violence and crime. The new tasks of victim support workers include the management of networks of local professionals to assist victims of violence, as well as proactive cooperation with all relevant authorities. Achieving an adequate response to multiple calls in 2019 is an important development, creating legal counselling capacity for victim support through volunteer counsellors, taking into account the needs of victims of violence. ● Maintaining a new 24-hour crisis helpline service 116 006 as part of the victim support system, including, if possible, a focal point for trafficking cases and psychosocial crisis management. In cases of domestic violence, it is important to provide substantive crisis advice 24/7 at the scene. ● Strengthening the service of Sexual Violence Crisis Centres (SVCCs) and providing standardised assistance to all respondents, both recent and older cases. Providing psychological assistance in cases where no criminal case has been initiated due to expiration or other reasons. Also, in 2019, twice as many clients have contacted SAKs than last year, providing assistance is necessary to prevent further damage. ● 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, including the implementation of prevention and

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information activities for attitudes, access to victim support and services, and guidance for local government social and child protection workers on domestic violence. ● Coordinating accessibility promotion, including organising the accessibility board, supporting the financing of representative organisations for people with disabilities and conducting an analysis of hobby activities, and conducting analysis of hubs for public transport stops to identify their accessibility for people with special needs and the cost of possible adjustments. Activities include the protection of the report on the implementation of the Convention on the Rights of Persons with Disabilities and its preparations. ● To promote equal treatment, awareness-raising activities will be carried out within the framework of the Diversity Day, and activities will continue on the diversity workplace label.

2.8.3. Gender equality programme Aim of the programme Men and women have equal rights, responsibilities, opportunities and liability in all areas of the society. Table 30 . Indicators and target levels of gender equality programme.

Previous Indicator / Target level 2020 2021 2022 2023 actual level

Number of women graduating in 13.4 mathematics, science and technology from a thousand women aged 20-29 (2016/2017 11.6 11.9 12.2 14.8 ) Source: Statistics Estonia

Percentage of residents who consider the gender pay gap to be a big or very 64% - 74% - - big problem, % (2016) Source : gender rquality monitoring

Gender equality index 56.7 Source: European Institute for Gender - 61.7 - 63.3 (2015) Equality (EIGE)

Important activities to achieve the objectives of 2020–2023 ● 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. With the support of the RITA programme, a broad-based study will be carried out to reduce the unexplained part of the gender pay gap and to develop data and methodology for calculating the wage gap with a low administrative burden. ● To reduce stereotypical attitudes and segregation, an implementation study, partly supported by the RITA programme, aims to develop and pilot different types of nipples to increase the share of girls and women in ICT in education and the labour market. 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 men and young people.

Activities will be carried out to support the availability of gender-based statistics and data in the areas of responsibility of all ministries, an article compilation “Towards a Balanced Society III” will be published and gender equality monitoring will be conducted. Within the framework of the Norwegian and European Economic Area (EEA) Financial Mechanisms Programme "Local Development and Poverty Reduction", a virtual competence centre for gender equality will be developed, combining gender statistics, research, training materials, etc.

2.9. Education Aim of the performance area All people in Estonia are provided with learning opportunities corresponding to their needs and abilities throughout their life-cycle to ensure that they have opportunities for dignified self-actualisation in the society, work life and family life. Table 31 . Indicators and target levels of the education performance area. Previous Indicator / Target level actual level 2020 2021 2022 2023 (2018) Average wage level of teachers in municipal schools* compared with 120** 120** 120** the country’s average wages 113 120** Source: MoER Proportion of 30-year-old and younger teachers (%) 11 12.5 12.5 12.5 12.5 Source: EHIS Proportion of 18−24-year-olds with low education level not in further <9 <9 <9 education or training (%). 11.3 <9 Source: Eurostat

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Proportion of adults (25–64-year- olds) without professional and vocational education 27 25 25 25 25 Source: Statistics Estonia, calculations of MoER Participation of adults (25–64-year- olds) in lifelong learning (%) 19.7 20 20 20 20 Source: Eurostat Proportion of people with tertiary education in the age group 30−34 >40 >40 >40 years (%) 47.6 >40 Source: Eurostat Participation in early childhood education (from 4 years old to To be 95 95 95 95 school age) (%) specified Source: Eurostat Proportion of basic school graduates with non-Estonian native language who have at least a B1 69.2 90 90 90 90 level of command of Estonian (%) Source: MoER Proportion of upper secondary school graduates with non-Estonian native language who have mastered 30 30 30 the Estonian language at a level of at 14.9 30 least C1 (%) Source: MoER Average examination results of basic school final examination and upper secondary school state 75/75 75/75 75/75 examination in Estonian as a second 69/76 75/75 language Source: MoER * Although this indicator is calculated on the basis of municipal schools, the wage level target can be extended to all teachers in general education schools and in 2018. the actual level of public and municipal schools is also 113%. ** estimated levels of achievement (to be updated annually) according to the financial resources proposed by the SBS are as follows: 2020 - 102%; 2021 - 97%; 2022 - 93%, 2023 - 88%. 8 programmes have been set up to achieve the goal of the educational outcomes: Digital Revolution Programme, the Programme for Closer Linking the Labour Market and Learning, the School Network Programme, the General Education Programme, the Vocational Education Programme, the Higher Education Programme, the Adult Education Programme and the Youth Programme. The Ministry of Education and Research is responsible for the planning of activities and financial resources to achieve the objectives of all the programmes.

Long-term Development Goals in Education Outcomes have been agreed in the Lifelong Learning Strategy and the Youth in Action Plan. 55

Short analysis of the situation of the performance area The participation of children in pre-school education is high, and the share of non-Estonian children participating in Estonian-language pre-school education has grown year by year, including the number and proportion of language immersion participants, and the curriculum of a teacher in childcare institutions is popular among students. The drop-out rate of general education day-to-day education is relatively low and after the transition to upper secondary schools in Estonian, the Estonian language skills of upper secondary school graduates have improved. Basic school graduates have good basic ICT skills and it is important that teachers' wage growth in Estonia has been one of the fastest in OECD countries and continues to be a strategic goal for the country. The proportion of people without special and vocational education has also decreased. The employment and salaries of graduates of higher and vocational education are on the rise, which also shows the actual labour market demand for specialists with professional skills. Adult participation in lifelong learning has made a leap in the last three years and it is a pleasure to see that growth is fastest among people with lower education. To mitigate the tense situation in the labour market, we are pleased to note that the share of graduates in science, technology and technology in higher education is growing and that the ICT sector is a priority for the country. In addition, the number and share of foreign students has increased, especially in doctoral studies (every third student is an alien), which contributes to the internationalisation of higher education and the increase of competitiveness. At the same time, it has to be noted that the proportion of young people aged 18-24 with low educational attainment is over 11% and has increased in recent years. In addition, the share of people without secondary education in the younger age groups and gender gaps in post- primary education (about 6% for women with low levels of education and 16% for men) is worrying. Also the rates of interruption in vocational and higher education as well as non- stationary education in general education are problematic. The number of pupils varies across regions and therefore the reform of the school network must continue. The number of basic school students has only increased in Harju County and in the last decade, the number of basic school students has decreased the most in Hiiu, Jõgeva, Võru and Põlva counties.

55 https://www.hm.ee/sites/default/files/strateegia2020.pdf ; https://www.hm.ee/sites/default/files/noortevaldkonna_arengukava_2014-2020.pdf 69

2.9.1. Digital Focus programme The aim of the programme is to apply modern digital technology in learning and teaching more effectively and efficiently, to improve the digital skills of the entire population and to ensure access to the new generation of digital infrastructure. Table 32 . Indicators and target levels of the Digital Focus programme. Previou s actual Indicator / Target level 2020 2021 2022 2023 level (2018) Percentage of basic school graduates who have proven basic ICT skills (%) 84 100 100 100 100 Source: MoER

Important activities to achieve the objectives of 2020–2023 ● As a result of the programme activities, e-assessment environment, digital learning resources environment (e-school bag), study information systems (EHIS, e-diary), learning environments and information systems that support organisation of studies are used in education. ● Students' digital competences are measured regularly and are up-to-date in primary, upper secondary and vocational schools.

2.9.2. Programme on better connection between labour market and studies The aim of the programme is to bring learning opportunities more closely into line with labour market development needs. Table 33 . Indicators and target levels of the programme on better connection between labour market and studies. Previous Indicator / Target level actual level 2020 2021 2022 2023 (2018) upon Employer satisfaction with determining the the functioning of lifelong methodology, satisfactio satisfactio satisfactio satisfactio learning the target levels n has n has n has n has will be set upon increased increased increased increased Source: MoER the 1st measuring

Important activities to achieve the objectives of 2020–2023 ● Preparations will be started to develop and launch a comprehensive OSKA+ labour force and skills medium-term forecasting system based on the forecasting methodologies of MCM and OSKA, where the general forecast will become the central part of the current sectoral approach. ● 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.

2.9.3. School network programme Aim of the programme A school network that takes into account changes in the number of pupils and is based on the principles of inclusive education, ensuring equal access to quality education in all regions of Estonia.

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Table 34 . Indicators and target levels of the school network programme. Previou s actual Indicator / Target level 2020 2021 2022 2023 level (2018) Share of labour costs in government sector’s general education expenditures (%), to be 60 60 60 incl. share of teacher labour costs in clarified - government sector’s general education in 2020 50 50 50 expenditures (%) Source: MoER Number of schools with upper secondary school level (pcs) 160 - - ~100 - Source: MoER Optimisation of the use of surface in the decreasi decreasi 3 field of education (m2) 0 - ng ng million Source: MoER

Important activities to achieve the objectives of 2020–2023 ● By 2023, 25 state secondary schools, including each county, will have at least one state upper secondary school to ensure high-level elective upper secondary education in all Estonian counties. ● 60 educational institutions have been supported in order to involve pupils who need enhanced and special support to improve their learning conditions. ● In 2022, Tallinn Music and Ballet School will open its doors.

2.9.4. General education programme The aim of the programme is to ensure equal access to quality and capable education for all, and the readiness of the learner for further education choices, to implement a modern learning approach in educational institutions and to support the continuous growth of professionalism of teachers and heads of educational institutions.

Table 35 . Indicators and target levels of the general education programme. Indicator / Target level 2020 2021 2022 2023

Previous actual level (2018) Basic school dropout rate in third 0.3 stage of study (%) maintain maintain maintain maintain (17/18) the level the level the level the level Source: MoER Ratio of students dropping out of upper secondary schools 1.0 (dropout rate on the 1st <1 <1 <1 <1 year)(%) (17/18) Source: MoER Satisfaction of different parties with learning environment and organisation (central and regular under under under under under assessment of satisfaction in developm developm developm developm developm educational institutions) ent ent ent ent ent Source: MoER Percentage of pupils in need of additional support and special conditions in mainstream education system receiving - 100 100 100 100 general support (%) * Source: MoER Percentage of students who need enhanced and special support in under under under under mainstream learning** - developm developm developm developm ent ent ent ent Source: MoER Average wage level of teachers in municipal schools*** compared with the country’s average wages 113 120**** 120**** 120**** 120**** Source: MoER * Change in indicator methodology due to legislative change since 01.02.2018. ** Change in indicator methodology due to legislative change since 01.02.2018. a. New target levels will be developed after the first measurement. *** Although this indicator is calculated on the basis of municipal schools, the wage level target can be extended to all teachers in general education schools and in 2018. the actual level of public and municipal schools is also 113%. **** Estimated levels of achievement (updated annually) according to the financial resources proposed by the SBS are as follows: 2020 - 102%; 2021 - 97%; 2022 - 93%; 2023 - 88%

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Important activities to achieve the objectives of 2020–2023 ● A total of 1.3 bn euros is planned for teachers’ salary in the years 2020-2023, which allows to keep teachers' average wage at 1,500 euros. The wage incentive programme for kindergarten teachers is continuing 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 between 2020 and 2023. ● More attention is paid to the 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 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 success of teachers, flexible ways of entering the teaching profession are created. ● 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 2020 onwards, and from 2021 onwards, selective courses developed on the basis of substantive selection modules for vocational training. ● In 2020, the National Curriculum for Early Childhood Education will be updated and the Early Childhood Education Act will be developed. In 2021, the National Curriculum for Basic and Upper Secondary Schools will be renewed. ● Students with other mother tongue will be supported in the acquisition of Estonian, with the aim of acquiring the B2 level and the C1 graduate. Language learning and adaptation of school-age immigrants to general education is 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 5.2 million euros planned for 2020-2023. ● 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 4.4 million euros is planned between 2020 and 2023. ● 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 2019, with a total of 3.6 million euros planned for 2020-2023.

2.9.5. Vocational education programme The aim of the programme is to create high-quality, flexible and varied vocational training opportunities for the Estonian population that meet the needs of the labour market in line with their needs and abilities.

Table 36 . Indicators and target levels of the vocational education programme. Previou s actual Indicator / Target level 2020 2021 2022 2023 level (2018) Proportion of 18−24-year-olds with low education level not in further education or training (%) 11.3 <9 <9 <9 <9 Source: Eurostat

Percentage of dropouts from vocational education institutions (1st year of vocational secondary education) 23.4 <20 <20 <20 <20 Source: EHIS Proportion of adults (25–64) without professional and vocational education (%) 27 25 25 25 25 Source: Statistics Estonia Adult participation in lifelong learning (%)*** 19.7 20 20 20 20 Source: Eurostat Percentage of people who have acquired secondary education 4 years after graduating from basic school 80.4 82 82 82 82 Source: MoER

Important activities to achieve the objectives of 2020–2023 ● The necessary training places in vocational training will be ensured through the operating support of vocational education institutions (2020-2023 budget: 305.4 million euros). ● OSKA reports recommendations and needs and peculiarities of target groups in VET 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 locations are designed in collaboration with social partner and school advisory colleges. ● To improve the quality of vocational training, the general educational component of vocational education will be modernised and a broad-based curricula with short modules will be developed and implemented.

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● The IT Academy pilot project in vocational education, launched in the autumn of 2019, will continue to provide top-level education for vocational education graduates in state- owned, higher education and ICT sector companies in the field of software developer and IT systems specialist with a view to continuing their studies in higher education if they wish.

2.9.6. Higher education programme Aim of the programme To ensure that every motivated and capable student candidate has access to high-quality, flexible and diverse choices and to higher education training that takes into account labour market development needs. Table 37 . Indicators and target levels of the higher education programme. Previou s actual Indicator / Target level 2020 2021 2022 2023 level (2018) Proportion of people with tertiary education in the age group 30−34 years 47.6 >40 >40 >40 >40 (%) Source: Eurostat

Important activities to achieve the objectives of 2020–2023 ● Financing higher education in universities and higher education institutions (budget for 2020-2023: 649.9 million euros) and analysing possible scenarios for restructuring to ensure the quality and sustainability of higher education. ● Supporting the effective management and organisation of public universities by involving non-university members in the governing bodies of all public universities from 2020 onwards. ● In order to enhance the effectiveness of doctorate studies, a reform is prepared to make doctorate students junior researchers to possibly reorganise the current post-graduate supports (budget for 2020-2023 is 57.16 million euros) into junior researcher salaries and provide post-graduates with employment contracts. Until then, doctorate support continues. ● In order to facilitate the employment of foreign students in Estonia, it has been agreed with the universities in the administrative contracts concluded for the new period that all English curricula contain at least 6 ECTS worth of Estonian language and culture studies.

2.9.7. Adult learning programme The aim of the programme is to motivate adults to learn and to create high-quality and flexible learning opportunities that take into account labour market development needs.

Table 38 . Indicators and target levels of the adult learning programme. Previou s actual Indicator / Target level 2020 2021 2022 2023 level (2018) Proportion of adults (25–64) without professional and vocational education (%)* 27 25 25 25 25 Source: Statistics Estonia Adult participation in lifelong learning (%)** 19.7 20 20 20 20 Source: Eurostat * Data by Statistics Estonia. ** Data by Eurostat. The indicator is based on the Estonian labour force survey and reflects the share of those aged 25-64 participating in level education or training in the last four weeks prior to the survey. Participation in lifelong learning includes both participation in level education and training courses.

Important activities to achieve the objectives of 2020–2023 ● Activities will be carried out for the return of people without basic and secondary education to level education, where educational institutions will be able to develop information activities based on regional specificities, conditions and support services for staying in the target group and successful completion. Co-operation with community actors (schools, local governments, youth work institutions, social workers, Unemployment Insurance Fund, etc.) will be reinforced more than before, helping the target group to find and return to education and developing e-learning opportunities. ● Upgrading 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 2019 and the state-commissioned in-service training will also be launched for higher education institutions. ● In order to further develop the RPL system of prior learning and work experience, the RPL concept for general education is created alongside vocational and higher education 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. ● 2020+, the vocational system will be reorganised and, inter alia , connected more to the OSKA system.

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2.9.8. Youth programme Aim of the programme: to provide young people with a wide range of opportunities for development and self-realisation, and thereby support the development of a cohesive and creative society. Table 39 . Indicators and target levels of the youth programme. Previous actual Indicator / Target level 2020 2021 2022 2023 level (2018) Proportion of 18−24-year-olds with low education level not in further education or training (%) 11.3 <9 <9 <9 <9 Source: Statistics Estonia Satisfaction of the participating young people with youth work (%) 56 87 Source: survey “Satisfaction of 87 - - - participating young people with youth (2017) work”.

Important activities to achieve the objectives of 2020–2023 ● Based on youth work institutions, NEET 57 provides support measures for young people: finding young people through searching youth work or networking; reaching out to young people with confidence; motivating/enforcing young people through opportunities for youth work with the aim of getting young people back to work or study. ● 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 young people's active participation in community and decision-making. Support for the implementation of self- evaluation processes in the youth field and effective cooperation between different parties (state, local government, notary staff and organisations).

56 In 2017 - 2018, survey “Satisfaction of participating young people with youth work” was carried out for the second time. Compared to the overall rate of youth satisfaction in the study for those youth activities that were also covered by the 2015 survey, the two-year satisfaction rates turned out to be similar (87%). In addition to the youth work activities covered by the 2015 survey, the last survey further evaluated youth satisfaction with youth projects and voluntary activities. By all activities, youth satisfaction with youth work was 85%. The table shows satisfaction in the years for which satisfaction with youth work was assessed - a 2018 study assessed the satisfaction of young people with the activities they participated in at 2017.

57 From the English term Not in Education, Employment or Training – young people who do not study, do not work and do not participate in trainings.

2.10. Research 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. Table 40 . Indicators and target levels of the science performance area. Previous Indicator / Target level actual level 2020 2021 2022 2023 (2017) Investments into research and development activities (% of GDP), 3.0 / 3.0 / 3.0 / 3.0 / incl. the private sector’s R&D 1.29%/ expenditure (% of GDP). 0.61% 2.0 2.0 2.0 2.0 Source: Eurostat, Statistics Estonia Ranking in the EU Innovation Union Scoreboard 17. 10. 10. 10. 10. Source: Innovation Union Scoreboard *Target levels may change in the course of preparation of the new development plan The Research and Development and Innovation Programme has been established to achieve the aim of the performance area. The Ministry of Education and Research is responsible for the planning of activities and financial resources for achieving the objectives of the programme. The long-term development goals of the field of science have been agreed in the Estonian Research and Development and Innovation Strategy 2014-2020 “Knowledge-based Estonia”. 58

Short analysis of the situation of the performance area A quality competition-based, functional and developing research, development and innovation (hereinafter RDI) system has been established in Estonia. Publication activity and the number of doctoral theses defences have increased. The amount of per capita contracts won in Horizon 2020 and the share of internationally co-ordinated research in state-funded R&D has also increased. Estonia is increasingly attractive to foreign researchers. The number of foreign researchers in public research institutions in Estonia has been increasing (402 foreign researchers work in Estonia, accounting for nearly 8% of researchers). The main challenges in the field of research are the involvement of enterprises in research and development and the funding of science. A feature specific to Estonia is that its R&D is

58 https://www.hm.ee/sites/default/files/59705_teadmistepohine_eesti_est.pdf

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highly project-based and there is a high proportion of foreign sources in funding research − especially concerning R&D performed in the public sector. Research and development in the interests of Estonian society and economy is modest. Collaboration between universities and businesses is scarce - Estonia is clearly lagging behind innovation leaders in the EU in terms of the number of joint publications by businesses and research institutions. The share of the private sector in the financing of public research and development institutions has increased and reached 5.1% in 2017, but is still clearly below the target of 7%. The decline in the innovation capacity of Estonian companies in comparison with the EU Member States and the sluggish productivity growth are worrying.

2.10.1. Estonian 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 41 . Indicators and target levels of the research, development and innovation programme. Previous Indicator / Target level actual level 2020 2021 2022* 2023* (2017) Investments into research and 1.29 3 3 3 3 development activities (% of GDP) incl. the share of R&D investments into private sector, % of GDP 0.61 2 2 2 2 Source: Eurostat, Statistics Estonia Productivity per employee compared to EU27 average, % 74.4 80 80 80 80 Source: Eurostat Position in the Innovation Union Scoreboard 17 10 10 10 10 Source: Innovation Union Scoreboard *Target levels may change in the course of preparation of the new development plan

Important activities to achieve the objectives of 2020–2023 ● 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 excellence with leading European research institutions in countries with low innovation capacity compared to the European top level. ● Increasing research and development funding for research institutions by keeping a 50:50 ratio between research grants and core funding. Increasing base funding is a prerequisite for the development of a stable academic career model and for developing closer cooperation between companies and research institutions. In 2020, 86.7 million euros have been planned for the state budget for the implementation of the main instruments of R&D (including basic financing, institutional and personal research grants, state research and development institutions, Norwegian foreign aid, etc.). ● The research activity of the growth areas of economy and supporting higher education will increase in order to realise their potential for economic growth. Resource valuation programme (3 million euros per year) will be launched. In this context: 1) higher education studies and research will be supported, including the creation of necessary study areas / faculties and research groups in universities; 2) collaborative projects between research and development institutions and entrepreneurs will be supported; 3) necessary material basis will be provided for the performance of these. ● 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, more research outcomes will find their commercial implementation. ● Support of development advisors for branches of enterprises will be initiated. 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, to negotiate research with the research institutions, raise awareness of the potential and potential applications of R&D in the sector and to raise awareness and skills of entrepreneurs in the sector. cooperation with research institutions both in Estonia and at the EU level. ● Begin preparation of measures facilitating the movement of workers between research institutions and the business sector (so-called sectoral mobility), 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.

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2.11. Culture Aim of the performance area 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 varied cultural space and participating in culture. Table 42 . Indicators and target levels of the culture performance area and the Culture programme. Previou s actual Indicator / Target level 2020 2021 2022 2023 level (2017) Participation of residents in cultural life, % 78.7 78 78 78 78 Source: Statistics Estonia

The long-term development objectives of the culture performance area are set out in the development plan “Culture policy foundations until 2020” 59 (hereinafter Culture 2020 ). One of the programmes contributes directly to the goal of the culture performance area. The Ministry of Culture is responsible for planning activities and financial resources to achieve the goal. In addition to the Ministry of Culture, many other state institutions have an important role and responsibility in shaping and implementing national cultural policy. The objectives of the cultural output field will also be implemented through the support of foundations belonging to the central government (theatres, museums, concert organisations, etc.), public organisations (Estonian National Library, Estonian National Broadcasting, National Opera Estonia, Cultural Endowment of Estonia) and non-profit sector organisations. Local governments have a central role in fulfilling the objectives of cultural policy, which ensure a favourable and safe growth environment for maintaining the continuity of Estonian culture in local cultural arrangements.

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. For most of the indicators, Estonian residents are active in cultural participation and culture-related services, but there are differences in the consumption of culture across regions 60 .

59 https://www.kul.ee/sites/kulminn/files/kultuur2020.pdf

60 Survey on participating in cultural life. 2017. Statistics Estonia

In 2018, the 100th anniversary programme of the Republic of Estonia prepared under the co- operation of the state and non-governmental organisations (hereinafter referred to as the EV 100 programme) reached the culmination, with the participation of nearly 3,000 events at home and abroad by the end of 2018, involving people related to Estonia around the world. EV 100 jubilee events brought unprecedented cooperation in the field of culture - compared to previous practices, the volume of private funds involved in the EV 100 programme was unprecedented. Initiatives and events were supported by more than 100 companies - for example, the production of films from the EV 100 film programme, the purchase of musical instruments for music educational institutions and the organisation of art exhibitions around the world were supported. Theatre culture continues to go strong in Estonia. Statistics on visits and theatre productions in 2018 will be published in the first half of 2019. Based on the figures on 2017, it can be said that Estonian theatres were visited by more than 1.1 million times in 2017. In total, theatres gave 6,713 performances and played a total of 559 productions. The year 2018 was exceptional for Estonian film – the box office record was crushed and the number of viewers of domestic film exceeded 600 thousand for the first time, amounting to 17.85% of the 3.6 million cinema visits. In 2018, a total of 14 Estonian films, 10 full-length documentaries and two short cassettes were screened in cinemas. The success of the film industry at the beginning of 2018 and 2019 has largely been based on films funded under the EV 100 programme, which in their budgets significantly exceeded the cost of film-making. is well known in the world - in 2018 more than 100 Estonian literary works were translated into foreign languages. Estonia's participation in 2018 together with Latvia and Lithuania at the London International Book Fair was also a major impetus. Estonian museums continue to be popular, and the European museum night is regularly celebrated every year. Museums were visited 3.4 million times in 2018. Compared to a record number of visitors in 2017, the number of visits was still lower by 100,000. Despite a slight decline, Estonia is still among the first in Europe in terms of the number of museum visits. One of the positive tendencies is the increase in the number of lending in public libraries, reaching around 10.4 million in 2018 once more. The public library was visited 5.5 million times in 2018 and the number of virtual visits to these services was 2.5 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 2018, 83,205 enthusiasts participated in the permanent groups. In 2019, 150 years pass the first song festival, and the 20th anniversary of the dance festival. Estonia has a rich cultural heritage, a part of which is under national protection or heritage conservation. As of the end of 2018, we have 26,480 cultural monuments (archaeological, building, artistic, technical and historical monuments). 12 heritage sites have been created for the value of complete environments, and there are two UNESCO World Heritage sites in Estonia. According to the fourth study and mapping of the situation of the Estonian creative industry, which was completed in spring 2018, according to the data of 2015, in the Estonian creative industry sector there were 30.7 thousand employees (4.8% of the working population in

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Estonia) and 9,098 enterprises and institutions (11.6% of the total number of Estonian enterprises). ). The total income of creative industries and institutions was 1.5 billion euros (2.9% of GDP), which is equivalent to the overall indicator for agriculture and forestry and fishing (3.4%). In addition, the creative industry has a role to play in creating an attractive living environment, increasing tourist income and developing the digital economy. There are over 900 million objects of cultural heritage that are important for Estonian culture and deserve to be digitised, but now only about 10% of them are digitised. The aim of the action plan “Digitisation of Cultural Heritage 2018–2023”, drafted by the Ministry of Culture, 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.

Two-way activities are taking place in the international arena. On the one hand, we support the internationalisation of culture, through which Estonian creators, collectives, creative companies and cultural organisations are helped in reaching the international arena, supporting strong players with internationalisation abilities and introducing Estonia and Estonian culture in the world through these activities. On the other hand, it is also important to bring international cultural events to Estonia, which enrich the cultural life and stimulate the Estonian economy. By engaging in this area, in 2018, the process of drafting a strategy paper “Fundamentals of Culture Policy until 2030” (hereinafter Culture 2030), which sets common goals for the cultural sector for ten years, was started. According to the vision document "Culture 2020", one of the important objectives of cultural policy is to provide creators with confidence and creativity. For this purpose, the goal is to equalise the minimum wage of higher education employees with higher education received from the state by 2020 with the average salary in Estonia. For the same reason, the artist and writer wage measure has been initiated.

2.11.1 Culture programme Aim of the performance area 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 varied cultural space, and participation in culture. The objective, indicators, and target levels of the culture programme and performance area are identical. See Table 42 above.

Important activities to achieve the objectives of 2020–2023 ● Supporting the payment of the writer’s and artist’s wages will continue through artistic associations in order to create new works and support professional art practice. By 2021, the aim is to have supported 15 writers and 15 artists. The total annual amount of support for writers and artists is 0.8 million euros.

● Drafting of Culture 2030 will continue in 2019: discussion days will be held with thematic groups and focus groups, and at the end of the year, the document will be written to be coordinated and approved in the first half of 2020. ● The most important goals of the performing arts in the coming years are: to continue to ensure the regional availability of performing arts and a functioning theatre network, to keep in mind the role of children and young people and the role of self-drama in new productions, to preserve the diversity of theatre. In addition, it is important to strengthen the international reputation of Estonian performing arts. One of the most important activities contributing to the achievement of these goals is the amendment of the Performing Arts Act and the organisation of funding bases. Therefore, in 2019, an amendment to the Law on Performing Arts will be continued. ● To maintain the consistency of a film production, making of game, animation and documentary films and minority co-production (19.2 million euros) will be supported. Also, the implementation of the Film Estonia fund film measure will continue in the amount of two million euros per year with the aim of bringing foreign production to Estonia. ● Planning the design and construction of modern TV studios with optimised volumes of Estonian National Broadcasting. Building a new, more complex space programme with a modernised radio and news building would create creative and economic synergies across the organisation and ensure more cost-effective action in many aspects. ● As of 1 May 2019, the new Heritage Conservation Act entered into force and the National Heritage Board was reorganised into a joint institution for museum and heritage conservation. The purpose of the new law is to create a better balance between the obligations and rights of the owners of monuments, thereby ensuring the long-term preservation of cultural monuments in the public interest. On the basis of the new law, the cost of the monument will be reimbursed to the owners of the monument, i.e. to compensate for the costs of research and heritage conservation. In the period 2020-2023, the amount of subsidies for the owners of immovable monuments is 11.5 million euros. As a result of the changes, the advisory role of the National Heritage Board will increase. ● The restructuring of the network of museums within the area of administration of the Ministry of Culture and the development of the museum information system will continue. ● During the upcoming period, further development of the concept of establishing common repositories is an important activity in the field of museums. The main objective of establishing common repositories is to ensure the long-term preservation of national museum collections, but it also contributes significantly to better access to cultural heritage. The public repository would provide a broader preservation service with conservation, restoration and digitisation services.

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● Planning and design of the building of the Estonian National Library to provide users with versatile services and ensure proper security for long-term publications and people. The goal is to ensure the development and sustainability of existing functions (library as a working and learning environment, long-term preserving place of Estonian publications and a cultural centre). Functionalities needed for today's library as a learning environment and cultural centre would be added. ● Changes in the activities of local governments and the internal movement and resettlement of the population have led to the reorganisation of work of public libraries. As a result, the e-services offered by the library need to be developed. There is also a need to update the Public Libraries Act, including the tasks of local governments and the principles of financing county libraries. Functioning of the library network needs to be analysed and library services formulated to ensure community's lifelong learning and sustainability. Promoting reading habits and collaborating on different types of libraries in developing e-services is essential for the library services to correspond to user expectations. Due to the changed situation, by the end of 2019, the Ministry of Culture will prepare a plan for drafting a new Public Libraries Act. ● Supporting the tradition of the song and dance festival will continue. The tradition of song and dance festivals is included in UNESCO Representative List of the Intangible Cultural Heritage of Humanity. The sustainability of the Song and Dance Celebration is influenced by several factors: growth of new instructors for collectives, funding of collectives, instructors’ salaries and other important issues that have been on the agenda for a long time. In order to assess the actual situation of collective financing and salary rates of instructors, the Estonian Folk Dance and Folk Music Association in cooperation with the Estonian Choral Association, Eesti Laulu- ja Tantsupeo SA and the Ministry of Culture launched a nationwide survey conducted by Praxis Centre for Policy Studies Foundation. On the basis of the study, an analysis will be made on the funding of the collectives participating in the Song and Dance Celebration process and remuneration for the instructors together with proposals for further support of the process. The Song and Dance Celebration needs a modern and well-organised infrastructure for performers and audiences at the Tallinn Song Festival Grounds as well as at the Kalevi Stadium. The Ministry of Culture sees continued cooperation with Tallinn City Government to bring the infrastructure in order. ● Private owners will be provided grants for the restoration of vernacular architecture and maintaining their use or uptake. The volume of support measure per year is 0.2 million euros. It supports the renovation of buildings at the historical centres of small towns and their adaptation to new functions by implementing the EEA / ’s support measure in the renovation of historic buildings in towns in 2019-2021. ● The Ministry of Culture, in cooperation with the Ministry of Economic Affairs and Communications, will implement a measure for the development of the European Union financial instrument for the development of the 2014–2020 structural funds in order to increase the competitiveness of creative industries and to link the potential of creative

industries to the rest of the economy. By raising awareness of creative industries, developing knowledge and skills, and carrying out major projects between creative and other economic sectors, the prerequisites for linking cultural and creative potential to entrepreneurship will be created to boost the growth of companies with new ambitious business models, increase the export capacity of the sector, and create added value to other business sectors through the inclusion of the creative industries. products and services and sales and marketing. ● Carrying out the action plan “Digitisation of cultural heritage 2018-2023“ with the aim of making on third or 33% of the cultural heritage kept in Estonian memory institutions digitally available by 2023 and to update the infrastructure of memory institutions that preserve the information. Digitisation is one of the best and, in some cases, the only means to ensure that heritage is preserved by the most appropriate means and made available to as many people as possible.

2.12. Sports Aim of the performance area 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 43 . Indicators and target levels in the performance area of sport. Previou Indicator / Target level s actual 2020 2021 2022 2023 level The proportion of people regularly 40.2 53 Not 55 Not engaged in hobby exercise in the 16–64 (2018) measure measure age group, % d d Source: National Institute for Health Development Percentage of young people aged 5-19 in 50.15 51 52 53 53 sports clubs and sports schools in the (2018) age group,% Source: Estonian Sports Register, Statistics Estonia

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The long-term development objective of the performance area is agreed in the development plan “Principles of Estonian sports policy until 2030” 61 (hereinafter Sport 2030). One of the programmes contributes directly to the goal of the sports performance area. The Ministry of Culture is responsible for the implementation of state activities in the field of sport and planning of funds, and activities are planned in the sports programme. The goals in the field of sport are achieved through interaction between various ministries, local governments, the private and the third sector and sports organisations.

Short analysis of the situation of the performance area According to the health behaviour survey among adults, conducted by the National Institute for Health Development in 2018, at least 40.2% of the working-age population were engaged in exercise (2 times a week for 30 min). 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 2 years. A quarter of Estonian people do not engage in health sports but their share has decreased year by year - in 2008, one third of people did not engage in health sports (in 2008 it was 33%, in 2018 it was 24.7%). In recent years, the number of enthusiasts in sports clubs has grown rapidly. While in 2012 this number was 130,839 people, as of 1 January 2019, the number was 181,195, of whom young people (5-19 y-o) accounted for about 57.50%. The number of sports organisations, including sports clubs, has also grown from 2,302 to 2,717. Based on health statistics on the physical activity and the number of overweight children, it can be concluded that an increase in physical activity cannot be ensured only through organised sports. According to the National Sports Database (Sports Register) in 2019, there were more than 2,700 sports clubs, 421 sports schools, over 3,200 sports facilities in Estonia and approximately 3,400 coach certificates issued. In Estonia, no sports institution operates as a state agency or administration institution. However, the Ministry of Culture contributes to the promotion of exercise and achievement sports through the development of the state- owned foundations of Tehvandi Sports Centre SA (incl. Kääriku Sports Base) and Jõulumäe Tervisespordikeskus SA through the support of sports organisations and investing in other sports including regionally important sports objects in cooperation with local governments. In Estonia, there is a good and effective network of sports organisations and a sports register for evidence-based sports policy and one of the best professional trainer qualification systems in Europe, which ensures both successful participation in competitions and the organisation of high- quality international competitions and championships. Many international sporting events are held regularly, bringing in a significant number of foreign visitors and contributing to the tourism industry, including introducing Estonia to Europe and the world. In 2018, a total of 179 medals were won by Estonian athletes in the title competition, 25 of them in the disciplines of the Olympic Games.

61 https://www.kul.ee/et/tegevused/sport/arengustrateegia-eesti-sport-2030

2.12.1. Sports programme Aim of the programme An effective sports management system based on the European sports model. Table 44 . Indicators and target levels of the sports programme. Previou Indicator / Target level s actual 2020 2021 2022 2023 level Number of sports organisations. 2717 2700 2700 2700 2700 Source: Estonian Sports Register (2019) Number of recreational sports 181,195 182,000 183,000 184,000 185,000 enthusiasts in sports clubs and sports (2019) schools. Source: Estonian Sports Register Number of coach certificates 3358 3425 3450 3475 3500 Source: Estonian Sports Register (2019)

Important activities to achieve the objectives of 2020–2023 ● In 2019, a support system for Team Athletes and Successful Teams (Team Estonia) was launched. Top-level sports grants do not allow sports federations to mobilise all teams, provide adequate preparation for the title competitions, the necessary involvement of background staff, including coaches and medical personnel. Grants to sports federations are often project-based, which does not allow long-term planning of activities and objectives. Team Estonia development principles have been developed in cooperation with the Estonian Olympic Committee (hereinafter EOC) and sports federations, which are continuously analysed. The volume of the next four years of Team Estonia support is 10 million euros. ● The goal of sports policy is to help sports organisations to provide coaches with social guarantees and to bring the remuneration for coaches to the average level in Estonia. Since 2018, the principle that the state supports 1.1 million exercise hours and up to 50% of the coach's gross salary, the rest being covered by sports organisations. The annual support fund for trainers’ labour costs is 7.1 million euros. ● At the suggestion of the Ministry of Culture, the Estonian Olympic Committee is reforming the Estonian Anti-Doping SA (hereinafter referred to as EAD), forming the centre of honesty and sports ethics of sport. In the coming years, there is also a need to develop EAD's research capability, including 'smart testing', and to extend preventive activities in areas under its management. As a result of the proposed intentions to amend the Sports Act, the EAD will also be given the administrative task of tackling match-fixing in 2020. In 2020-2023, the EAD reform may require additional public funding.

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● The existence and condition of sports objects of international or national importance are analysed in cooperation with the EOC. If necessary, the state will finance sports objects that are of regional policy importance and co-financing by the municipality is guaranteed. The Tehvandi Sports Centre - Kääriku Sports Centre will continue to be built during the programme period. ● The development of regional health centres continues. In 2019, the Ministry of Culture launched a call for proposals to support health sports centres as a new initiative. Up to two health sports centres have been selected in each county, which will be supported in the next four years by an annual volume of 0.6 million euros for the Regional Health Centre Development Support Programme. ● Increasing cross-sectoral cooperation is needed to increase physical activity. As a result of cooperation, solutions can be sought for the development of health care services leading to more active movement and for the development of family policy, for creating a network of people's proximity to places of movement to create a sports-friendly environment in urban planning, to adapt school mobility, to finance sports organisations and activities supporting and promoting sports activities and the like.

2.13. Integration Aim of the performance area 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 45 . Indicator and target levels of the integration performance area. Previou Indicator / Target level s actual 2020 2021 2022 2023 level The proportion of people with a strong 39 38 Not Not 40 or rather strong citizen identity among 47 51 measure measure 55 all people of non-Estonian nationalities, d d

% Source: Estonian Integration Monitoring

Integration policy is horizontal and includes several policy areas in the state budget strategy, helping to achieve their goals, including maintaining the Estonian language and culture, strengthening the security of the Estonian state and increasing the competitiveness of the economy. At the same time, activities in other policy areas support the implementation of integration policy objectives. The long-term development goals of the Integration Scoreboard have been agreed by the Government of the Republic in the Sectoral Development Plan “Integrating Estonia 2020” 62 Due to the cross-cutting nature of integration, other development plans and programmes designed to plan the activities of ministries also contribute to the overall strategic goal of the Development Plan. One programme directly contributes to the goal of integration. The Ministry of Culture is responsible for the implementation of national activities in the field of integration and planning of funds, and activities are planned in the integration programme. However, integration objectives will be achieved through the interaction of all public sector activities.

Short analysis of the situation of the performance area Estonia is home to nearly 194 nationalities. 69% of the country's population is ethnic Estonians, 25% Russians, 2% Ukrainians, 1% Belarusians and 0.8% Finns. According to the population register, on 1 January 2019, there were 1,359,750 inhabitants in Estonia, of whom 1,142,760 were citizens of the Republic of Estonia. Number of people with undetermined citizenship registered in Estonia - 75,191 (5.5% of the population). Number of citizens of other countries residing in Estonia – 141,625 (the largest share is citizens of the Russian Federation (90,100), followed by persons with Ukrainian citizenship (10,346)). Over the last decade, significant social, economic and political processes have led to large changes in Estonian migration processes. A significant part of Estonians live abroad - an estimated 200,000 people. Since 2015, Estonia's migration balance has become positive. Emigration has increased and the return of Estonian citizens has increased as well as immigration from other countries. Social cohesion has increased in key key areas in recent years: labour market gaps between Estonians and people of other nationalities have decreased, and attitudes of Estonian residents to new immigrants have become more positive. The self-esteemed proficiency in Estonian and the performance of Estonian language proficiency examinations have improved.

62 https://www.kul.ee/et/eesmargid-tegevused/kultuuriline-mitmekesisus/valdkondlik-arengukava-loimuv-eesti-2020 91

Estonian Integration Monitoring of 2017, Estonian Human Development Report 2016/2017, Statistics Estonia's data and other applied research issues highlight several integration issues that need to be addressed: the distrust of persons of other nationalities against state institutions, the high number of passive Estonian speakers and the lack of a language environment, the few contacts of people of different nationalities, the low participation of people of another nationality in volunteer movement and freelance organisations, low integration of Estonians and different habits of Estonians and people of other nationalities in media consumption and lack of common information space. In addition, the following challenges still need to be resolved: Estonian language proficiency at the end of basic school is not sufficient for all students to continue their studies successfully at secondary level, poor Estonian language proficiency of Russian-speaking vocational students, the number of young people with low educational attainment and of other nationalities has decreased, Estonian citizenship is applied for less, the civic activity of people of other nationalities is small and the proportion of their representatives in Estonian public service is modest. Language learning can provide opportunities for ten times fewer people than the demand would dictate and the need for integration of newcomers is more important.

2.13.1. 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 46 . Indicators and target levels of the integration programme. Indicator / Target Previous 2020 2021 2022 2023 level actual level Percentage of people Estonians Estonians: Not Not Estonians: with open attitude on 31%; other 40%; other measured measured 45%; other the basis of the nationalities nationalities: nationalities: aggregate index of 57% (2017) 70% 75% tolerance. Source: Estonian Integration Monitoring Self-assessed level of 85% 85% Not Not 85% awareness of Estonian of Estonians of Estonians measured measured of Estonians events among and 83% of and 83% of and 85% of Estonians and other people of people of people of nationalities, % other other other Source: Estonian nationalities nationalities nationalities Integration Monitoring consider it consider it consider it good or very good or good or very good very good good (2017)

Percentage of people 41% (fluent 42% (fluent Not Not 50% (fluent with active Estonian or or measured measured or language skills among understands, understands, understands, other nationalities. speaks or speaks or speaks or Percentage of non- writes); 10% writes); 9% writes); 8% Estonian speakers do not speak do not speak do not speak among other Estonian Estonian Estonian nationalities, % (2017) Source: Estonian Integration Monitoring Contacts between Estonians Estonians: Not Not Estonians: Estonians and people 38%; other 49%; other measured measured 55%; other of other nationalities nationalities nationalities: nationalities: (percentage of people 64% (2017) 69% 75% with many contacts), % Allikas: Estonian Integration Monitoring

Important activities to achieve the objectives of 2020–2023 ● Draft of the Integrating Estonia 2030 strategy is being prepared. During 2019, consultations, discussion seminars and engagement meetings will take place, which will continue with the drafting in 2020. Related state agencies, researchers, representatives of civil society organisations and all interested Estonian residents are involved in the development plan. ● Close cooperation will continue with the Association of Estonian Cities and Municipalities and ministries to involve local governments (LGs) in the field of integration. The goal of the Ministry of Culture is to develop activities that local governments can contribute to and integrate into integration. ● To make the return of fellow countrymen easier, an advisory support unit will be established in 2019 at the Integration Foundation with the aim of developing adaptation services and creating a support network to facilitate returning. Smooth return of fellow Estonians will be supported by 0.1 million euros each year. ● The acquisition of Estonian language will be improved. To this end, free Estonian language courses and activities that enable the use of the language directly have been launched in 2019 in Estonian language houses. Everyone interested will receive quality Estonian language learning and motivating communication environment. The annual budget for language houses is 2 million euros. ● Continuation of in-service training for teachers providing Estonian language teaching to adults, greater attention will be paid to non-formal language learning activities for practising and communicating Estonian.

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● Contacts between people of different nationalities will be increased. It is planned to design and develop services in the field of sport and culture to improve contacts between different nations.

2.14. Family policy Aim of the performance area Estonian people are a growing nation, and the welfare and living quality of children and families have improved.

Table 47 . Indicators and target levels of family policy performance area. Previous Indicator / Target level actual 2020 2021 2022 2023 level Negative Natural population growth Positiv Positive Positive Positive Source: Statistics Estonia -1384 e (2018) Total fertility rate 1.67 1.62 1.65 1.65 1.67 Source: Statistics Estonia (2018) Rate of absolute poverty among children aged 0-17, % 3.2 (2017) 3.5 3.4 3.2 3.1 Source: Statistics Estonia

The Children and Families programme of the family policy performance area has been prepared to carry out the Children and Families Development Plan 2012-2020 63 and to achieve its objectives. The programme focuses on ensuring the availability, quality and adequacy of measures to improve the well-being of children and families. The proposed activities are necessary to ensure children's rights and well-being, to support families in their daily coping, and to create the conditions for the sustainable development of society and the survival of the population. The Ministry of Social Affairs is responsible for the performance area of children and families.

Short analysis of the situation of the performance area Child and family policies include activities to ensure the rights and protection of children, to support the economic and social coping of families, and to promote births. The area of

63 Laste ja perede arengukava 2012–2020 https://www.sm.ee/et/laste-ja-perede-arengukava-2012-2020

concern, but also the problem for the state as a whole, is the decrease in births and the decrease in the number of children aged 0-17 among the population. According to Statistics Estonia, at the beginning of 2018, 252,117 children under the age of 18 lived in Estonia, accounting for 19% of the total population. In the case of Estonia, the two most important factors affecting annualised birth rates in the next 15-20 years are the continuing rise of the age of childbirth and the decline in the size of the population that is in the age of having children. In 2016, the average age of having the first child in Estonia exceeded 30 for the first time and continued to grow in 2017 (the average age of the mother at the birth of the child was 30.38 years). The overall achievable level of births is determined by the number of children in today's society. The role of family policy in increasing the birth rate is seen as the creator of a suitable environment, i.e., an environment that supports the child's upbringing, thereby helping to achieve the desired level of childbirths. According to the 2011 Eurobarometer survey, Estonian women want an average of 2.46 children and the men wish for 2.42 children on average. The actual number was 1.58 children in women and 1.27 children in men. Compared to earlier data, the estimates of the Estonian population regarding the number of children people wish to have has not changed. The welfare of children and families and the future prospects of children are significantly affected by the material security of families. Compared to 2016, the proportion and number of children living below the absolute poverty line has slightly decreased: in 2016, the absolute poverty rate for children was 3.5%, but in 2017, 3.2% of children lived below the absolute poverty line. Compared to other households, the risk of poverty is higher in households where the number of dependents, including children, is much higher than the number of people working. Therefore, households with children with an unemployed parent(s), single- parent households and families with three or more children are the poorest. Family benefits have been significantly increased in recent years to reduce child poverty, and consumption by children in calculation of subsistence benefits has been increased. The well-being of children is greatly influenced by the relationship between family members, the parental competence of the parents and how the need for and response to the need for assistance is ensured. Parents' lack of knowledge of the child's development and poor educational skills may be one of the reasons for problems in families. Therefore, the state puts emphasis on family therapy and parental skills development programmes and by that, increases the welfare of children and families.

2.14.1. 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 48 . Indicators and target levels for the programme for children and families. Indicator / Target level 2020 2021 2022 2023

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Previou s actual level the the the the differen differen differen differenc ce ce ce e between between between between 0.88 in Number of children wished and the the the the the women actual number 64 . desired desired desired desired and 1.55 and and and and Source: Special Eurobarometer, in men actual actual actual actual European Commission (2011) number number number number of of of of children children children children decrease decrease decrease decrease s s s s remains remains remains remains Percentage of children (grade 4 to 12) on the on the on the on the who are generally satisfied with life. 82% same same same same Source: Survey on the rights of children (2018) level or level or level or level or and parenthood 2018, Praxis increase increase increase increase s s s s The difference between the employment rate of men and women aged 20-49 with children aged 0-2 years 62.9 pp of age, i.e., employment gap. 61 pp 60 pp 59 pp 55 pp (2018) Source: Statistics Estonia, Estonian labour force survey

Important activities to achieve the objectives of 2020–2023 ● According to the current regulation of maintenance allowance, children whose debtor parent is declared or being declared bankrupt are not eligible for maintenance support. The bankruptcy procedure and the subsequent discharge procedure may take years and the child does not have a legal basis for receiving maintenance during this period. ● An aggravating problem is the dispute between the child's place of residence, the order of communication, and the parents involved in maintenance. In order to avoid cumbersome litigation on issues related to the child's life, legal changes to the new family mediation system will be developed in 2020. The provision of a high quality family

64 The indicator shows the difference between the actual number of children people want 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.

mediation service generally ensures a faster solution and subsequent adherence to the solution and is based on the rights of the child. ● Needs assessment and provision of services for children with special needs are fragmented across different areas. This leads to a situation where the needs of children are not assessed in a comprehensive way, they do not receive the necessary services in sufficient volume, and the system is complicated and time-consuming for the parents. To solve the problems, an integrated model of social, educational and primary health care services for children with special needs will be developed by 2020, aligning the provision of services at local and national level. The activity will also develop a model for the organisation of local government services and an evaluation tool that will be piloted in the period 2019–2020. The aim is to provide the child with special needs and his/her family with access to education, social and health care services in the child's daily place of residence to enable the parent or chief caregiver to be employed on the labour market and to release the parent from bringing the child to different service providers. It also supports the maximum preparation of the child for participating in future work and social life. ● Raising a disabled child will incur additional costs for medicines, aids, transport, etc. Families with a disabled child are also due to parents' difficulties in entering the labour market at higher risk of poverty compared to other families. Support for children with moderate and severe disabilities (1 January 2020) will double and support for children with severe disabilities will triple, correspondingly to 138.08 euros, 161.1 euros and 241.65 euros per month. ● One of the priorities in the field of child protection, but also in the area of criminal policy, is better identification, prevention and support for abused children. To this end, a children's home service was launched in 2017, based on cooperation between the National Social Insurance Board, the Police and Border Guard Board, the Estonian Forensic Science Institute and the Public Prosecutor's Office. However, cooperation is not formalised at the moment and, depending on the region, the procedure is being organised (e.g., in case of child interrogation) in many different ways. In order to develop common practices and quality of service standards, an analysis and proposals for the development of a system to assist children who have been the victims of sexual or physical abuse will be presented in December 2020. Among other things, it is analysed whether it would be wise to extend the model of a children's home to children involved in physical abuse proceedings, as the needs of these children are largely similar to those of sexually abused children. ● In 2020, an analysis and proposals will be made on the adequacy of child protection workers and the substantive 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. Due to the high workload, local government child protection workers often do not have enough in-depth resources to deal with children in need and

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their families, causing problems to become more and more difficult to solve. Many local governments also lack adequate prevention. Child protection work requires a wide range of competencies that enable to advise and support families on the one hand, and to stand up for the child on the other hand. A child protection worker must be able to assist all children in need, including children with disabilities, mental health problems, behavioural problems, suspicion of abuse, and children with other needs, hence the expectations of the child protection worker are very high. During the analysis, it is planned to evaluate what resources and changes are necessary to ensure the adequacy and quality of child protection work. ● Amendments to the parental leave and benefit system, which will extend paternity leave, establish maternity leave, allow parental benefit to be suspended and resume according to the parent's wishes until the child reaches the age of three, will be made in 2020-2022, and exceptions will be made in case of premature children and parents of multiple (triplets and more) children. The conditions for parental leave and adoption leave will also be supplemented.

3.15. 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 49 . Indicators and target levels of the performance area on Estonian language and identity. Previous Indicator / Target level actual level 2020 2021 2022 2023 (2018) Average result of the final examination of Estonian as native language of youths who have completed upper secondary 63.5 >64 >64 >64 >64 education, in points (maximum 100) Source: MoER Number of foreign Estonians participating in learning Estonian and in Estonian days held in Estonia and 3823 4400 4600 4800 5000 abroad 65 Source: MoER

65 The indicator includes children studying abroad with the help of the MoER, as well as those who have participated in foreign language days. The target levels since 2018 have been modified by the approval of the interim report of the fellow countrymen programme and the new period (2018-2020) by the government.

Proportion of examinees who have passed the Estonian language proficiency examination (levels A2– 56.4 55 55 55 55 C1), % Source: MoER Self-assessment of active skills of Estonian among residents with non- Estonian native language (%) 37 (2015) 40 - - - Source: Estonian Integration Monitoring (EIM)*

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) 66 .

Short analysis of the situation of the performance area Topics to be addressed in the language field include teaching in Estonian in higher education, lack of Estonian language teachers, early language learning as an opportunity to achieve a high level of language skills and the development of terminology and language technology. As a positive point, the results of the final examination of both the 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 Estonian language examination as a mother tongue has also increased and the proportion of graduates with a score below 20 points has decreased. The self-assessed Estonian language skills of persons of other nationalities have also gradually improved. While in 2008, 19% of other nationalities did not speak Estonian at all, the number was only 10% in 2017. In 2018, 4,369 adults attended the Estonian language proficiency examination. 56.4% of all adults passed the exam successfully. Compared to 2017, the percentage of people who passed the exam increased at almost all levels by 2018. 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 multinational children to become Estonians as easily as possible. The share of non-Estonians who speak Estonian has increased over the

66 https://www.hm.ee/sites/default/files/strateegia2020.pdf ; https://www.hm.ee/sites/default/files/noortevaldkonna_arengukava_2014-2020.pdf

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past 10 years, but has remained at the same level in recent years. The ability of this group to speak foreign languages also needs attention. In the youngest age group studied (16–24), only 4% of non-English speakers are Estonians and more than one in four Russians (27%).

2.15.1. Language programme Aim of the programme Estonian is a developed cultural and communication language and multilingualism is valued in Estonia. Table 50 . Indicators and target levels of the language programme. Previou s actual Indicator / Target level 2020 2021 2022 2023 level (2017) Target and stakeholder attitudes towards Estonian language. Source: Language opinion survey (2017) Share of respondents who agree that Estonian language is: ... integral part of Estonian-language 93 - - - 93 culture (% of the respondents) … necessary for living and working in 90 - - - 90 Estonia (%) … a part of living in Estonia (%) 89 - - - 89

Important activities to achieve the objectives of 2020–2023 ● Estonian is being studied, language databases are being developed and reputation building is being conducted. Uniform approaches to dialect grammar, history of the literary language and Estonian grammar will be published. Language planning system and e-language counselling of Sõnaveeb and Terminiveeb will be developed. Terminology network will be improved, development of specialised language and terminology work will be supported. (Total planned activities for 2020-2023 for 6 million euros.) ● Conditions are also established for having a command of, using and valuing Estonian in the education system, incl. the issuing of higher education textbooks in Estonian, extracurricular activities associated with language. 10 higher education textbooks reinforcing the knowledge of special terminology will be published each year. (Total planned activities for 2020-2023 for 1.5 million euros.) ● The language training of kindergarten, basic school and upper secondary school teachers in Ida-Viru County will be supported. Estonian language proficiency 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. ● Developments of e-learning of Estonian language will continue. ● In addition to academic studies, the language learning in Estonian communities will be supported in general education and Sunday schools, associations, kindergartens, nurseries and language courses in several countries, as well as the Global School (with almost 200 children from almost 20 countries). Supporting the teaching of Estonian language and culture in higher education institutions of more than 30 different countries (about 100 teachers and 50 lecturers are teaching Estonian outside Estonia). In total, 3.1 million euros is planned for activities in 2020-2023. ● Multilingualism is promoted in Estonia. Early learning and studying of a second language is supported. Possibilities of assessing foreign language skills are expanded, recognising successful language learning projects.

2.16. Enterprise and innovation Aim of the performance area 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. 67 Table 51 . Indicators and target levels of the entrepreneurship and innovation performance area. Previous Indicator / Target level actual level 2020 2021 2022 2023 (2018) Labour productivity per employed person, % of the EU average 74.4 (2017) 80.0 80.0 80.0 80.0 Source: Eurostat Proportion of Estonian export in world trade, % 0.092%(2017) 0.11 0.11 0.11 0.11 Source: World Trade Organisation Estonia’s ranking in the World Bank report Doing Business 16 <15th <15th <15th <15th Source: The World Bank Group

67 In the State Budget Strategy 2019–2022, the objective of the performance area is to increase the productivity per employee to 80% of the EU average, which is the indicator used in this document. 101

In 2018, labour Increase in labour expenditure expenditure Increase in labour expenditure does compared with productivity growth, increased 6.1% not exceed the growth rate of % and productivity. Source: Eurostat productivity increased 2.6%

Two programmes have been created to achieve the enterprise and innovation performance area objective: competitive business environment programme and construction programme. The Ministry of Economic Affairs and Communications is responsible for the planning of activities and allocating financial resources to achieve the objectives of the programmes. Long-term development goals of the entrepreneurship and innovation performance area have been agreed in the Estonian Entrepreneurship Growth Strategy 2014-2020 and the Estonian National Tourism Development Plan 2014-2020 68 .

Short analysis of the situation of the performance area According to preliminary data, the Estonian economy grew by 3.9% in 2018, which was somewhat less than in Latvia, but more than in Lithuania. Growth was on the rise and the last quarter of the year was strongest with an increase of 4.3%. The growth was driven by the construction sector and manufacturing industry last year. In addition, domestic consumption grew to the highest level of the last year. GDP growth also exceeded the increase in the number of employed in 2018. As a result, productivity per employee increased by 2.6%. The number of hours worked in 2018 decreased, resulting in a 5.3% increase in productivity per hour worked. Wage pressure remained also in 2018 and therefore unit labour costs increased rapidly, which at 6% also exceeded productivity growth per hour worked. The labour force participation rate was 71.9% in 2018, the employment rate was 68.1% and the unemployment rate 5.4%. The number of long-term unemployed is the lowest in the last 20 years. The annual average number of people active in the labour market was 702,400, up by 3,600 compared to 2017. In 2018, the number of employed was 664,700, which is 6,100 more than in the previous year. The annual average number of unemployed was 37,700, down 2,600 compared with the previous year. The average unemployment rate in the European Union in the first quarter of 2018 remained within 7%, indicating that Estonia is among the countries with lower unemployment level. Exports of goods and services increased by 4.3% in 2018, mainly due to the growth in exports of services. In 2018, a total of 3.6 million domestic and foreign tourists stayed in accommodation establishments, which is 1% more than in 2017. The number of domestic tourists increased and foreign tourists decreased. Last year, 1.45 million domestic tourists and 2.14 million foreign tourists used the services of accommodation establishments. Compared to 2017, the

68 https://kasvustrateegia.mkm.ee/ ; https://www.riigiteataja.ee/aktilisa/3191/1201/3015/lisa.pdf

number of domestic tourists increased by 4% and the number of foreign tourists decreased by 1%. In the manufacturing industry, a total of 4% more output was produced in 2018 than in 2017. Output exceeded the previous year's level in half of the industries. The increase in production volume was primarily due to the increase in computers and electronic equipment, wood processing and food production.

2.16.1. 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 52 . Indicators and target levels of the competitive business environment programme. Previou s actual Indicator / Target level 2020 2021 2022 2023 level (2018) Labour productivity compared to the 74.4% EU average 80% 80% 80% 80% (2017) Source: OECD Estonia's position in the global competitiveness ranking 32 25 25 25 25 Source: WEF Proportion of Estonian export in world 0.092% trade 0.11 0.11 0.11 0.11 (2017) Source: WTO Share of private R&D expenditure in 0.61% GDP 2% 2% 2% 2% (2017) Source: Statistics Estonia

Important activities to achieve the objectives of 2020–2023 ● Digitalisation and automation of industry will be supported to increase the capability and readiness of companies to deploy digital technologies (2.4 million euros). ● Enterprise Estonia will continue to offer support to major investors 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 (10 million euros).

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● In order to increase the export of Estonian companies and enter new markets, Estonia's participation in the Dubai EXPO World Expo (1 million euros) is supported. ● Activities aimed at increasing awareness of Estonia as a travel destination and raise the tourism demand in Estonia will continue. ● Estonia shall be 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). To join the CERN (European Research Centre for Nuclear Research) (1.4 million euros) and participate in the EUROSTARS programme. The activities contribute to increased investments into research and development by enterprises. ● Support for Estonian start-up entrepreneurship and the creation and growth of new innovative enterprises will continue (4.6 million euros). ● 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 (6.2 million euros) with the aim of boosting regional entrepreneurship.

2.16.2. Construction programme Aim of the programme To create an environment and prerequisites for increasing the competitiveness of companies in the construction industry and international competitiveness of the constructed environment. With the intention to make people want to live and work in Estonia, we encourage development in areas of construction environment where market failures 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 affect all residents of Estonia will be established. Table 53 . Indicators and target levels of the construction programme. Previou s actual Indicator / Target level 2020 2021 2022 2023 level (2018) Labour productivity of the sector 46% 50% 52% 54% 57% Source: Eurostat Household energy and heat 5.6 TWh 5.4 TWh 5.3 TWh 5.2 TWh 5.1 TWh consumption

Source: Statistics Estonia

Important activities to achieve the objectives of 2020–2023 - The reconstruction of apartment buildings for the purpose of energy savings will be supported (7.5 million euros). The energy consumption of buildings is about 50% of the national energy consumption, the EU average is about 40%. Therefore, reducing energy consumption in buildings is one of the key priorities of the climate and energy policy. - Supporting investments in the housing stock of local governments will continue (27.5 million euros). New and renovated buildings will be added to the housing stock mainly in the areas of Tallinn and Tartu and to some extent in other county centres. Housing policy needs to be coordinated nationally in order to avoid segregation and marginalisation. The aim is to ensure a sustainable development of the housing stock in every region of Estonia. - The improvement of living conditions of families with many children is supported (12 million euros). Acquiring, constructing, upgrading, renovating or extending housing for families with three or more children, as well as building, replacing or modifying the technical systems or networks, contributes to the improvement of the housing conditions of these families.

2.17. Labour market Aim of the performance area High level of employment as well as long and high-quality working life. Table 54 . Indicators and target levels of the labour market performance area.

Previous Indicator / Target level actual 2020 2021 2022 2023 level

Employment rate in the 20–64 age group, % 79.2 76.0 79.3 79.4 79.5 Source: Statistics Estonia, Estonian (2018) labour force survey Duration of working life, in years 39.0 37.5 39.0 39.1 39.2 Source: Eurostat, labour force survey (2018)

In order to achieve the aim of the labour market performance area , a labour market programme has been prepared, through which the aim of the Welfare Development Plan

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2016–2023 will be achieved: matching labour supply and demand ensures a high level of employment, and high-quality working conditions support a long working life. In a country with a declining and ageing population, extending employment and working life is key to maintaining the competitiveness of the economy and ensuring the sustainability of social security systems. The Ministry of Social Affairs, together with the authorities of the area of government and the Estonian Unemployment Insurance Fund, is responsible for the labour market programme.

Short analysis of the situation of the performance area For the fourth consecutive year, the employment rate target for 2020 (76%) was exceeded, increasing to 79.2% in 2018. People's activity in the labour market increased, reaching a record high of 78.8%. Activity and employment increased among both men as well as women, and the increase was highest among young people and the elderly. The employment rate among people aged 55–64 increased to 68.7%. This was facilitated by the gradual increase in the retirement age of women as well as by the increased willingness of the elderly to work during their retirement age. The unemployment rate fell to 5.4% in 2018, which is the lowest level of the last eleven years. The unemployment rate among youths fell to 11.8% and long-term unemployment rate to 1.3%. The overall good condition of the labour market, together with the improved willingness of employers to employ people with reduced capacity to work, has led to an increase in the employment rate of people with reduced working capacity. The decline in the working-age population and the low rate of unemployment are contributing to the worsening of labour shortages. Lack of qualifications also increases labour shortages. In 2018, there were 193,400 people with no vocational in the 25–64 age group (of whom 11,300 were students and were probably still acquiring their vocation), which comprises 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. In order to prevent people from becoming unemployed, both unemployed and working people are offered refresher training and retraining with the support of the Estonian Unemployment Insurance Fund, and the creation of new jobs in Ida-Viru County and South- East Estonia is supported. Study support can be acquired by those people who are at risk of losing their jobs because of their state of health, who do not have special or vocational education or for whom more than 15 years have passed since acquiring it, or who are more than 50 years old or whose Estonian language skills are inadequate. Participation in employment depends to a large extent on the quality of working life. The decreasing and ageing population forces employers to pay attention to the health of the employee and the maintenance of health in the workplace. Reduction in capacity to work and work-related health damage are caused by occupational hazards. Work-related health damage leads to absenteeism, which is a direct cost to the employee, the employer and the state. According to the Estonian Health Insurance Fund, in 2018, there were almost 670 people on sick leave every day due to an accident at work, whereas one accident lead to an

average of 30.3 sick days. The amendments to the Occupational Health and Safety Act, which will come into force in 2019, will promote the creation of a safe working environment and the prevention of injuries to the employee.

2.17.1. 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 55 . Indicators and target levels of the labour market programme . Previou Indicator / Target level s actual 2020 2021 2022 2023 level Participation rate in the labour 82.1% Men 81.5% 81.5% 81.3% 81.2% force among people aged 15–64, (2018) %69 Wome 75.5% 73.5% 75.4% 75.2% 75.1% Source: Statistics Estonia, Estonian n (2018) labour force survey 78.8% Total 77.5% 78.5% 78.3% 78.2% (2018)

Important activities to achieve the objectives of 2020–2023 - The aims are the following: for more people (for example people employed for a short term and irregularly employed people) to receive unemployment benefits, which reduces the risk of poverty for the unemployed, making the benefits more flexible, taking into account developments in the labour market (changes in the length and nature of the employment relationship), and for the unemployment benefits system to take into account changes in the economy. To this end, the preparation of the intention to develop the regulation of unemployment benefits and analysing the effects of the proposals will continue. - In order to increase the competitiveness of the job seeker, learners and employees on the labour market, it is important to have the ability to plan a career and work life as well as make the right educational and professional choices. In order to increase the number of people with such skills and knowledge, career services will be developed as a coherent system which is accessible to all people throughout their lives. In order to achieve the best result, the Career Services Cooperation Board was established in 2019, which is led by

69 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. 107

the Estonian Unemployment Insurance Fund, involving representatives of institutions involved in career services. - An important aim is to support inactive, NEET young people to continue their studies and to participate in the labour force. To this end, an analysis of the weaknesses in the functioning of the already established youth guarantee support system is needed in 2020, on the basis of which the system will be developed accordingly. - Until now, the labour market services have been more focused on gaining employment and there is little support after that. To change this, the availability of services that support people with reduced capacity to work in relation to gaining employment and working is increased. - Those that are at a disadvantage on the labour market (for example young people, the elderly, people with low Estonian language skills) are still considered to be important target groups. For their greater participation on the labour market, it is necessary to continuously update and develop the supply of various measures (e.g. mobility support, protected work and rehabilitation service).

2.18. 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 56 . Indicators and target levels of the information society performance area. Previous Indicator / Target level actual level 2020 2021 2022 2023 (2018) Proportion of use of internet with a speed of 100 Mbit/s or higher 13% 80% 80% 80% 80% Source: Consumer Protection and Technical Regulatory Authority Proportion of people using secure electronic identities among people 57.60% who have an electronic identity . 65% 65% 65% 65%

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 objectives of both programmes.

The long-term development goals of the information society performance area have been set out in the Information Society Development Plan 70 .

Short analysis of the situation of the performance area In 2018, due to the development of the basic broadband network, fast access to internet improved everywhere in Estonia. Preparations were made for issuing radio frequencies, including for the purpose of introducing the new generation of data communications, 5G, and a corresponding Estonian action plan was developed. In the area of the basic infrastructure of the State Information System, new ID cards were issued in cooperation with the Ministry of Internal Affairs and new contract partners, and thousands of ID cards were replaced throughout the year. Eesti.ee information portal was updated, and the ongoing development and concept renewal of administration system of the State Information System (RIHA) was started. X-Road user interface and joining environment are being improved. The development of a core technology for a common X-Road data exchange platform with continues. The Architectural Council was re-established under the leadership of the Ministry of Economic Affairs and Communications. State cloud services were developed (a second location was added) and preparations were made for giving databases to the data embassy. In the area of services, or digital country, mapping of services was continued to create pilot projects for event services. In December, the Cabinet appointed the Ministry of Economic Affairs and Communications to manage the event services process and approved the first 15 event services, 7 of which will have to be completed in 2020. The heads and employees of institutions were also informed about the requirements of web accessibility. Developing projects were funded in relation to national interoperability of public services (nearly 1 million euros), ICT services of government agencies (over 10 million euros) and cross-border e-services (DIGINNO, PACINNO). E-government development initiative was carried out in cooperation with private sector companies and state authorities. Data analytics training was launched in state authorities, while ideas were gathered for the applications of artificial intelligence. An updated open data portal was released. Developing digital literacy to enhance personal well-being and improve job prospects remains a priority, including the digitisation of industry. A high level of digital literacy in the population is a prerequisite for developing higher professional ICT skills. Within the framework of the digital literacy procurement for employees of the industrial sector, entrepreneurs and company employees were trained, particularly those in the wood, forest, machine and metal industries. An important share of the target group of the project is made up of Russian-speaking population. In regard to higher ICT skills, in 2018, health care professionals were trained to be smarter subscribers (family doctors), and the general digital literacy of 500 family doctors was increased. An important initiative was the training of data scientists at Master's level (50 specialists). The trainings of the retraining project Vali-IT!

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(Choose-IT!) were continued. In addition, the commissioning and implementation of a survey of qualified work force in cybersecurity area was started. The sub-objective of increasing the reputation of e-Estonia in the world is mainly supported by the activities found in the e-Estonia reputation action plan, which is carried out by the e- Estonia Briefing Centre in close cooperation with ministries and the private sector. In 2018, e-Estonia became more known in the world. This is demonstrated by the growing number of visitors of and visits to the e-Estonia visitation centre, the number of suggestions for cooperation, requests for presentations, as well as by media interest and coverage. The leap forward is still being supported by the success story of e-Residency, which continued to be one of the most popular keywords in 2018. Other developments and new trends have also contributed to it, such as the establishment of the data embassy and the launching of the artificial intelligence discussions.

2.18.1. E-government development and telecommunications programme Aim of the programme The aim of the programme is to develop infrastructure trends and an infrastructure that is technology-driven, takes into account 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 sectors. Table 57 . Indicators and target levels of e-government and communications development Previous actual Indicator / Target level 2020 2021 2022 2023 level (2018) Access to internet with a speed of 30 Mbit/s or higher (cable) 80% 85% 90% 95% 100% Source: Consumer Protection and Technical Regulatory Authority Access to internet with a speed of 30 Mbit/s or higher (mobile) 96% 97% 98% 99% 100% Source: Consumer Protection and Technical Regulatory Authority Proportion of non-users 71 of internet among Estonia’s residents aged 16–74 10.6% 10% 8% 6% 5% years Satisfaction with the quality of public Not services: satisfaction of residents aged 60% 70% 80% 90% measured 16 to 74 Source: www.riigiteenused.ee

71 Non-users of internet are considered to be people aged 16 to 74 who have not used internet in the last 12 months or at all.

Satisfaction with the quality of public Not services among entrepreneurs Source: 70% 75% 80% 85% measured www.riigiteenused.ee Proportion of ICT specialists in total 7% 8% 8% 8% employment 72

Important activities to achieve the objectives of 2020–2023 - The construction of the basic broadband network will be completed, resulting in 7,000 km of basic network in rural areas of Estonia by the end of 2020, which will connect existing communication nodes and major public institutions and create prerequisites for the construction of access networks. - 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). - Additional support measures will be developed and implemented to support the establishment of access networks in the remaining failing areas of the market. - e-Government base infrastructure and services: emphasis has been placed on developments related to electronic identity and overcoming the ID card security vulnerability (eID points), but more and more attention is being paid to the development of centrally-provided services and applications as well as on the creation of a completely new e-Election platform; as an important milestone for cross-border data exchange and e-services, the X-Road core technology is still being developed in cooperation with Finland within the MTÜ Nordic Institute for Interoperability Solutions (NIIS) and there is a search for new partners and Member States to join the NIIS. - 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 (65.6 million euros). In addition, support for the development of public services and the base infrastructure (14.9 million euros) and support for the creation of interoperability between public services will continue. - As a novel approach to solving development problems, the private sector is being involved based on enthusiasm by organising digital state hackathons and encouraging state authorities to publish data and use it more intelligently, supporting the introduction of artificial intelligence or automated work and decision-making processes.

72 The basis of the proportion of ICT specialists in total employment is the annual Estonian labour force survey by Statistics Estonia. The data request corresponds to the classification of ICT core professions (ISCO 08). In 2017, there were approximately 44,800 ICT specialists in total. 111

- The planned activities of the programme of creating interoperability between public services (incl. e.g. training courses/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 and to deploying them actively (2.2 million euros). - Investments to improve digital literacy will continue. The objective of the programme is to improve the digital literacy of Estonia’s residents and to increase the proportion of adults with higher ICT skills. As a result of the programme, the number of computer and internet users will grow, and the proportion of ICT specialists in total employment will also grow. For example, trainings and retraining programmes for different target groups (4 million euros) will be carried out.

2.18.2. 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 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 58 . Indicators and target levels of the cybersecurity programme. Previou Indicator / Target level s actual 2020 2021 2022 2023 level The number of cyber incidents that 168 158 148 138 128 severely interferes with the social and economic functioning of the society or (2018) forces to abandon traditional digital solutions 73 . Proportion of those who refused to 3.1% ≤ 3.1% ≤ 3.1% communicate electronically with the (2015) public sector or service provider in order to prevent a security risk. 74 Source: Statistics Estonia

73 The annual number of critical cybersecurity incidents registered by CERT.EE.

74 Internet users aged 16 to 74 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

Proportion of people using secure 57.6% ≥ 65% ≥ 65% electronic identities 75 among people (2017) who have an electronic identity. Important activities to achieve the objectives of 2020–2023 - Ensuring a sustainable digital society (organised home) to protect the digital society from cyberthreats. The aim is to create a capability model for the Estonian cybersecurity and to provide sufficient resources for the cybersecurity field. - The aim of increasing the volume of entrepreneurship and research and development (knowledge-based, fulfilling the “cyber bubble”) is to create a functioning ecosystem that provides the necessary information and promotes the development of the cybersecurity economy. The goal is to conduct more research in the areas of politics and science as well as have strong companies and start-ups. - Maintaining a leading role internationally (meaningful brand). The aim is to ensure that Estonia is a significant partner and a meaningful direction indicator. The goal is to have more capacity to deal with international cybersecurity issues, and more human resources are needed to achieve this. - The purpose of developing a cyber-cultural society (understanding the area) is to have awareness and competence. The aim is to increase the number of experts, good public awareness and motivation to operate in Estonia.

2.19. 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 59 . Indicators and target levels of the transport performance area. Previous actual Indicator / Target level 2020 2021 2022 2023 level (2018) Transport system user satisfaction ≥4.88 ≥4.88 ≥4.88 ≥4.95 index. 76 ≥4.88 Source: the Global Competitiveness Report

75 In the case of data of 2017, identities issued by the state were considered secure electronic identities.

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In order to achieve the goals of the transport performance area, a transport programme has been established, which is based on the objectives, measures and activities of the Transport Development Plan 2014–2020 77 (TDP) in force at the time of the programme’s preparation and takes into account the possible needs of TDP 2021+. 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. At the end of 2018, 185 km of road sections were reconstructed or updated, which exceeds the initial target set for 2023 (105 km). The excess has been largely achieved due to the fact that the funds for transport were the first ones to be used, which made procurements less expensive than planned and made it possible to do more for the same amount. 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 2018, roads in poor condition comprised only 2.2% of the entire road network. In comparison, in 2013, this indicator was 13.5%. The target of 11% has thus been exceeded, but it can be assumed that by the end of the period (2023), the proportion of roads in poor condition may rise slightly, because many investments have been made about 10 years ago and therefore the proportion of roads in poorer condition may increase again. However, it is probable that it will still stay firmly below 11% at the end of the period. The number of train users has increased year by year. In 2018, the number of total passengers exceeded 7.7 million. The goal – 8.4 million train passengers by 2023 – can be achieved according to forecasts. The proportion of public transport users, pedestrians and cyclists is still declining slightly, compared to previous years. In 2018, only 37.8% of the people used public transport, travelled on foot or rode a bike (target 50%). As the majority of the public transport users lives in Tallinn, the decline can be explained by the prolonged construction time of Gonsiori Street reconstruction project as well as by other construction works that have hindered walking or cycling. There is still a need to focus on changing people's mindsets and improving the quality of public transport so that more people use public transport or decide to go to work by bike or on foot. The volume of freight transport in 2018 was more or less at the same level as in previous years (56.4 million tons). 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 situation and internationally difficult relations with Russia, which the Transit Commission is trying to improve.

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2.19.1. Transport programme Aim of the programme To ensure a 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 60 . Indicators and target levels of the transport programme. Previou Indicator / Target level s actual 2020 2021 2022 2023 level Decrease in traffic deaths , average 57 (only 55 (only 52 (only ≤50 number of deaths in the last 3 years RA: 50) RA: 48) RA: 46) (only (rail 78 and road 79 ), base level 2015– 70 (only RA: 44) 2017 RA: 60) Source: Consumer Protection and Technical Regulatory Authority, Road Administration (RA) Energy consumption in the ≤34 ≤34 ≤34 ≤33.5 transport sector 80 (thousand TJ) 34 thousan thousan thousan decreases or remains the same as in thousand d TJ d TJ d TJ thousan 2012, base level 2016 TJ d TJ Source: Eurostat The proportion of transport costs in 12.0% 12.0% 12.0% ≤12.0% household expenditure does not increase by more than 12.0%, base 11.6% level 2017 81 Source: Eurostat Volume of freight transport 82 , ≥60,000 ≥60,000 ≥60,000 ≥61,000 thousand tonnes, base level 2017 56,434 Source: Statistics Estonia

78 https://www.tja.ee/et/valdkonnad/onnetused-ja-statistika/statistika

79 https://www.mnt.ee/et/ametist/statistika/liiklusonnetuste-statistika

80 Eurostat data base: Simplified energy balances – annual data

81 Eurostat table

82 Table TS121 of Statistics Estonia: transport of goods and freight turnover of transport enterprises by type of transport (total): http://andmebaas.stat.ee/Index.aspx?lang=et&DataSetCode=TS121 The table reflects both domestic and international freight volume, but does not include freight turnover of ports or airports. 115

Important activities to achieve the objectives of 2020–2023 In order to increase the share of people using public transport among all employed people: - The reconstruction of Tapa-Narva railway and increasing travel speed on some sections to 135 km/h will be supported with 7.9 million euros in total. EU funding of the project is 7.5 million euros. - Tallinn-Tartu railway will be renovated and travel speed increased (135 km/h) with 10 million euros. - Pärnu Airport will be reconstructed (17.3 million euros). - The realisation of the project “Developing the Movement Environment Between the Old Harbour and the City Centre” will continue. The objective of the project is to facilitate the establishment and development of a sustainable movement environment between Tallinn Old Harbour and City Centre (8.7 million euros). - A total of 437 million euros has been set aside 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 route to Kuressaare. - Activities related to the testing of new technologies, which have the potential to popularise public transport, as well as improve safety (including self-operated and driver assistance systems and other intelligent transport solutions), will continue until 2020. The largest project funded is FABULOS (Horizon 2020 funding), as a result of the R&D of which funding is provided together with Finnish partners to the extent of 5.5 million euros for the development and testing of a self-operating bus park operating system. - 0.7 million euros is planned for deepening the Rukki channel. - The activities and expenditure of Rail Baltic are discussed in more detail in Appendix 8.

In order to reduce fatalities in traffic accidents: ● Investments will be made in road construction, where major projects are the following: ● construction of Kanama-Keila and Luige-Juuliku sections of Tallinn ring road, 19.3 million euros; ● construction of Aaspere-Haljala 2+2 section, 11 million euros; ● construction of Via Baltica on Tallinn-Pärnu highway, 29 million euros; ● construction of the Kose-Mäo 2+2 section of the Tallinn-Tartu highway, 67.4 million euros; ● construction of Väo traffic node of Tallinn-Narva highway, 10 million euros.

- The reconstruction of additional sections of gravel roads will be continued (6 million). - The reconstruction of the transit road passing through Narva (Rahu-Kerese St.) will continue (8.9 million euros).

2.20. Energy Aim of the performance area Continuous energy supply is guaranteed in Estonia. Estonia's energy supply and consumption is more sustainable. Table 61 . Indicators and target levels of the energy performance area. Previous Indicator / Target level actual 2020 2021 2022 2023 level Availability of affordable fuel and ABD ABD ABD ABD ABD energy, compliant with environmental requirements, to the consumer 83 . 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 developing goals of the energy performance area have been set out in the Energy Sector Development Plan until 2030 84 .

Short analysis of the situation of the performance area In 2017, the general share of renewable energy in final energy consumption increased and was 29.2%. 2020. The proportion of renewable energy increased in the electricity as well as district heating markets. An additional increase in the proportion of renewable energy is

83 The indicator of the energy programme is the composite indicator 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; ● environmental sustainability. 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 2018, this composite index was assigned to 125 countries in the world, Estonia ranked 40th in the overall ranking. In 2014, Estonia ranked 48th in this ranking.

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expected in 2018. By 2020, the general proportion of renewable energy in final energy consumption has to be 25%.

In the area of renewable energy, Estonia's target for 2020 is to achieve a 10% share of renewable energy in transport. As of 1 April 2018, fuel suppliers had to ensure that the proportion of the total biofuel energy allowed for consumption would be at least 3.1 of the total energy of the transport fuel allowed for consumption. According to the latest official statistics, the share of renewable energy in is the lowest in the European Union (0.4% in 2017).

The final energy consumption target for 2020, as described in the competitiveness plan “Estonia 2020”, was based on the assumption that final energy consumption in Estonia in 2020 would not exceed final energy consumption in Estonia in 2010. According to Statistics Estonia, in 2017, final energy consumption exceeded the target level of 2020 by 5.2%, i.e. the target for final energy consumption is not met.

The EU Energy Efficiency Directive and the Energy Sector Organisation Act require the country to be energy-efficient. The country's overall energy efficiency obligation in 2014– 2020 amounts to 7.1 TWh, which means that the energy saving measures implemented have to result in 7.1 TWh of energy savings during 2014–2020. By 2016, 30% of the country's overall energy efficiency obligation for 2014–2020 had been reached, but additional measures are needed to firmly achieve the target for the entire period.

The obligation to reconstruct buildings occupied by the central government is also based on the EU Energy Efficiency Directive and the Energy Sector Organisation Act. Every year, it must be ensured that at least 3% of the total useful floor area of buildings occupied by the central government (those whose energy consumption exceeds the minimum energy efficiency requirements) is reconstructed. In 2018, 3.5% of the total useful floor area of buildings occupied by the central government was reconstructed.

2.20.1. Energy programme Aim of the programme The aim of the energy programme is to ensure the continuous supply of 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 62 . Indicator and target levels of the energy programme. Previou s actual Indicator / Target level 2020 2021 2022 2023 level (2018) Availability of affordable fuel and ABD ABD ABD ABD ABD energy, compliant with environmental requirements, to the consumer

Important activities to achieve the objectives of 2020–2023 - Supporting the supply and refuelling of biomethane in filling stations and use of regular service buses using biomethane (20.2 million euros, incl. 5.5 million euros of CF money and 14.7 million euros of auction revenue of the EU CO2 trading system). The goal is that by 2020, fuel from renewable energy sources comprises 10 percent of the transport fuel consumption. As a result of the support, the renewable energy transport target for 2020 will be met, while also providing an important basis for the 2030 renewable energy transport target. - The renovation of a depreciated and ineffective heat pipeline and/or the construction of a new heat pipeline will be supported (10.2 million euros). As a result, final energy consumption is reduced due to more efficient heat production and transmission. - Replacement of district heating systems with local heating solutions (4.9 million euros) and renovation and/or construction of district heating boilers and fuel exchange (11.5 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 (34.9 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.

2.21. Environment Aim of the performance area Estonian people are ensured a clean and diverse living environment, and the attitude towards nature is responsible.

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Table 63 . Indicators and target levels of the environmental performance area. Previous actual Indicator / Target level 2020 2021 2022 2023 level (2018) Proportion of the Habitats Directive’s types of habitats in favourable condition (%) 52 >=52% >=52% >=52% >=52% Source: Ministry of the Environment Environmental awareness index Source: Ministry of the Environment 43.5 46 50 Total GHG emissions in million tonnes of CO2 equivalent 20.88 85 18.86 18.19 17.51 16.84 Source: Ministry of the Environment Proportion of water bodies in good 55 condition 75 81 81 82 Source: Ministry of the Environment (2017) Waste generation (excluding oil shale 3,747 industry) (kg/person) 3,670 3,600 3,530 3,460 (2017) Source: Ministry of the Environment Resource productivity: ratio between GDP and domestic material 0.52 0.53 0.54 0.55 0.56 consumption, eur/kg (2016) Source: Eurostat

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. 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.

85 Level of 2017 (without LULUCF)

The proportion of the Habitats Directive’s types of habitats in favourable condition has improved, and was 52% in 2013; 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 in 2018 43.5 points, in comparison to 42 points in 2016; raising public awareness is one of the high-priority environmental objectives.

In 2017, the total GHG emissions of Estonia was 20.88 million tonnes of CO 2 equivalent. Compared to 2015 and 2016, when emissions equalled to 18.13 million tonnes of CO 2 equivalent and 19.66 million tonnes of CO 2 equivalent respectively, emissions have increased for the second consecutive year. The increase in emissions is primarily caused by an increase in the production of electricity and heat as well as in the production volume of shale oil in the energy and industrial sectors, while GHG emissions from the agricultural sector, for example, have remained at approximately the same level. In 2017, electricity production increased by 6% and heat production by 6.5% compared to 2016. Production of shale oil has increased by almost 5% compared to 2016 and more than 14% compared to 2015. In order to meet the 2023 target (16.84 million tonnes of CO 2 equivalent), GHG emissions from the energy and industrial sectors need to be substantially reduced, while limiting GHG emission growth in other sectors (for example, transport, agriculture) using various measures. The proportion of water bodies in good condition has stayed the same in 2016 and 2017, that means 55%. It has been established in the water management plans that at least 81% of surface water bodies and 84% of groundwater bodies have to be 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 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. In terms of resource use, Estonia's situation has improved and domestic material productivity (GDP and domestic material consumption ratio) has increased somewhat year by year, being 0.52 euros/kg in 2016, while the indicator remains still one of the lowest in the EU.

2.21.1 The environmental protection and use programme Aim of the programme The protection of the environment and biodiversity as well as the sustainable and efficient use of the environment are guaranteed 121

Table 64 . Indicators and target levels of the environmental protection and use programme Previous Indicator / Target actual 2020 2021 2022 2023 level level (2018) Proportion of strictly protected forests, % 13.1 at least 10 at least 10 at least 10 at least 10 Source: Ministry of the Environment Share of protected areas in land surface, % at least 18.8 at least 18.8 at least 18.8 at least 18.8 Source: Ministry of the 18.8 Environment Total greenhouse gas Depends on Depends on Depends on emissions in sectors 86 the the the outside the trading implementing implementing implementing system (ESR), million act to be act to be act to be 6.2 87 6.02 tonnes of CO 2 adopted by the adopted by the adopted by the equivalent Source: European European European Ministry of the Commission in Commission in Commission in Environment 2020 2020 2020 Total emissions from the emissions trading total emissions total emissions total emissions system, million tonnes minus minus 14.68 88 12.84 minus Estonia’s CO equivalent Source: Estonia’s target Estonia’s target 2 target in ESR Ministry of the in ESR in ESR Environment Proportion of consumers who receive potable water complying with the requirements from the 99 100 100 100 100 public water supply network, % Source: Ministry of the Environment Decrease in ambient air SOx Change in Change in the Change in the Change in the pollutant content, % 38.65; the decrease: decrease: decrease: Source: Ministry of the NOx decrease: SO2 32; Nox SO2 32; Nox SO2 32; Nox Environment 33.20; SO2 32; 18; VOC 10; 18; VOC 10; 18; VOC 10;

86 The ESR or Effort Sharing Regulation (Regulation (EU) 2018/842 of the European Parliament and of the Council) applies to sectors such as transport, small-scale energy production (in equipment with a rated capacity of less than 20 MW), agriculture, waste management and industrial processes and use of products.

87 level of 2017

88 level of 2017

VOC Nox 18; PM2.5 15; NH3 PM2.5 15; NH3 PM2.5 15; NH3 22.25; VOC 10; 1. 1. 1. PM2.5 PM2.5 15; 9.22 NH3 NH3 1. 10.26 (2017) Proportion of hazardous waste recycling in total mass a % point a % point a % point of hazardous waste, % 68 > 68% larger than the larger than the larger than the (excluding oil shale value of 2020 value of 2021 value of 2022 waste) Source: Ministry of the Environment Share of recycled municipal waste in total municipal waste, % 28 41 45 50 53 Source: Ministry of the Environment Eco innovation index (% of EU average) 62 65 67 69 71 Source: EIO (Eco- (2017) Innovation Observatory)

Important activities to achieve the objectives of 2020–2023 - Increasing compensation for nature conservation restrictions, 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, 1.0 million euros. Continuing to pay support to the owners of strictly protected forests outside the areas of Natura 2000. - 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, 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. 123

- 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. In particular, the focus will be on abandoned peat production areas and construction mineral quarries on state and local government land. Tidying 2,000 hectares of abandoned peat production areas by RMK to the extent of 1.8 million euros. - Preparing for the 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. - Renewal of the system for assessing the certainty of supply of construction minerals to ensure that the state is supplied with construction minerals. - 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. - Implementation of the Maritime Strategy to achieve good environmental conditions in marine areas. 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 approx. 1 million euros in cooperation with the MoEAC and the MoRA, with the aim of using marine resources (water, algae, seabed, biota, etc.) in a manner, which also improves the status of the environment. - Implementing the measure programme of the water management plan of Viru sub-basin to the extent of 31.7 million euros, incl. tidying the bodies of water in the Purtse River basin. - Supporting projects for ensuring clean potable water and compliant treatment of wastewater being led back to the environment to the extent of 92.3 million euros. - Supporting the management of the risk of flooding to the extent of 2.6 million euros. - Eliminating the two reactor sections of the former nuclear site in 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 principles of circular economy to the extent of 14.4 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, resource audits and investments into resource efficient solutions are supported to the extent of 76.7 million euros. - Further development of the Environmental Decisions Information System KOTKAS, which brings together all the procedures related to environmental permits from applying for a permit and paying state fees to the declaration of environmental charges and preparation of annual reports.

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3. FISCAL FRAMEWORK The budget strategy and its fiscal framework are based on the economic forecast prepared by the Ministry of Finance in spring 2019; the forecast is accessible on the website of the Ministry of Finance 89 .

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. The government's fiscal policy aims to achieve and maintain the structural budgetary balance of the general government in the medium term. Pursuant to the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG), Member States will set a medium-term objective (MTO) for their budget, the following of which is evaluated by the European Commission. Based on the next year's planned structural deficit, the medium-term objective (MTO) set by the government for the structural budget deficit of the general government is 0.5 percent of GDP. The MTO has not been revised compared to the previous state budget strategy. The Government’s objective is to guarantee a sustainable fiscal policy that ensures macroeconomic balance. 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 future economic downturns. Fiscal policy decisions are made simultaneously (i.e. only in the budget (strategy) process), decisions are sustainable (the long-term impact of decisions is considered) and take maximum account of sectoral policies and the activities of other levels of the general government; and all funding sources (European Union grants, revenue from sales of greenhouse gas emission quotas, etc., in addition to tax revenue) are uniformly regarded . In times of faster economic growth, excessive increasing of investments is avoided and the use of external funds is preferred as a source of financing. Those investments, which improve both the welfare of people and the defence capability, are set as priority. This enables offering better services in education, social welfare and health care to people. Defence expenditure continues to be over 2% of GDP, and strategic investments will also be made in the defence capability. The state’s tax policy is comprehensive and aimed at ensuring that the economy grows, and the tax structure is made friendlier to economic growth to this effect, reducing taxes on wages and increasing taxes on consumption so that it would support the improvement of environmental protection. Over the coming years, the tax burden will stabilise near a 33% level.

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

To increase results-based decisions in budgeting and to make the budget more transparent, activity-based budgeting is taken into use, the prerequisite for which is a transition to accrual-based state budget starting with 2017. By 2020, transition to an activity-based state budget is planned.

3.1.1. Objective of the budgetary position of the general government and comparison with the previous State Budget Strategy Given the real structural deficit of 1.4% of GDP in 2018 and the correction mechanism provided for in the State Budget Act, which requires that a budgetary position that is not in line with the balance rule be corrected by at least 0.5% per year, the expected deficit for this year cannot exceed 0.9% of GDP and the deficit in 2020 cannot exceed 0.4% of GDP. Accordingly, the government has set a deficit of 0.4% of GDP as the target for the next year's structural budgetary position. During 2021–2023, the aim is budgetary balance , which is less ambitious than the requirements of the current State Budget Act dictate. The government has decided to amend the State Budget Act, waiving the requirement to compensate for the cumulative deficit that has arisen, and restoring the annual structural balance requirement. Upon achievement of the set objectives, the nominal budgetary position of the general government remains in surplus in every year, which creates prerequisites for increasing reserves or paying back previously taken loans. No positive supplementary budgets will be prepared during the financial year and any extra tax revenue accrued in the budget will not be used to increase running costs. Compared with the previous State Budget Strategy, the objective of the budgetary position of 2020 and 2022 has been improved. The previous budget strategy set out a structural balance in 2020 and 2021 and a surplus of 0.1% in 2022.

3.1.2. Tax policy objectives The government’s goal is to stabilise the tax burden at about the level of 33% of GDP. The tax burden in 2019 will be 33.5% of GDP. In the period 2020–2023, the growth of labour taxes slightly exceeds GDP growth, supported by wage growth and somewhat slowed due to the increase of tax-free income of pensioners by 50 euros. The tax burden is reduced by consumption taxes, primarily due to the slow growth of excise duties and capital taxes, which are most affected by the corporate income tax, the revenue from which is slowed down by the lower income tax rate of companies distributing their profit regularly and the decrease of dividends of state enterprises. All in all, the tax burden will increase to 33.4% of GDP in 2020 and will decrease to 32.6% by 2023 . The future developments are discussed in detail in the following chapter and in the chapter on tax policy.

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The Government’s objective is to maintain the implicit tax rate on labour near 35%. The basic exemption reform (2018) reduced the implicit tax rate on labour; at the same time, technically, the expiry of the higher contributions to funded pension had the opposite effect and this indicator reached 34.0% in 2018. As a result of wage growth, which is somewhat mitigated by a rise in tax-free income for pensioners, the indicator will rise to 34.7% by 2023.

3.2. Revenue and expenditure measures According to the economic forecast prepared by the Ministry of Finance in spring 2019, the structural deficit of the general government exceeds the balance rule set out in the State Budget Act. In order to meet the legal requirements, the government decided to implement both revenue and expenditure policy measures to reduce the next year's structural deficit to 0.4% of GDP and to reach a structural budget balance from 2021 onwards.

Table 65. Revenue and expenditure measures of SBS for 2019–2023 2019 2020 2021 2022 2023 Measure % of % of % of % of % of GDP GDP GDP GDP GDP

Taking into account revenue from the new external funds - period - 0.33 0.94 0.60 Reduction of excise duty on alcohol -0.04 0.01 0.01 0.01 0.01 Staggering the rise of excise duty on tobacco - -0.02 - 0.02 0.04

Effect of the higher price of CO 2 on the budget position - 0.07 0.06 0.04 0.03 Additional dividends with income tax - 0.08 0.22 0.04 - Shift in selling and additional sales of frequency licenses -0.06 0.06 0.05 - - Additional income tax exemption for pensioners - -0.05 -0.06 -0.07 -0.07 Other revenue - 0.01 0.02 - - Total revenue measures -0.10 0.15 0.63 0.99 0.61 Changes in operating expenses and activity grants -0.01 0.11 0.09 -0.08 -0.11 Changes in investments - 0.15 0.18 0.17 -0.09 Changes in social expenditure - - -0.01 -0.02 -0.03 Increase in transport grants - -0.03 -0.03 -0.03 -0.02 Other expenses - - - - -0.01 Total expenditure measures -0.01 0.22 0.22 0.04 -0.26 TOTAL -0.11 0.37 0.85 1.03 0.35

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 750 million euros. One of the major measures improving the budget position is the implementation of the new financial framework of the European Union from 2021 onwards – the spring economic forecast did not take into account the funds of the new period. When preparing the impact assessment, it was presumed, similarly to the previous financial period, that the operating expenses that have thus far been planned from the state’s own funds as well as investments will be partially replaced by external funds. Based on the financial forecasts of state-owned companies, the volume of dividends has been increased; in addition, the state budget revenue forecast has been increased due to the higher than expected sales price of CO 2 quotas. It is expected that 50% of the larger revenue will be used to make new so-called “green investments”, and only the part of the revenue improving the budget position is shown in the table above. Major tax changes concern the reduction of excise duty on alcohol (by 25% from beer, cider and spirits) since 1 July, and the government also decided that the excise duty on tobacco will be increased more gradually – instead of the 10% increase previously planned in 2020, the excise duty will rise by 5% per year in the next four years. Revenue from personal income tax is decreased by the increase of tax-free income for pensioners by 50 euros to 550 euros per month. Revenue from corporate income tax is affected by the increase and shift in dividends of state enterprises. Expenditure measures improve the budgetary position as well, except 2023; however, there is also a significant increase in expenditure. Expenditure is increased for example by the Kose-Mäo road construction project and the raise of co-financing accompanied by the expenditure of the new external funds period. In order to save costs, cuts have been planned in the state’s operating expenses, activity grants and investments. At the same time, in certain sectors, these cuts have been compensated by the costs added to the forecast (defence expenditure). Taking into account the economic forecast prepared by the Ministry of Finance in spring 2019 and the added revenue and expenditure measures, the general government revenue in 2020 will amount to 11.40 billion euros and the general government expenditure is estimated to be 11.37 billion euros. Table 66. Volume of revenue and expenditure of the general government taking into account fiscal policy decisions 2018 2018 2019 2020 2021 2022 2023 million % of % of GDP % of GDP % of GDP % of GDP % of GDP euros GDP

Revenue forecast 10,026. 39.1 39.9 39.7 39.5 38.8 37.7 of the general 1 government 10,146. 39.5 40.2 39.6 39.1 38.5 37.5 Expenditure 3 forecast of the

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general government Source: Statistics Estonia, Ministry of Finance

Pursuant to requirements of the Stability and Growth Pact (SGP), the growth of a Member State’s general government expenditure must be in line with the economic growth of the Member State. As a rule, the expenditure benchmark is calculated as the average potential economic growth (t-5, t, t + 4) of a Member State over 10 years, which, according to the economic forecast prepared by the European Commission in the fall of 2018, is 2.7%. In the event that a Member State fails to achieve, during the current year, its medium-term objective (MTO), which, in Estonia’s case, is a structural deficit of 0.5% of GDP in the general government budget, then, pursuant to the agreement, next year's expenditure benchmark will be lowered (1.9% in 2019), which will contribute to improving the budgetary position by at least 0.5% of GDP and will ultimately lead to the achieving the MTO. In 2019, the expenditure of the Estonian general government will increase 90 by 2.2%; therefore, Estonia will slightly exceed its expenditure benchmark. Estonia will meet the expenditure benchmark with a margin in 2020, when costs increase by 1.3%, Many different revenue measures will be applied in 2019 and 2020. The total growth from their impact is mostly driven by increases in excise duties, which are balanced primarily by increasing the basic exemption of private individuals.

90 The calculation of expenditure is based on real GDP growth based on the European Commission's methodology, using the GDP deflator, and some costs have been deducted from the calculation (Table 22, interest expenditure and capital formation adjustments included).

Table 67. Amounts excluded from the expenditure benchmark

2018 2018 2019 2020 level % of % of % of (million GDP GDP GDP euros)

1. External funds expenditure that is covered 450.8 1.76 2.07 2.29 by revenue

1a. including investments that are covered 242.7 0.95 1.11 1.20 by revenue

2. Unemployment insurance expenditure 0.0 0 0 0 arising from the economic cycle 91

3. Discretionary measures that change the 106.9 0.42 0.69 0.17 revenue of the general government 92

4. Changes, arising from legislation, in general 0 0 0 0 government revenue which are related to increased expenditure needs

Source: Ministry of Finance

3.3. Budgetary position of the general government In 2018, the general government budget was in deficit, which, according to initial data from Statistics Estonia, amounted to 120 million euros, i.e., 0.5% of GDP. The central government was in deficit (0.9% of GDP), which was partly offset by a surplus from local governments and social security funds (0.2% and 0.3% of GDP accordingly). The central government deficit was mainly caused by the increased investment activity and increased social expenditure. The result of social security funds exceeded expectations both in terms of the Health Insurance Fund and the Unemployment Insurance Fund; this was caused by great accrual of social tax and unemployment insurance premium. Figure 1. Nominal budgetary position of the general government

Source: Statistics Estonia, Ministry of Finance

91 According to expert assessment, unemployment is expected to be at a natural level.

92 The following measures have been taken into account: additional tax revenue from public sector wage increases, dividends and income tax on them, increase in general tax-free income, changes in deductions, changes in fringe benefits, unemployment insurance for management bodies, abolition of tax exemptions on deposit interest rates, income tax relief for mature companies, simplification of fringe benefits for company cars, fairer taxation of business cars, fairer taxation on night income, establishment of business account, increase of VAT limit, changes in excise duty on fuel, tobacco, alcohol and electricity, real-time control measure concerning fuel, establishment of road use tax, tax changes for self-employed persons, extension of land tax incentive for local governments, oil shale resource fees, income-dependent fines, revenue from the sale of 3.5 GHZ licenses. 131

In 2019, the budget deficit reaches 0.4% of GDP, when taking into account budget strategy decisions, which is 0.7% less than the value estimated in the state budget, but 0.1% greater than during the previous year. This year's position will be improved by the increased dividend revenue as well as by the increased sales revenue generated by the raise in CO 2 quota price. Next year, the measures adopted in the budget strategy will result in a nominal surplus of 0.1% of GDP. In 2021, due to achieving a structural balance, the nominal surplus will reach 0.4% of GDP and then begins to decline as a result of the structural balance objective and the movement of the economy towards its potential level. Table 68. Budgetary position of the general government 2019–2023

2019 2020 2021 2022 2023 Nominal budgetary position of the general -0.4 0.1 0.4 0.3 0.2 government (% of GDP) Central government -0.5 0.1 0.6 0.4 0.2 Social security funds 0.2 0.2 0.2 0.1 0.1 Local governments 0.0 -0.2 -0.4 -0.2 -0.2 Nominal budgetary position of the general -97 32 106 104 57 government (million euros) Central government -148 29 169 113 78 Social security funds 53 46 46 42 30 Local governments -2 -43 -109 -51 -51 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 GDP) 93 is the production function method 94 . According to the Ministry of Finance, the growth potential of the Estonian economy is now near 3.5% but will decrease below 3% in the coming years. The decline in the contribution of labour is the main constraint on economic growth. At the same time, the contribution of investments and productivity is increasing the growth potential.

93 Potential GDP – maximum 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.

94 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.

As economic growth accelerated in 2017, our economy surpassed the potential level, and the output gap 95 took on a positive value and comprised 2.1% of the GDP at the end of 2018. In the forecast years, expected economic growth will remain slightly below potential, resulting in a shrinking output gap which closes 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 GDP gap is negative), the state should relax the fiscal policy. Conversely, if the level of GDP is higher than the potential level (the GDP 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 account 96 . In addition, external funds should be taken into account, because they are neutral with regard to the budgetary position – revenue always equals expenditure –, and, therefore, increase in the use of funds, for example, is not reflected in changes that occur in the budgetary position. However, it enables providing extra stimulus to economic activities during an economic recess, which is a countercyclical policy measure in its nature. Considering the change in external funds, the fiscal policy of Estonia in the years 2020– 2023 is counter-cyclical (see Table 69). In 2020 -2022, fiscal policy becomes tighter because the GDP is higher than the potential level, and in 2023, fiscal policy relaxes because GDP level is somewhat lower from the potential.

95 GDP gap or output gap – the difference between actual and potential GDP.

96 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 GDP gap and elasticity. According to methodology updated by the European Commission in 2018, the semi-elasticity used to find the cyclical budget component is 0.486 in Estonia, compared to the 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. 133

Table 69. Cyclically-adjusted budgetary position in 2018–2023 (% of GDP)

2004– 2018 2019 2020 2021 2022 2023 2017

1. Real GDP growth (%) 3.1 3.9 3.1 2.7 2.7 2.6 2.5 2. Budgetary position of the - general government -0.5 -0.4 0.1 0.7 0.3 -0.1 3. Interest payments - 0.0 0.0 0.0 0.1 0.1 0.1 4. Real potential GDP growth 3 3.5 3.6 3.3 3.1 3.0 2.9 (%) 4.a Contribution of capital to 1.9 1.2 1.2 1.3 1.3 1.3 1.3 potential growth (%) 4.b Contribution of labour to 0.1 0.8 0.7 0.3 0.0 -0.2 -0.3 potential growth (%) 4.c Contribution of productivity to potential 1.0 1.4 1.6 1.7 1.8 1.9 1.9 growth (%) 5. Output gap 1.9 2.1 1.6 1.1 0.7 0.3 -0.1 6. Cyclical budget component - 1.0 0.8 0.5 0.3 0.1 0.0 7. Cyclically-adjusted - -1.5 -1.1 -0.4 0.0 0.2 0.2 budgetary position (7)=(2)-(6) 8. Cyclically-adjusted primary - -1.5 -1.1 -0.4 0.1 0.2 0.3 position (8)=(7)+(3) 9. Budgetary policy position - Count Count Count Count Count Count ercyc. ercyc. ercyc. ercyc. ercyc. ercyc. Source: Statistics Estonia, Ministry of Finance

Figure 2. GDP gap and structural budgetary position in 2014–2023 (% of GDP)

Source: Ministry of Finance

Structural budgetary position of the general government The structural budgetary position of the 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 a temporary and non-recurring significant impact on the cyclically-adjusted 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. Between 2018 and 2019, the one-off measure is local government merger grants to the extent of 0.1% of GDP. The merging of local governments will be supported with a total of 65 million

euros in 2017–2019. The expenditure of that administrative reform is temporary, larger-scale and profitable in the long term. Table 70. One-off measures and their impact in 2018–2023 (million euros)

2018 2019 2020 2021 2022 2023 Merger grants for local governments -30 -21 Total, million euros -30 -21 0 0 0 0 Total, % of GDP -0.1% -0.1% 0.0% 0.0% 0.0% 0.0% Source: Ministry of Finance

Table 71. Structurally adjusted budgetary position in 2018–2023 (% of GDP)

2018 2019 2020 2021 2022 2023 1. Cyclically-adjusted budgetary position -1.5 -1.1 -0.4 0.0 0.2 0.2 2. One-off measures -0.1 -0.1 0.0 0.0 0.0 0.0 3. Structurally adjusted budgetary position -1.4 -1.1 -0.4 0.0 0.2 0.2 (3)=(1)-(2) Source: Ministry of Finance

3.3.1. Revenue and expenditure of the budget of the general government In 2019, general government revenues amount to 39.9% of GDP and expenditure to 40.2% of GDP (see Table 7, Appendix 1). During 2020–2023, expenditure will grow by an average of 3.4% per year, i.e., slower than GDP, which is why the general government expenditure will decrease to 37.5% of GDP by 2023 (see Table ). Compared to 2019, expenditure related to education will decrease the most as a percentage of GDP by 2022 (see Table 8, Appendix 1). Table 72. Impact of fiscal policy decisions on the revenue and expenditure of the general government

2018 2018 2019 2020 2021 2022 2023 million % of % of % of % of % of % of euros GDP GDP GDP GDP GDP GDP

Revenue forecast of 10,026. 39.1 39.9 39.7 39.5 38.8 37.7 the general 1 government Measures of -0.1 0.2 0.7 1.0 0.6 revenue policy Expenditure 10,146.3 39.5 40.2 39.6 39.1 38.5 37.5 forecast of the general government Source: Statistics Estonia, Ministry of Finance The second table below shows the revenues and expenditures of the Ministry of Finance according to the forecast compiled in the spring of 2018 and the first table below displays the volume of measures of revenue policy for achieving the objectives set out in the State Budget Strategy. 135

Table 73. Revenue and expenditure according to the forecast compiled by the Ministry of Finance in the spring of 2019, excluding budgetary policy decisions

2018 2018 2019 2020 2021 2022 2023 million % of % of % of % of % of % of euros GDP GDP GDP GDP GDP GDP

Revenue forecast 10,026. of the general 39.1 40.0 39.5 38.8 37.8 37.1 1 government Expenditure forecast of the 10,146. 39.5 40.2 39.7 39.3 38.5 37.3 general 3 government Source: Statistics Estonia, Ministry of Finance

3.1.1. 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

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. This is why the biggest part of the budget deficit is coming from the state budget when the economic cycle is in a phase of decline. Therefore, 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 97 of which are social security expenditure (incl. state pension insurance). These expenses are 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 the aggregate amount 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

97 Based on the state budget for 2018.

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 0.1% of GDP in deficit to 0.3% of GDP in surplus. Table 74. Position of the central government.

2019 2020 2021 2022 2023 Central government revenue (million euros) 9,323 9,864 10,487 10,916 11,194 Central government expenditure (million euros) 9,471 9,835 10,318 10,803 11,116 Position (million euros) -148 29 169 113 78 Position (% of GDP) -0.5% 0.1% 0.6% 0.4% 0.2% Source: Ministry of Finance

3.1.1.1. State budget revenue During 2020–2023, the growth of state budget revenue will decelerate compared to the economic forecast compiled in the spring, the volume of revenue with transferable income will increase on average by 3.8% per year, which exceeds the spring economic forecast by 0.5%. Compared to the forecast compiled in the spring, revenue will decrease by 28 million euros, i.e., 0.27% this year; next year, the volume of state budget revenue will increase by 62.6 million euros, i.e., 0.8%. When compared to the current year, by 2023, revenue will increase by 1.79 billion euros to 12.85 billion, that means by 16.2%. Figure 4 Volume and growth of state budget revenue (million euros, %)

Source: Ministry of Finance During the budget strategy period (2020–2023), the tax revenue (without transferable taxes) will show an average annual growth of 4.6% per year, i.e. 0.02% faster than expected in the framework of the spring forecast. Social tax, value added tax and excise duties will constitute the largest part of tax revenues. In 2020–2023, social tax revenue will annually increase by 4.7% on average; the forecast revenue in 2023 is 3,997.0 million euros. These revenues are increased by increase in wages as well as employment. Revenue from personal income tax is decreased by the increase of tax-free income for pensioners, revenue from corporate income tax is affected by the changes in dividends of state enterprises. For the aforementioned period, the accrual of value added tax will increase on average by 5% a year and the forecast accrual in 2023 is 3,030 million euros. The increase of VAT is supported by 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, and second-round effects arising from the income tax

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reform 98 . VAT revenue growth will accelerate on average by 0.2% compared to the spring forecast, as the reduction in excise duty on alcohol may lead to an increase in alcohol consumption and sales in Estonia. In 2020–2023, the accrual of excise duties will increase, on average, by 1.6% annually; the estimated accrual in 2022 will be 1,114 million euros. In the years 2019–2022, the revenue from excise duties is lower compared to the spring forecast, as from July 2019 a 25% reduction in the excise rates on beer, cider and spirits is planned. Instead of the currently planned 10% increase in excise duty on tobacco in 2020, excise duties on cigarettes and smoking tobacco will be raised by 5% per year during 2020–2023. The increase in revenue from excise duties is mainly due to the increase in tobacco and gas excise duty, increasing private consumption as well as favourable economic environment. During the budget strategy period, non-tax revenues decrease by 1.4% per year on average and the decrease has slowed down by 4% when compared to the forecast compiled in the spring. The main change is due to external aid that includes the revenue forecast of the new financial framework of the European Union in 2021–2023. The revenue from the sale of dividends and emission quotas has also been increased. The volume of non-tax revenue is most dependent on external funds, which will be the largest in 2022 (1.22 billion euros). Compared to the previous State Budget Strategy , the forecast state budget revenue shall increase, on average, by 3.8% a year during 2020–2022 and the revenue of 2023 will increase by almost 337 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 the State Budget Strategy 2019–2023 and in the previous State Budget Strategy (million euros)

Source: Ministry of Finance

3.1.1.2. Total expenditure and investments of state budget Compared to 2019, the state budget expenditure will increase 12.4%, i.e., 1.4 billion euros by 2023, of which calculated costs, i.e., costs related to statutory limits, are 709.4 billion euros. Figure 6. State budget revenue and expenses in 2018–2023 (million euros)

Larger growth (1.1 billion euros) consists of social expenditure, including working ability allowance in the amount of 412.5 million euros, parental benefit in the amount of 345.5

98 Due to the income tax reform of 2018, the income of people associated with the measure is on the rise, which is also reflected in the increase in consumption and increases the accrual of indirect taxes (value added tax, excise duty), bringing about the so-called “second-round” positive effect on the budget.

million euros and unemployment insurance premiums in the amount of 133 million euros. A more detailed overview of the calculated costs is reflected in Appendix 4 to this document. In the defence sector, the costs will increase by 54.6 million euros to ensure a defence expenditure ratio of at least 2% of GDP, plus investments concerning allies and the national defence investments programme. During the period of 2020–2023, external grants amount to 3.2 billion of the total expenditure in the state budget. In the coming years, with regard to the implementation of structural and investment funds of the European Union programme period 2021–2026, an increase in the volume of external grants is also expected. During the period of 2020–2023, the Ministry of Rural Affairs and the Ministry of Economic Affairs and Communications will implement external grants the most, using 735 billion and 1.3 billion euros respectively. 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. About 50% of the total investment subsidies is allocated to the central government, 30% to the private sector and about 20% to local governments. The state tax revenue (predetermined resources) and grants from the EU and from the NATO security investments programme, quota funds and own revenue from the economic activities of government authorities (revenue-dependent resources) are used to make investments from the state budget resources. The investments planned in the state budget for 2020–2023 amount to a total of 3.4 billion, which includes investments of state authorities, investment subsidies into various sectors and investments made via the Riigi Kinnisvara AS. The average annual amount of investments and investment subsidies planned in the State Budget Strategy for 2020–2023 is 823.0 million euros, about 341.1 million euros of which is allocated for investments of public expenditure bodies. Additionally, on average, 450.3 million euros from the state budget is allocated to the other general government for investment subsidies. Figure 7. Investments and investment subsidies of Riigi Kinnisvara AS and agencies financed from the state budget in 2013–2023 (million euros)

The volume increase of investments planned in the state budget during the forecast period is primarily the result of large-scale projects approved by the Government of the Republic, such as the strategic investments programme, in the framework of which the Government is planning to increase, during 2020–2023, investments that improve the competitiveness and defence capability of Estonia in the total extent of 232 million euros. Within the framework of the programme: ● the construction of a broadband distribution network is completed in cooperation with the state, local governments and the private sector; ● a measure is created for supporting investments in the housing stock of local governments;

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● large-scale infrastructure investments are made concerning roads; ● the Tallinn City Hall is constructed into an international tourism and conference centre in cooperation with the City of Tallinn; ● the defence investments programme is carried out. Approximately half of the funding of investments will originate from external funds, of which about 80% will be directed into various sectors as investments subsidies. Larger investments from external funds are related to organising the school network, reconstruction of apartment buildings, primary health centres and transport. Even though the administrative reform and increase of construction prices, which influence the conduct of procurements significantly, continue to be challenges during implementation, investments of the coming years will be carried out in an increasing volume. The majority of the planned investments in the state budget are allocated to roads and facilities (34.6%) and to real estate (34.7%). Figure 8. Distribution of investments and investment subsidies by acquiring groups

* Real estate is without roads and buildings. ** Other investments include investments, the detailed distribution between acquiring groups is not clear during the stage of drafting the State Budget Strategy. Built-up real estate investments from public revenues and the budget of Riigi Kinnisvara AS About 38.3% of the planned investments in the state budget are made up of built-up real estate investments (without roads and facilities). The share of external funds in real estate investments is about 56% (described in the chapters of the areas of government), the share of investments made from public revenues and the budget of Riigi Kinnisvara AS is 44% (see below). Investments of buildings owned (registered immovables of government agencies and managed authorities) by the 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 is not be able to 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 State Budget Strategy 2019–2022, the government made a fundamental decision, according to which the planning of the state’s real estate and financing decisions thereof be made more systematic and flexible, and they shall be aligned with the principles of activity-based financial management. The discussions related to State Budget Strategy 2020–2023 did not lead to individual decisions on real estate objects. As a part of 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 most important activities that are financed from the Riigi Kinnisvara AS optimisation reserve are the surface use optimisation proposals arising from the real estate management plans, minor adjustments to the needs of the government authorities, and the own financing part of the

CO 2 project (own financing part of investments made with revenue from sales of EU greenhouse gas emission quotas). It is also possible, continuing the current practice, to finance, from the Riigi Kinnisvara AS optimization reserve, projects of valuing assets that are unnecessary to the Riigi Kinnisvara AS, aiming to increase the value of the vacant or inefficient asset used by the Riigi Kinnisvara AS on the rent or sales market, as well as to finance the appreciation and changes of projects decided upon by the Government. During the discussions on the State Budget Strategy 2020–2023, the implementation of the new funding principle was continued by allocating an additional 2.7 million euros annually to the Riigi Kinnisvara AS optimisation reserve. The general direction of the new management system of state real estate is to bring individual decisions in relation to maintaining and improving the condition of buildings from the level of the Government of the Republic to the level of the areas of government, which is in line with the principles of activity-based budgeting and the state reform principle to reduce administrative burdens and increase flexibility. The government decides on the volume of real estate investments by sectors and the responsible minister decides on the more detailed use of resources. Budgetary resources are allocated and their use monitored on the basis of key indicators of real estate. The Government of the Republic will be able to concentrate and will continue to decide on new strategic investments, but decisions related to existing assets will be made by the areas of government together with real estate service providers. The transition to a new process requires implementational activities, including legislative changes and developments in information systems. One of the key elements of the new management system is the real estate management plan, which gives an overview of the state-owned and used buildings, their involvement in the main activity, the condition of the property and the costs related to the asset. Real estate management plans are used to plan the use and maintenance of assets. The real estate management plans were completed at the beginning of 2019 and they were used to submit additional applications during the SBS 2020–2023 process.

3.1.2. 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 includes the operation and maintenance 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 protection means the maintenance of care 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. According to the initial data of 2018, the total unconsolidated accrual-based volume of those

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expenses was 2,169 million euros (incl. 106 million euros of liabilities). Personnel and management expenditure comprised 64% of this. Figure 9. Breakdown of expenses of local governments in 2018 (million euros)

Source: Ministry of Finance

The budgets of local governments are independent, which means that local governments are responsible for preparing their budgets themselves. The common purpose of tax revenue carried forward from the state budget (income 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 land tax and environmental charges or revenue from the sale of goods and services.

Figure 10 . Breakdown of revenue of local governments in 2018 (million euros)

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 44 million euros. The Ministry of Finance predicts that, by 2019, local governments will reach a level close to balance, and thereafter they will be in deficit throughout the budget strategy period due to continued growth of their investment activities. Mainly obligations will be increased to cover this. The budgets of local governments and their fulfilment of those budgets can be viewed in the public funds application 99 .

3.1.3. 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. In 2018, the Health Insurance Fund was in surplus by nearly 19 million euros due to a large revenue from social tax and less than expected expenditure in relation to some expenditure

99 http://riigiraha.fin.ee

items. A surplus of 13 million euros is expected this year. The position is improved by a significant improvement in revenue from social tax. In the period 2020–2022, a budgetary position close to balance with a small surplus is expected, in line with the target set by the Riigikogu for the budget position of the Health Insurance Fund for these years. The forecast of 2019 is based on the Health Insurance Fund budget and the forecast of the health insurance part of the social tax prepared by the Ministry of Finance. A balance is expected in 2023. The surplus of the Unemployment Insurance Fund amounted to 45 million euros in 2018, which is similar to the surplus of 2017 and nearly 24 million larger than expected in the summer economic forecast of the previous year. The reason for this was the lower than expected expenditure in almost all expenditure categories: benefits, services and operating expenses. The budgetary position of the Estonian Unemployment Insurance Fund will remain at a similar level this year, the expected surplus in 2019 is 40 million euros. The largest increase in expenditure is related to operating expenses and services, but revenues are also increasing in a similar volume. The budgetary position of the Unemployment Insurance Fund will also remain at a similar level in the near future, remaining in the range of 41–44 million euros in the years 2020–2022. Due to the end of the current structural funds period, it is assumed that in 2023, the measures of the work ability reform target group will be financed by the Unemployment Insurance Fund, not from external funds as before, which compared to previous years generates a worse but still a considerable surplus of 30 million euros.

3.2. Tax policy

3.2.1. General tax burden One of the tax policy goals of the Government is to shift the tax burden from the taxation of income to the taxation of consumption, use of natural resources and pollution of the environment, doing so by partial reorientation of taxes. At the same time, the system will be kept stable, simple and transparent with as few exceptions and special cases as possible. The tax burden of Estonia in 2017 was 32.8% of GDP, which is considerably lower than the average of the European Union (see Figure 11. ). In comparison with the Central and East European countries, Slovakia, Poland, Czech Republic, Slovenia, Croatia and Hungary had a bigger tax burden than Estonia.

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Figure 11 . Tax burden in the European Union in 2017 (% of GDP)

Source: Eurostat The tax burden of 2020 will be 33.4% of GDP, being 0.1% higher than in 2019. In 2020, the tax burden will be increased primarily due to labour taxes 100 and consumption taxes 101 mainly because of the income tax, supported by wage growth. Capital taxes 102 will decrease because the impact of measures that supported the collection of corporate income tax will recede. In 2020–2023, tax revenues will grow slower than nominal GDP and the tax burden will fall to 32.6% of GDP by 2023 .

3.2.2. 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 rate 103 , 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 costs. As the basis for calculating the implicit tax rate are the 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; at the same time, the expiry of the higher contributions to funded pension had the opposite effect which caused the indicator to reach 34.0% in 2018. The raising of tax-free income for pensioners decreases the indicator, but due to wage growth, it will rise to 34.7% by 2023. (see Figure 12. A).

100 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.

101 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, AAU sales revenue, liquid fuel reserve charge and Guarantee Fund contributions.

102 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.

103 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 with other variants.

The effective tax rate on consumption will fall to 26.1% by 2023 as the increase in excise duties is modest (see Figure 12. B). Reducing excise duty on alcohol will lead to an increase in sales and hence an increase in VAT. 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. The new system of basic exemption reduced, when compared to the system that was enforced until the end of 2017 (€180 basic exemption, tax credit to low-income persons), from 39% to 132% of the average wages in the tax wedge region. As a result, the net income increased primarily for low and middle income employees, which was one of the objectives of the new system. In 2018, the tax wedge of a single childless employee was at all income levels lower than the EU average in 2017. In 2019, the tax wedge of a single childless person earning 67% of the average wage was 33.3%, which is lower than the EU average of 36.7% in 2017. Due to wage growth, the indicator will rise to 34.7% by 2023 (see

Compared to other EU countries, the tax burden on Estonian labour force is becoming more competitive with higher wages, as, unlike in most EU countries, in Estonia taxes are not progressive at the upper end of income. Compared to the indicator in Latvia and Lithuania in 2017, Estonia's tax wedge is also somewhat lower in regard to larger incomes in 2019 (125% and 167% of the average wage).C). The tax wedge of a married couple with two children, where one parent earns 100% of the average wage, (see

Compared to other EU countries, the tax burden on Estonian labour force is becoming more competitive with higher wages, as, unlike in most EU countries, in Estonia taxes are not progressive at the upper end of income. Compared to the indicator in Latvia and Lithuania in 2017, Estonia's tax wedge is also somewhat lower in regard to larger incomes in 2019 (125% and 167% of the average wage).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. As a result of wage growth, the family's tax wedge will increase to 29.4% in 2019, which is close to the EU average of 29.6% in 2017. Due to wage growth, the indicator will increase to 33.0% by 2023 Compared to other EU countries, the tax burden on Estonian labour force is becoming more competitive with higher wages, as, unlike in most EU countries, in Estonia taxes are not progressive at the upper end of income. Compared to the indicator in Latvia and Lithuania in 2017, Estonia's tax wedge is also somewhat lower in regard to larger incomes in 2019 (125% and 167% of the average wage).

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Figure 12 . Implicit tax rate (% of tax base) and tax wedge (% of labour expenditure) A. Implicit tax rate on labour B. Implicit tax rate on consumption

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 wages* wages*

* According to the spring forecast of the Ministry of Finance, the gross average worker’s wages in 2023 will be 20,881 euros per year. Sources: OECD Taxing Wages 2019, draft Taxation trends in the European Union (2019), European Commission http://ec.europa.eu/economy_finance/db_indicators/tab/, Ministry of Finance.

3.2.3. Tax expenditure Tax expenditure makes up government instruments for directing social or economic policy and provide tax incentives for taxpayers with certain characteristics 104 .

104 The financial amount of tax expenditure is calculated by using the revenue foregone method and cash basis accounting data, and for each tax expenditure provision, the delay between the implementation of the provision and its actual application is taken into account. Only the so-called first-round effects of the establishment of tax expenditure have been estimated. The different behavioural effects and budget restrictions have not been taken into account in the evaluation of tax expenditure due to the implementation of the method of revenue foregone. In assessing the value of tax expenditure, it is important to understand that each individual provision of tax expenditure has been evaluated separately without

The accrual of the state budgets for 2019 and 2020 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 scope of the main tax expenditure in 2019 comprises 240.3 million euros, i.e. 0.9% of GDP and 3.1% of tax revenue. Compared to the spring forecast, the tax expenditure this year has been reduced by 0.2 million euros due to the 50% decrease in the excise duty rate for small brewers and by 0.3 million euros in 2020. In 2020, additional tax-free income has been added to the pension, resulting in an increase of 15 million euros in tax expenditure. The highest volume of tax expenditure comes from lower VAT rates for medicinal products and medical devices as well as accommodation services; in addition, more favourable rate of excise duty on diesel fuel for specific purposes and regularly distributed profits have a significant impact on the budget. The volume of the three largest types of tax expenditure constitutes 56% of the total tax expenditure in 2019. In 2020, tax expenditures will increase by 14.7% to 275.8 million euros, mainly due to additional tax-free income on pensions from 2020, but also due to increased tax expenditure volumes. Table 75 . Tax expenditure in state budget in 2019–2020 105 (million euros) Governmen

Tax expenditure Provision t 2019 2020 function 106 1. 9% value added tax rate on books, Clauses 15 (2) 1) 9 10.5 10.9 workbooks and periodicals and 3) of the VATA 2. 9% value added tax rate on medicinal Clause 15 (2) 2) of 7 65.1 68.2 products and medical devices the VATA 3. 9% value added tax rate on Clause 15 (2) 4) of 8 30.8 32.2 accommodation services the VATA 4. Lower tax rate of 14% on regularly Subsection 4 (5) of 4 23.6 37.3 distributed profits the ITA 5. Increased basic exemption from the Section 23 1 of the ITA 10 22.7 22.7 second child 6. Increased basic exemption in the event of SECTION 23 2 OF 10 15.0 pension THE ITA 7. Increased basic exemption for spouse Section 23 4 of the ITA 10 3.4 3.4

considering the confluence of different provisions, which means that whilst finding the aggregate amount of tax expenditure by adding up different provisions is incorrect. However, it allows to evaluate the general trend.

105 Tax expenditure assessments have only been calculated for the provisions that are included in tax regulations as of 1 January 2017 .

106 Government functions: 1. general public activities; 2. national defence; 3. public order and security; 4. economy; 5. environmental protection; 6. housing and utilities; 7. health care; 8. recreation, culture and religion; 9. education; 10. social protection 147

8. Section 25 of the Deduction of mortgage interest 6 5.9 6.1 ITA 9. Section 26 of the Deduction of training expenses 9 13.5 14.1 ITA 10. Subsection 27 (1) of Gifts and donations 8 1.7 1.8 the ITA 11. Insurance premiums and acquisition of Section 28 of the 10 4.5 4.7 units of a pension fund ITA 12. Increased basic exemption of self- Subsection 32 (4) of employed persons upon a sale of the ITA 4 4.1 4.1 agricultural produce or timber 13. 50% excise duty rate for independent Subsection 46 (1) of 4 1 0.9 small breweries the ATFEEDA 14. Lower excise duty rate on diesel fuel for Subsection 66 (7) of 4 38 39 specific purposes and light fuel oil the ATFEEDA 15. Exemption of fishermen from excise Clause 27 (1) 22 2) of 4 1.6 1.7 duty on fuel the ATFEEDA 16. Electricity used for chemical reduction Clause 27 (1) 24), and in electrolytic, metallurgic and section 28 4 of the 4 0.7 0.7 mineralogical processes ATFEEDA 17. Electricity and fuel used for producing Clause 27 (1) 28 2) of electricity and electricity used for the ATFEEDA 4 7.1 7.5 maintaining the ability to produce electricity 18. Clause 27 (1) 24) of Fuel used for mineralogical processes 4 1.8 2.3 the ATFEEDA 19. Natural gas used for the purpose of Clause 27 (1) 28 6) of 4 0.2 0.2 operating the natural gas network the ATFEEDA 20. Deduction of excise on electricity for Subsection 66 (12 1) of 4 3 1.8 major consumers the ATFEEDA 21. Deduction of excise on gas for major Subsection 66 (10 3) of 4 1.2 1.2 consumers the ATFEEDA TOTAL 240.4 275.8 Source: Ministry of Finance

3.3. Financing of the general government

3.3.1. Cash flow and net position According to the State Budget Strategy, the state budget position is in deficit this year, but will be in nominal surplus in the following years. However, 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 from three main factors: financing of financing transactions, the loan amount repayable by the State Treasury; and the adjustment arising from the difference between cash-based and accrual-based tax revenue. 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 will be used to cover the difference. The negative cash flow of the state budget 2019–2020 is partly financed by reserves and additional funds are also included. In the years 2021–2022, the cash flow is positive, creating an opportunity to grow reserves. The slightly negative cash flow of the state budget in 2023 will be covered by reserves and the State Treasury will have no need to take new loans.

In 2018, the government debt exceeded the level of reserves and the net debt amounted to 0.9% of GDP (see Figure 27). According to the forecast, the debt will decrease from 2020 onwards, but the level of reserves will fall faster, leading to a net debt increase of 1.9% of GDP by the end of 2020. Due to the decline in the share of debt and the increase in reserves in 2021 and 2022, the net debt will decline to 0.6% of GDP by the end of the forecast period. The net position of the general government, i.e. the difference between the level of debt and reserves, will therefore stabilise at the 2016 level. Without the impact of the EFSF, reserves will influence the debt burden as of 2021, and net assets will, without the impact of the EFSF, reach 0.8% of GDP by 2023.

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Figure 13 . Liquid assets, debt burden and net position of the general government in 2009–2023 (% of GDP)

Source: Ministry of Finance, Statistics Estonia

3.3.2. 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 2018 amounted to 7.9% of GDP, which is 0.8% less than in 2017. The main reason for the decline in the share of debt, in addition to the nominal decline in debt, was the rapid growth of GDP compared to the previous year. The decline in debt burden was supported by the nominal decrease in local government debt and the State Treasury debt. Last year, only the debt of public law agencies and foundations included in the central government increased nominally. The central government debt (including the funds received from the EFSF) 107 comprised 1,304 million euros and the debt of local governments 735 million euros 108 of the total general government debt of 2,039 million euros; the share of external debt in total debt was 61%. Without the funds of the EFSF,

107 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.

108 Consolidated figure at the level of the general government

which amounted to 455 million euros in 2017, the central government debt was 849 million euros, i.e. 3.3% of GDP.

Table 76 . Change in the debt burden of the general government in 2018 31 December 2017 31 December 2018 C

h a n g e million % of GDP million % of % of euros euros GDP GDP General government 2,063.7 8.7 2,038.9 7.9 -0.8 Domestic debt 789.7 3.3 795.6 3.1 -0.2 External debt 1,274.0 5.4 1,243.8 4.8 -0.5 Central government 109 2,273.4 9.6 2,329.4 9.1 -0.5 Domestic debt 1,162.1 4.9 1,252.7 4.9 0.0 External debt 1,111.3 4.7 1,076.7 4.2 -0.5 Local governments 756.4 3.2 734.9 2.9 -0.3 Domestic debt 593.7 2.5 567.8 2.2 -0.3 External debt 162.7 0.7 167.1 0.7 0.0 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 can be expected to increase to 8.2% of GDP. The debt increases nominally at both central and local government levels compared to 2018. The debt burden is projected to fall to 7.7% of GDP next year and to reach 5.9% of GDP by the end of the forecast period in 2023. The negative cash flow of the central government in 2019–2020 and 2023 will be funded partially from reserves, and in 2020, the State Treasury will incur a need for new loans based on cash flow. Without the EFSF, the contribution of the central government to the debt burden will decrease as a percentage of GDP starting with 2020. The EFSF's contribution to the central government debt burden does not change nominally during the forecast period, but it does decrease as a percentage of GDP. 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, remaining near 2.7% as percentage of GDP.

109 Consolidated debt at central government level for both domestic and foreign debt, taking into account transactions related to sub-sectors of the general government (including changes in liabilities). 151

Table 77. Debt burden of the general government in 2018–2023 (% of GDP) 2018 2019* 2020* 2021* 2022* 2023* 1. Total debt 7.9 8.2 7.7 7.1 6.5 5.9 2. Change in debt burden -0.8 0.2 -0.5 -0.6 -0.6 -0.6 Contributions to change in debt burden: (2=3- 4+5+6) 110 3. Contribution of nominal GDP increase -0.7 -0.5 -0.4 -0.4 -0.3 -0.3 4. Primary budget balance -0.4 -0.3 0.1 0.4 0.4 0.2 5. Interest payments 0.0 0.0 0.0 0.0 0.1 0.1 6. Difference between the change of debt burden and the budgetary position ( stock-flow -0.6 0.3 0.1 0.1 0.1 -0.2 adjustment, SFA ) Estimated interest rate of general government 0.5 0.4 0.5 0.6 0.8 1.0 debt (%) Other relevant indicators 7. Liquid financial assets 7.1 6.5 5.7 5.8 5.6 5.3 8. Debt amortisation since the end of last year 111 0.1 0.3 0.3 0.2 0.2 0.2 9. Net debt (9=1-7) 0.9 1.6 1.9 1.3 0.8 0.6 10. Share of debt denominated in foreign 0.0 0.0 0.0 0.0 0.0 0.0 currency (%) 11. Average limitation period 112 (in years) 3.2 4.7 4.3 4.0 3.6 3.2 * - forecast Source: Ministry of Finance, Statistics Estonia

Figure 14 . Development of debt burden in 2009–2023 (% of GDP) A. General government debt (% of GDP) B. Difference between the change of debt burden and the budgetary position, SFA (% of GDP)

110 In some years, the equation is not applicable due to rounding.

111 Central government without foundations and legal persons governed by public law

112 Central government without foundations and legal persons governed by public law

C. Repayment of central government 113 debt (million euros)

D. Average interest rate of central government 114 debt (%)

Source: Ministry of Finance, Statistics Estonia, Eurostat

113 Central government without foundations and legal persons governed by public law

114 Central government without foundations and legal persons governed by public law 153

3.3.2. Development of general government liquid financial assets The volume of the liquid financial assets of the general government as of the end of 2018 were 1,817 million euros, constituting 7.1% of GDP. Compared to 2017, the reserves of social security funds and local governments increased, while the reserves of the central government decreased. This year, the reserves of all levels of the general government, except social security fund reserves, are decreasing due to negative cash flow. A decrease in general government reserves is also forecast for the next year, as it is wise to finance the negative cash flow of the state budget at the expense of reserves. Reserves are decreasing, because in addition to the state budget position, which will be in surplus in next year, loan repayments, cash flow of external funds and financing of financing transactions also will be taken into account in the cash flow of the state budget. During the period of 2021–2022, the volume of reserves will increase nominally (with the support of the central government as well as social security funds) and then decrease somewhat due to the nominal deficit of the state budget and other negative cash flow factors, amounting to 5.3% of GDP by the end of 2023.

Table 78. Liquid financial assets, i.e., reserves of the general government in 2018–2023 (million euros, % of GDP) 2018 2019* 2020* 2021* 2022* 2023* Total of financial assets 1,817 1,774 1,644 1,740 1,792 1,758 (million euros) incl. central government 556 461 304 400 431 388 incl. local governments 279 278 260 214 193 172 incl. social security funds 981 1,034 1,080 1,126 1,168 1,198 Total financial assets (% 7.1 6.5 5.7 5.8 5.7 5.3 of GDP) incl. central government 2.2 1.7 1.1 1.3 1.4 1.2 incl. local governments 1.1 1.0 0.9 0.7 0.6 0.5 incl. social security funds 3.8 3.8 3.8 3.7 3.7 3.6 * - forecast Source: Ministry of Finance, Statistics Estonia

3.1. Long-term sustainability Long-term budget projections provided in this chapter are based on the estimates and forecasts of the Ageing Report published in 2018 (AR2018). In the long run, these trends coincide with the development forecast of the Ministry of Finance. The forecast for pensions is based on the detailed forecast of the pension model by the Ministry of Finance, while the costs related to incapacity for work have been deducted from pension expenditure. Expenses related to incapacity for work were previously part of the pension system, but with the ongoing work capacity reform, this target group will be transferred into the social benefits system and will no longer be included in this pension cost forecast. However, this cost has been separately disclosed under other pensions. The developments in the early years (and, consequently, the level of some indicators, such as labour market indicators) have been

adjusted according to the macroeconomic scenario of this programme in order to take into account the latest developments. It is worth emphasising that the prerequisites for projections presented in this chapter are the maintenance of current decisions throughout the projection period and the continuation of current policies, so they do not reflect the most likely future scenario, but instead aim to demonstrate the magnitude of the challenge accompanying demographic trends, to which a reactive response can be given by way of policy measures.

The impact of demographic trends on public finance has begun – according to Eurostat's latest population forecast (EUROPOP2015), the share of dependants (here assumed to be up to 14 years old and over 65 years old) in the working age population (age range 15–64) will increase from 55% in 2017 to 79% by 2070.

The following has been carried out to ensure long-term fiscal sustainability: ● a conservative fiscal stance has been maintained and significant increases in general government debt have been avoided; ● the pension system has been reformed and a contribution to pre-funded pension schemes has been facilitated; ● retirement age has been increased and flexibility has been introduced into the pension index; ● a better financial situation has been ensured through policies geared towards economic growth and employment.

According to the National Pension Act, retirement age will increase by 3 months per year as of 2017, reaching 65 years by 2026. From 2027, the increase in retirement age is linked to the expected increase in life expectancy (this change is not included in the AR2018 forecast below). At the moment, the retirement age for both men and women is 63 years and 9 months. The projected increase in life expectancy of 65-year-olds by 2070 is worth noting. Compared to 2016, the expected life expectancy in the next 50 years will increase by 8 years for women aged 65 and by 7 years for men (according to AR2018). The objective of increasing the retirement age is to ensure the adequacy (the decision allows to make pension payments that are about 5–10% higher as of 2026) and sustainability of the pension system; the change was driven by the desire to support the decreasing labour supply, which is the result of the demographic development. Increasing the retirement age will compensate for demographic changes and, according to current estimates, keep the number of pensioners stable. In addition, the retirement age becomes more flexible from 2021 onwards (this change is not included in the AR2018 forecast below).

An analysis of the sustainability of current policy shows that, due to the increase in retirement age and the implementation of second pension pillar payments, the pressure put on public finances by demographic changes in Estonia is one of the lowest among the European Union countries. However, analysis compiled based on current estimates and concerning long terms developments, indicate that the relationship between pensions (sum of I and II pillar) and average wages will deteriorate, therefore, additional decisions may have to be made concerning the pension system in the future.

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Table 79. Long-term sustainability of public finances 2016–2070 (% of GDP) 2016 2020 2030 2040 2050 2060 2070 Total expenditure 39.6 39.7 39.4 39.6 39.9 40.3 39.6 of that: expenditure related to ageing 19.3 18.6 18.3 18.5 18.8 19.2 18.5 Pensions 8.1 7.8 7.2 7.1 7.1 6.9 6.4 Social insurance pensions 8.1 7.8 7.2 7.1 7.1 6.9 6.4 Old-age pensions 6.7 6.3 5.9 6.0 6.0 6.0 5.4 survivor’s pension, invalidity pensions 1.3 0.3 0.1 0.1 0.1 0.1 0.1 occupational pensions (if paid from the general ------government budget) other pensions (working ability allowance) 0.1 1.1 1.2 1.1 1.0 0.9 0.9 Healthcare 5.3 5.2 5.2 5.4 5.6 5.6 5.6 Welfare (previously part of healthcare costs) 0.9 0.9 1.0 1.1 1.2 1.3 1.4 Interest payments 0.1 0.0 0.2 0.2 0.2 0.2 0.2 Education expenditure 4.8 4.5 4.7 4.6 4.8 5.1 5.0 Other expenditure related to ageing 0.2 0.2 0.3 0.2 0.2 0.2 0.2 Total revenue 39.7 39.5 39.4 39.6 39.9 40.3 39.6 of that : revenue from assets (incl. interest revenue) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 of that : social security contributions (1st pillar revenue) 5.7 5.5 5.2 5.1 5.0 5.0 5.0 Pension insurance assets (I pillar) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 of that : consolidated assets of pension insurance (other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 assets, other general government bonds) Impact of the pension reform Social security contributions to the II pillar (state’s 4%) 1.4 1.2 1.4 1.5 1.6 1.8 1.8 Payments of II pillar pensions 0.0 0.1 0.3 0.7 1.3 1.8 1.8 Prerequisites: Labour productivity growth, % 1.1 1.9 2.1 1.9 1.9 1.7 1.5 Real GDP growth, % 2.1 3.0 1.9 1.4 1.0 1.5 1.2 Participation rate in the labour force, men (aged 20–64), % 80.2 79.4 77.3 76.2 74.4 74.0 76.4 Participation rate in the labour force, women (aged 20–64), 73.3 72.8 72.1 71.3 70.9 71.4 71.1 % Total participation rate in the labour force (aged 20–64), % 77.5 77.2 76.5 75.8 75.5 75.9 75.6 Unemployment rate, % 6.8 6.3 6.2 6.0 5.7 5.7 5.7 Percentage of population over 65 years of age, % 19.2 20.3 23.2 25.5 28.0 30.4 29.4 Source: Ministry of Finance, EU Economic Policy Committee. Note: the long-term forecast has been updated compared to the previous Stability Programme as a new Ageing Report was published.

3.2. Public finance reforms Transition to performance based budgeting Next year, the state budget will have a new structure. In addition to the previous expenditure-based budget, the state budget of 2020 will include programmes run by ministers. This means that the government sets performance targets for the programmes and, in order to achieve the targets, the state authorities provide services whose quality, volume and price are agreed upon. Each euro in the programme is related to a service, each euro has a purpose.

A budget consisting of services, programmes, and sectors provides the opportunity to better monitor that public money is spent where it is most needed. This way we can find duplicate activities or services and evaluate which services can be delegated or which services do not contribute to the goal. Such a budget, which can dismantled into parts, is more transparent and allows ministries to work together to achieve common goals and, if necessary, relocate the functions of the institutions to better meet the needs of citizens. There will be more information, not less. The cost-based information used in previous years is also retained, on the basis of which we can receive overviews of the volume of personnel costs, investments, awarded grants and use of EU funds in the whole country. The transition to activity-based budgeting is part of the national reform. This means a structured performance information, based on consistent principles and agreed-upon definitions, on the basis of which the state can plan further strategic developments. The new budgeting format that combines strategic planning with resource planning has been in the works since 2007. In order to decrease the number of development documents, budget-related strategic documents have been planned – these comprise the general principles of policies, development plans and programmes of sectors. This reduces the number of development documents in sectors where the budget volume exceeds by many times the resources allocated to the sector in the state budget. 400 objectives in one sector have been reduced to a few dozen measurable objectives, for which specific persons are responsible, and resources have been allocated to achieve those objectives. Financial accounting has been organised and software for planning the service-based budget and monitoring its performance has been provided to all state authorities. A unified cost accounting and reporting environment enables to integrate performance, budget, accounting, and personnel data, and compose management reports that link results and resources. The transition to activity-based budgeting has been a successful but a complex and time-consuming process. 1,300 public services (not including support services) for 150 state authorities have been developed and priced to help achieve the objectives of 45 programmes. The programmes contribute to the implementation of 21 government goals. There are about 400 indicators in the larger areas of government. Based on such structured and transparent result and budget information, it is possible to make better management decisions and develop the country’s services to be more citizen-centred, establish smart solutions and lifecycle-based services as well as set common objectives for the country’s development.

A broad state budget audit will be conducted as a further development, reviewing the country's strategic directions and analysing whether the services that are provided to achieve them contribute to achieving the objective. Alternative options will be evaluated and proposals will be made to make institutions internally efficient and to redirect funds to priority areas or developments.

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 157

reviews will continue in the state budget process. In October 2018, the Government of the Republic approved the proposals of the “Entrepreneurship, Innovation” spending review, which help to make the enterprise and innovation system more strategically focused and reduce fragmentation in the implementation of measures. A total of over 172 proposals for improvement were submitted under the spending review. 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 OECD. 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, and at least two spending review projects involving more than 5% of the state budget expenditure will be conducted. The project will last until December 2020.

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 2018, the development of the long-term (15 years) cross-sector development strategy “Estonia 2035” began. “Estonia 2035” is ready in April 2020 and 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. When planning state budget funds, Estonia will continue to focus on 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.

APPENDICES

Appendix 1. Economic forecast of spring 2019 of the Ministry of Finance and sensitivity analysis Economic forecast Forecast prerequisites One basis for the budget strategy and its fiscal framework is the economic forecast compiled in the spring of 2019 by the Ministry of Finance, the macroeconomic overview tables of which are presented in this appendix. 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 prerequisites of the economic forecast compiled in the spring have been recorded as of the end of March 2019. Table 1. The most important external implications of the forecast (percentage) European Prerequisites of the MoF's spring 2019 forecast Commission

2020 2021 2022 2023 2020 2018 2019* 2018 2019* * * * * *

1. Euribor, 3 months (annual -0.3 -0.3 -0.2 0.0 0.4 0.7 -0.3 -0.3 -0.1 average) 2. Long-term interest rate of the euro zone (annual 0.4 0.2 0.4 0.7 1.1 1.4 0.4 0.3 0.5 average) 3. USD/EUR exchange rate 1.18 1.13 1.13 1.13 1.13 1.13 (annual average) 1.18 1.14 1.14 4. Nominal effective exchange - - - rate 3.4 0.6 0.0 0.0 0.0 0.0 5. World economic growth (without the EU) 3.8 3.5 3.6 3.6 3.6 3.6 3.9 3.8 3.8 6. EU28 GDP growth 1.9 1.3 1.6 1.7 1.6 1.6 1.9 1.5 1.7 7. Import growth of Estonian export markets 3.4 2.6 3.0 3.3 3.3 3.2 - - - 8. World import growth (without the EU) 4.6 2.8 3.6 3.9 3.9 3.8 4.8 3.9 3.6 9. Oil price (Brent, USD/barrel) 71.1 65.2 64.8 63.0 63.0 63.0 71.5 61.2 61.2 Sources: Eurostat, Eesti Pank, European Central Bank (ECB), IMF, US Energy Information Administration (EIA); Consensus Economics (CF), European Commission (COM winter forecast, February 2019) and NYMEX Brent futures. The forecast of public finances has been compiled on the basis of the baseline scenario of macroeconomic forecast. The current situation is used as a basis, incl. current legislation, information regarding the performance of the state budget and other information about the general government.

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Prerequisites of the general government 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: o Real-time control measure concerning fuel as of 1 February 2019 ● When projecting the rise of minimum wage, Eesti Pank's Labour Productivity Forecast until 2021 and the forecast of the Ministry of Finance 2022–2023 will be used. ● When compiling a forecast for non-tax revenues, the basis used is previous accrual and detailed forecasts for areas of government (environmental charges, state fees, sale of assets). ● The dividend forecast of 2019 will take into account the sums of SB 2019. In 2020–2022, the basis will be the decisions of the SB process and the financial forecasts and dividend proposals of companies. Prerequisites of the general government expenditure forecast: ● In terms of 2019, the state budget for 2019 and detailed forecasts for the areas of government shall be used as basis. ● The expenditure forecast for 2020–2023 shall be based on the SBS for 2019–2022 (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 2019–2023 is 2% of GDP, plus costs related to the presence of allied forces and additional defence investments. ● Investments take into account time shifts, but not appreciation. ● In regard to the wage fund, the SBS decisions for 2019 are taken into account. Other prerequisites: ● The increase of the share capital of AS Eesti Energia up to 130 million euros in 2019 has been taken into account. ● 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 the 2019 budget and the share of health insurance in social tax revenue based on the forecast. For the years 2020–2022, the budgetary position approved by the Riigikogu has been used. A balance is expected in 2023. ● The local authorities' forecast is based on the actual results of 2018 and the macroeconomic forecast, incl. taking into account changes in the local government's running costs due to inflation and changes in average wages.

Macroeconomic forecast

Table 1. Gross domestic product forecast for 2019–2023 (percentage) 2018 2018 2019* 2020* 2021* 2022* 2023* level

1. Real GDP growth 19,896 3.9 3.1 2.7 2.7 2.6 2.5 2. Nominal GDP growth 25,657 8.6 6.0 5.5 5.3 5.0 4.9 Growth sources 3. Private consumption expenditure

(incl. NGOs) 4.6 4.7 2.9 2.9 2.7 2.6 4. Final consumption expenditure of

the general government 0.3 0.3 0.3 0.3 0.1 0.1 5. Total capital investment in fixed

assets 3.3 5.1 4.0 4.3 3.4 3.6 6. Change in inventories (% of GDP) 3.1 2.6 2.6 2.6 2.6 2.5 7. Export of goods and services 4.3 3.2 3.0 3.2 3.3 3.3 8. Import of goods and services 6.1 3.8 2.9 3.4 3.2 3.1 Contribution to GDP growth 1 9. Domestic demand (excluding

inventories) 3.2 3.6 2.5 2.6 2.3 2.2 10. Change in inventories 1.9 -0.3 0.0 0.0 0.0 0.0 11. Balance of goods and services -1.1 -0.3 0.2 -0.1 0.2 0.3 Growth of value added 12. Primary sector -21.0 4.1 1.7 1.8 1.7 1.7 13. Manufacturing 3.2 3.2 3.0 3.0 2.9 2.9 14. Construction 18.6 2.7 3.3 2.8 2.7 2.5 15. Other services 4.3 3.3 3.0 2.7 2.5 2.5 1) Contribution to GDP growth indicates the proportions 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 share of GDP that cannot be divided between the sectors). Source: Ministry of Finance, Statistics Estonia

Table 2. Forecast of prices for 2019–2023 (percentage) 2018 2018 2019* 2020* 2021* 2022* 2023*

2010=100 % % % % % %

1. GDP deflator 129.0 4.6 2.8 2.7 2.6 2.4 2.3 2. Private consumption deflator 123.4 3.2 2.3 2.3 2.1 2.1 2.1 3. Harmonised consumer price index 122.8 3.4 2.2 2.3 2.1 2.1 2.1 3a. Consumer price index 119.3 3.4 2.1 2.2 2.0 2.0 2.0 4. Consumption expenditure deflator of 146.8 7.3 5.5 3.5 3.4 2.8 2.6 the general government 5. Deflator of investments 118.5 2.8 3.5 2.4 2.3 2.2 2.1 6. Export deflator 113.5 2.4 1.1 1.8 2.0 2.0 2.0 7. Import deflator 108.5 2.0 1.2 1.7 1.8 1.9 1.9 Source: Ministry of Finance, Statistics Estonia

Table 3. Labour market forecast for 2019–2023 (15- to 74-year-olds) (percentage) level of 2018 2019* 2020* 2021* 2022* 2023* 2018 % % % % % %

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1. Employment, by number of employed 664.7 1) 0.9 0.9 0.0 -0.1 -0.2 -0.2 persons 3. Unemployment rate 5.4 5.6 5.7 5.7 5.7 5.7 4. Labour productivity, by number of 26.1 2) employed persons 3.2 2.3 3.0 2.8 2.8 2.7 6. Compensation to employees 12,452.7 3) 9.5 8.0 5.3 5.2 4.7 4.7 7. Compensation per employee (6./1.) 18.7 4) 8.5 7.0 5.3 5.3 5.0 5.0 1) Thousand people. 2) Thousand euros per employed person. 3) Million euros 4) Thousand euros. Source: Ministry of Finance, Statistics Estonia

Table 4. Balance of payments forecast for 2019–2023 (% of GDP) 2008– 2018 2019* 2020* 2021* 2022* 2023* 2017

1. External deficit 2.7 2.9 2.7 2.8 2.2 2.0 1.7 1a. Current account 0.3 1.7 1.1 1.1 0.9 0.9 0.8 2. Balance of goods and services 3.4 3.4 2.9 3.1 3.1 3.4 3.6 3. Balance of primary and -3.0 -1.7 -1.8 -2.0 -2.3 -2.5 -2.8 secondary income 4. Capital account 2.3 1.2 1.6 1.7 1.3 1.1 0.9 5. Mistakes and specifications 0.0 0.4 Source: Ministry of Finance, Eesti Pank, Statistics Estonia

Public finance forecast Table 5. Budgetary position of the general government 2019–2023 State 2019 2020 2021 2022 2023 budget 2019 Structurally adjusted budgetary position of the 0.0 -1.1 -0.4 0.0 0.2 0.2 general government (% of GDP) Nominal budgetary position of the general 0.5 -0.4 0.1 0.4 0.3 0.2 government (% of GDP) Central government 0.3 -0.5 0.1 0.6 0.4 0.2 Social security funds 0.1 0.2 0.2 0.2 0.1 0.1 Local governments 0.0 0.0 -0.2 -0.4 -0.2 -0.2 Nominal budgetary position of the general 130 -97 32 106 104 57 government (million euros) Central government 89 -148 29 169 113 78 Social security funds 39 53 46 46 42 30 Local governments 2 -2 -43 -109 -51 -51 Source: Ministry of Finance

Table 6. Revenue and expenditure of the budget of the general government in 2018–2023 2018 2018 2019 2020 2021 2022 2023 million % of % of % of % of % of % of euros GDP GDP GDP GDP GDP GDP Budgetary position by levels of the general government 1. General government -120.2 -0.5 -0.4 0.1 0.4 0.3 0.2 2. Central government -236.5 -0.9 -0.5 0.1 0.6 0.4 0.2 4. Local governments 43.7 0.2 0.0 -0.2 -0.4 -0.2 -0.2 5. Social security funds 72.6 0.3 0.2 0.2 0.2 0.1 0.1 General government 6. Total revenue 10,026. 39.1 39.9 39.7 39.5 38.8 37.7 1 7. Total expenditure 10,146. 39.5 40.2 39.6 39.1 38.5 37.5 3 8. Budgetary position -120.2 -0.5 -0.4 0.1 0.4 0.3 0.2 9. Interest expenditure 9.8 0.0 0.0 0.0 0.1 0.1 0.1 10. Primary balance -110.4 -0.4 -0.3 0.2 0.4 0.4 0.3 11. One-off and temporary measures -30.0 -0.1 -0.1 0.0 0.0 0.0 0.0 Revenue by components 12. Tax revenue (12=12a+12b+12c) 5,503.1 21.4 21.5 21.4 21.3 20.9 20.8 12a. Production and import taxes 3,574.1 13.9 14.2 14.1 13.8 13.5 13.3 12b. Income and wealth taxes 1,929.0 7.5 7.3 7.2 7.4 7.4 7.5 12c. Capital taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 13. Social security contributions 3,043.9 11.9 12.1 12.0 12.0 11.8 11.7 14. Property income 181.7 0.7 0.9 0.9 0.8 0.7 0.7 15. Other revenue 1,298.0 5.1 5.4 5.4 5.3 5.4 4.5 16.=6. Total revenue 10,026. 39.1 39.9 39.7 39.5 38.8 37.7 1 p.m.: Tax burden (D.2 (incl. paid to the 8,523.2 33.2 33.5 33.4 33.2 32.7 32.6 EU)+D.5+D.611+D.91-D.995) Expenditure by components 17. Compensation of employees + intermediate 4,559.0 17.8 18.0 17.5 17.2 17.0 16.5 consumption 17a. Compensation to employees 2,911.4 11.3 11.5 11.4 11.2 11.0 10.8 17b. Intermediate consumption 1,647.6 6.4 6.5 6.1 6.0 6.0 5.7 18. Social transfers (18=18a+18b) 3,471.0 13.5 13.6 13.8 13.7 13.6 13.6 of which unemployment benefits 90.4 0.4 0.3 0.3 0.3 0.3 0.3 18a. Social transfers in kind 495.9 1.9 2.0 2.0 2.0 2.0 2.0 18b. Financial social transfers 2,975.1 11.6 11.6 11.8 11.7 11.6 11.6 19.=9. Interest expenditure 9.8 0.0 0.0 0.0 0.1 0.1 0.1 20. Subsidies 96.4 0.4 0.4 0.4 0.4 0.4 0.3 21. Total capital investment 1,407.3 5.5 5.9 5.6 5.4 5.1 4.7 22. Capital movement 131.6 0.5 0.4 0.4 0.3 0.4 0.3 163

23. Other expenses 471.3 1.8 1.9 1.9 2.0 2.0 2.1 24.=7. Total expenditure 10,146. 39.5 40.2 39.6 39.1 38.5 37.5 4 p.m. General government’s consumption 5,049.5 19.7 19.6 19.3 19.0 18.6 18.2 Source: Statistics Estonia, Ministry of Finance

Table 7. General government expenditure by government functions (COFOG) (% of GDP) COFOG 2015 2016 2017 2018 2022 code

1. General public services 1 4.1 4.0 3.9 3.6 3.4 2. National defence 2 1.9 2.4 2.0 2.2 2.1 3. Public order and security 3 1.8 1.9 1.9 1.7 1.6 4. Economy 4 4.7 4.2 4.3 4.7 4.5 5. Environment protection 5 0.7 0.6 0.7 0.6 0.5 6. Housing and utilities 6 0.4 0.3 0.4 0.3 0.3 7. Healthcare 7 5.4 5.2 5.0 5.7 5.7 8. Recreation, culture and religion 8 1.9 2.0 2.1 1.9 1.7 9. Education 9 6.0 5.8 5.8 6.2 5.4 10. Social protection 10 12.8 13.2 13.0 13.3 13.3 11. Total expenditure of the general TE 39.6 39.5 39.3 40.2 38.5 government Sources: Statistics Estonia, Ministry of Finance

Comparison of this SBS with the previous SBS forecast Table 8. Comparison with the Stability Programme for 2018 and forecast of SBS for 2019–2022 2018 2019* 2020* 2021* 2022* 2023*

Real GDP growth (%) Previous version 4.0 3.2 3.0 2.9 2.9 - Current update 3.9 3.1 2.7 2.7 2.6 2.5 Difference -0.1 -0.1 -0.3 -0.2 -0.3 - Nominal GDP growth (%) Previous version 7.6 6.3 5.8 5.4 5.4 - Current update 8.6 6.0 5.5 5.3 5.0 4.9 Difference 1.0 -0.3 -0.3 -0.1 -0.4 - Harmonised consumer price index (TPI) (%) Previous version 3.0 2.5 2.6 2.1 2.1 - Current update 3.4 2.2 2.3 2.1 2.1 2.1 Difference 0.4 -0.3 -0.3 0.0 0.0 -

Nominal budgetary position of the general government (% of GDP) Previous version 0.2 0.5 0.4 0.2 0.1 - Current update -0.5 -0.4 0.1 0.4 0.3 0.2 Difference -0.7 -0.9 -0.3 0.2 0.3 - General government debt (% of GDP) Previous version 8.5 7.7 6.9 6.2 5.3 - Current update 7.9 8.2 7.7 7.1 6.5 5.9 Difference -0.6 0.5 0.8 0.9 1.2 - 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 per year during 2019–2023, the direct effect on the budget will be 15.5 million euros (0.06% of GDP) in the first year and the cumulative interest expenditure during the last year of the forecast period will be a total of 82.1 million euros (0.2% of GDP).

Impact of increased interest rates Impact of increased interest rates by 100 basis points (1%) 2019 2020 2021 2022 2023 Difference in interest expenditure compared to 15.5 33.2 50.3 66.7 82.1 baseline scenario, million Difference in interest expenditure compared to 0.1 the baseline scenario, % of GDP 0.1 0.2 0.2 0.2

Risk scenario The aim of compiling a risk scenario is to show alternative options of economic development and their impact on the state budget. The second half of the last year showed a significant slowdown in the economic growth of the euro area due to the weakness of the industrial sector. The cooling of the global economy, along with trade restrictions and Brexit, has greatly increased uncertainty about future developments and has

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manifested itself in the decline in euro area export orders. However, despite the weakening external environment, the Estonian economy is still in good shape. The internal risks of the economy are low due to the cautious behaviour of the private sector. Conservative behaviour in consumption and investing is reflected in the current account surplus, which is rather exceptional for a converging country. Due to the openness of the Estonian economy, the negative developments in the external environment may lead to a marked slowdown in economic growth. In this forecast, a negative scenario has been prepared, according to which the slowdown in external demand growth is faster, limiting our companies' export opportunities. According to the risk scenario, the Estonian economy will grow by 2.8% this year and by 2.0% next year. Compared to the base forecast, the economic growth in the years 2019–2020 is respectively 0.3 percentage points and 0.7 percentage points lower. Due to the worsening of export opportunities of companies because of a stronger slowdown in external demand, it is domestic demand that drives the economic growth. Export growth will start to recover in 2021. The delays in trade tariff disputes cause great uncertainty, degrade prospects and lead to more modest investment needs of companies. Slower growth in economic activity reduces demand for workers, resulting in both slower employment and wage growth. According to the risk scenario, the nominal volume of GDP will be about 100 million euros lower in 2019, compared to the baseline scenario, and 400 million euros lower in 2020. The risk scenario's revenue and expenditure forecast is based on the corresponding macroeconomic projections and foresees a deterioration of the general government’s budgetary position (also taking into account the budget strategy measures) by up to 0.5% of GDP in 2019–2021. The larger deficit in comparison to the baseline scenario results mainly from the deceleration of increase in tax revenue, which affects all levels of the general government. The most significant decrease in the risk scenario concerns the forecast for the accrual of social tax, which is linked to changes in both employment and average wage. The forecast of VAT accrual has also been decreased due to the more moderate growth in private consumption and investments. 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 (EHIF allocation, pension expenditure). Additionally, the level of defence expenditure decreases due to the decreased nominal GDP level. The decrease in the surplus of the Unemployment Insurance Fund is caused both by the decrease in the unemployment insurance premium and increase in expenditure. The position of the Unemployment 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 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 of up to 0.4% of GDP. In the risk scenario, the government debt burden is also expected to rise by up to 0.3% due to additional financing needs. As a result of the changes, the net assets will decrease by 0.3% next year and 0.8% of GDP in 2021.

Table 10. Risk scenario (percentage) Differenc e from Risk scenario base forecast 2018 2019* 2020* 2021* 2019* 2020* 2021* GDP in current prices (billion 25.66 27.09 28.26 29.61 -0.10 -0.40 -0.60 euros) Real GDP growth 3.9 2.8 2.0 2.5 -0.3 -0.7 -0.2 Nominal GDP growth 8.6 5.6 4.3 4.8 -0.4 -1.2 -0.5 CPI 3.4 1.9 1.8 1.9 -0.2 -0.4 -0.1 Real growth of domestic demand 5.5 3.3 1.8 2.3 -0.2 -0.8 -0.5 Real export growth 4.3 2.2 1.8 3.0 -1.0 -1.2 -0.2 Employment growth 0.9 0.8 -0.3 -0.4 -0.1 -0.3 -0.3 Nominal wage growth 7.6 6.3 4.4 4.8 -0.1 -0.8 -0.2 Unemployment rate 5.4 5.7 6.1 6.3 0.1 0.4 0.6 General government Tax burden (% of GDP) 33.2 33.6 33.6 33.4 0.1 0.2 0.2 Budgetary position of the general -0.5 -0.4 -0.3 -0.2 -0.1 -0.4 -0.5 government (% of GDP) Debt burden of the general 7.9 8.2 7.9 7.4 0.0 0.3 0.3 government (% of GDP) Source: Ministry of Finance, Statistics Estonia

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Appendix 2. Funding Plan of the State Budget Strategy 2020–2023

SBS 2020 SBS 2021 SBS 2022 SBS 2023 Nationwide cost savings -84,400,000 -112,000,000 -44,800,000 -45,300,000

Transnational 16,730,360 64,283,350 122,947,690 123,460,443 Reserved spare capacity of investments 1,863,822 23,042,459 64,700,000 64,900,000 Salaries of Higher State Servants Act 75,538 37,416 33,097 30,606 Leases of Riigi Kinnisvara AS – nationwide 248,000 15,657,475 21,468,593 26,419,837 undistributed growth Increase in costs after the transition period 0 8,300,000 19,500,000 25,550,000 Increase of repair component of Riigi Kinnisvara AS contracts to 47 7,983,000 4,126,000 4,126,000 0 euros/m²/year Performance reserve co-financing 6,560,000 13,120,000 13,120,000 6,560,000

Riigikogu 21,416,400 21,823,000 21,973,000 26,308,000 Expenses 20,161,286 20,790,365 21,059,025 25,389,067 including funds with limits 12,669,286 12,887,365 12,778,025 14,867,067 Investments 611,258 435,598 331,678 331,678 including funds with limits 611,258 435,598 331,678 331,678 Value added tax 643,856 597,037 582,297 587,255 Office of the President of the Republic 4,739,003 4,374,283 4,453,283 4,472,283 Expenses 4,172,091 4,114,491 4,193,491 4,212,491 including funds with limits 3,807,091 3,711,491 3,711,491 3,711,491 Investments 250,833 10,833 10,833 10,833 including funds with limits 250,833 10,833 10,833 10,833 Value added tax 316,079 248,959 248,959 248,959 National Audit Office 6,053,141 6,095,095 6,118,517 6,204,282 Expenses 5,816,935 5,858,889 5,882,311 5,968,076 including funds with limits 5,041,936 5,041,936 5,041,936 5,041,936 Investments 8,300 8,300 8,300 8,300 including funds with limits 8,300 8,300 8,300 8,300 Value added tax 227,906 227,906 227,906 227,906 Office of the Chancellor of Justice 2,880,774 3,039,774 3,050,774 3,056,774 Expenses 2,780,540 2,939,540 2,950,540 2,956,540 including funds with limits 2,595,540 2,695,540 2,695,540 2,695,540 Value added tax 100,234 100,234 100,234 100,234 Supreme Court 6,503,854 6,492,654 6,684,654 6,822,654 Expenses 6,179,112 6,401,712 6,593,712 6,731,712 including funds with limits 3,437,112 3,412,712 3,412,712 3,412,712 Investments 194,000 0 0 0 including funds with limits 194,000 0 0 0

Value added tax 130,742 90,942 90,942 90,942 2,303,842,67 2,377,473,82 2,440,765,56 2,507,669,48 Government of the Republic 4 1 1 0 2,303,842,67 2,377,473,82 2,440,765,56 2,507,669,48 Expenses 4 1 1 0 including funds with limits 644,790,674 608,631,821 607,186,561 588,310,480

Government Office 9,387,150 8,536,325 8,273,017 8,272,612 Expenses 8,413,865 8,023,729 7,796,207 7,795,802 including funds with limits 7,608,158 7,410,179 7,412,026 7,411,621 Investments 340,000 16,667 16,667 16,667 including funds with limits 315,000 0 0 0 Value added tax 633,285 495,929 460,143 460,143 Performance area Public administration 8,753,865 8,040,396 7,812,874 7,812,469 Supporting the activities of the Government of the Republic and the 8,753,865 8,040,396 7,812,874 7,812,469 Prime Minister Expenses 8,413,865 8,023,729 7,796,207 7,795,802 Investments 340,000 16,667 16,667 16,667

Ministry of Education and Research, 732,285,000 716,240,000 680,151,000 634,153,000 area of government Expenses 718,225,000 701,684,000 665,585,000 619,959,000 including funds with limits 529,015,000 543,893,000 561,793,000 574,993,000 Investments 3,021,000 3,416,000 3,424,000 3,108,000 including funds with limits 2,352,000 2,961,000 2,969,000 2,631,000 Value added tax 11,039,000 11,140,000 11,142,000 11,086,000 Performance area Education 536,104,600 510,390,600 475,027,600 449,220,600 Digital focus programme 11,694,000 9,973,000 8,005,000 4,926,000 Expenses 10,736,000 8,406,000 6,430,000 3,689,000 Investments 958,000 1,567,000 1,575,000 1,237,000 General education programme 124,550,000 117,290,000 116,832,000 114,166,000 Expenses 124,486,000 117,226,000 116,768,000 114,102,000 Investments 64,000 64,000 64,000 64,000 School network programme 87,647,600 79,349,600 53,338,600 35,190,600 Expenses 87,647,600 79,349,600 53,338,600 35,190,600 Investments 0 0 0 0 Vocational education programme 87,786,000 86,683,000 86,598,000 86,656,000 Expenses 87,253,000 86,214,000 86,129,000 86,165,000 Investments 533,000 469,000 469,000 491,000 Higher education programme 192,419,000 192,471,000 191,505,000 191,514,000 Expenses 190,953,000 191,155,000 190,189,000 190,198,000 Investments 1,466,000 1,316,000 1,316,000 1,316,000

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Youth programme 11,359,000 9,553,000 8,851,000 8,533,000 Expenses 11,359,000 9,553,000 8,851,000 8,533,000 Adult education programme 10,641,000 8,497,000 5,597,000 4,870,000 Expenses 10,641,000 8,497,000 5,597,000 4,870,000 Programme for a closer integration of 10,008,000 6,574,000 4,301,000 3,365,000 the labour market and education Expenses 10,008,000 6,574,000 4,301,000 3,365,000 Performance area Research 171,789,000 181,580,000 180,842,000 160,707,000 Research, Development and Innovation 171,789,000 181,580,000 180,842,000 160,707,000 Programme Expenses 171,789,000 181,580,000 180,842,000 160,707,000 Performance area Estonian language 5,402,400 5,421,400 5,431,400 5,431,400 and identity Language programme 5,402,400 5,421,400 5,431,400 5,431,400 Expenses 5,402,400 5,421,400 5,431,400 5,431,400 Performance area Public administration 7,950,000 7,708,000 7,708,000 7,708,000 Archive programme 7,950,000 7,708,000 7,708,000 7,708,000 Expenses 7,950,000 7,708,000 7,708,000 7,708,000

Ministry of Justice, area of government 177,818,665 178,816,206 180,314,222 179,873,435 Expenses 169,404,725 170,402,714 171,900,730 171,459,943 including funds with limits 129,457,283 129,372,313 129,323,738 129,289,212 Investments 275,290 275,290 275,290 275,290 including funds with limits 191,290 191,290 191,290 191,290 Value added tax 8,138,650 8,138,202 8,138,202 8,138,202 Performance area Legal order 169,680,015 170,678,004 172,176,020 171,735,233 Reliable and effective legal system 169,680,015 170,678,004 172,176,020 171,735,233 Expenses 169,404,725 170,402,714 171,900,730 171,459,943 Investments 275,290 275,290 275,290 275,290

Ministry of Defence, area of government 627,080,541 649,275,420 668,118,162 696,730,996 Expenses 443,717,136 479,478,607 493,459,846 492,221,086 including funds with limits 421,867,887 455,624,589 467,159,629 464,057,813 Investments 138,855,898 122,620,106 127,416,086 155,104,486 including funds with limits 117,818,689 110,188,017 125,788,923 155,104,486 Value added tax 44,507,507 47,176,707 47,242,229 49,405,424 Performance area National security and 582,573,034 602,098,713 620,875,933 647,325,572 defence Independent military defence capability 417,442,579 445,239,565 465,706,985 486,858,182 Expenses 296,423,762 331,052,717 341,908,841 337,152,488 Investments 121,018,817 114,186,848 123,798,144 149,705,694 Defence policy development and 56,555,929 58,948,281 61,569,167 63,527,922 supporting activities

Expenses 55,300,978 57,857,399 60,256,858 62,582,383 Investments 1,254,951 1,090,881 1,312,309 945,539 Participating in collective defence 53,629,680 45,042,827 39,918,788 42,232,495 Expenses 37,047,550 37,700,450 37,613,154 37,779,242 Investments 16,582,130 7,342,377 2,305,633 4,453,253 Intelligence and early warning 54,944,846 52,868,040 53,680,993 54,706,973 Expenses 54,944,846 52,868,040 53,680,993 54,706,973

Ministry of the Environment, area of 248,980,873 222,060,981 199,900,028 150,661,659 government Expenses 242,952,582 216,477,888 194,416,553 145,233,074 including funds with limits 76,645,173 76,841,096 77,088,576 77,079,843 Investments 3,092,632 2,474,999 2,387,499 2,387,500 including funds with limits 2,254,166 2,474,999 2,387,499 2,387,500 Value added tax 2,935,659 3,108,094 3,095,976 3,041,085 Performance area Environment 240,995,282 213,670,502 192,030,380 143,067,041 The environmental protection and use 240,995,282 213,670,502 192,030,380 143,067,041 programme Expenses 237,902,650 211,287,378 189,704,131 140,740,791 Investments 3,092,632 2,383,124 2,326,249 2,326,250 Performance area Agriculture and 5,049,932 5,282,385 4,773,672 4,553,533 fishing Fishing 5,049,932 5,282,385 4,773,672 4,553,533 Expenses 5,049,932 5,190,510 4,712,422 4,492,283 Investments 0 91,875 61,250 61,250

Ministry of Culture, area of government 238,731,295 233,284,886 232,368,235 233,424,446 Expenses 237,626,544 232,458,472 231,543,369 232,598,580 including funds with limits 195,817,681 191,282,937 191,784,115 193,783,908 Investments 239,940 23,000 23,000 23,000 including funds with limits 23,000 23,000 23,000 23,000 Value added tax 864,811 803,414 801,866 802,866 Performance area Culture 182,932,182 182,509,900 181,663,933 182,424,494 Culture 182,932,182 182,509,900 181,663,933 182,424,494 Expenses 182,692,242 182,486,900 181,640,933 182,401,494 Investments 239,940 23,000 23,000 23,000 Performance area Sports 48,236,418 44,363,981 44,850,690 45,325,340 Sports 48,236,418 44,363,981 44,850,690 45,325,340 Expenses 48,236,418 44,363,981 44,850,690 45,325,340 Performance area Integration 6,697,884 5,607,591 5,051,746 4,871,746 Integration 6,697,884 5,607,591 5,051,746 4,871,746 Expenses 6,697,884 5,607,591 5,051,746 4,871,746

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Ministry of Rural Affairs, area of 416,439,215 438,818,881 426,526,498 397,957,693 government Expenses 412,394,693 434,407,908 422,276,401 393,884,826 including funds with limits 48,461,544 49,273,977 49,436,726 49,494,939 Investments 1,985,000 2,285,000 2,135,000 1,985,000 including funds with limits 1,756,667 2,056,667 1,906,667 1,756,667 Value added tax 2,059,522 2,125,973 2,115,097 2,087,867 Performance area Agriculture and 414,379,693 436,692,908 424,411,401 395,869,826 fishing Agriculture, food and rural life 391,316,827 408,902,822 396,195,272 373,009,946 Expenses 389,340,174 406,626,169 394,068,619 371,033,293 Investments 1,976,653 2,276,653 2,126,653 1,976,653 Fishing 23,062,866 27,790,086 28,216,129 22,859,880 Expenses 23,054,519 27,781,739 28,207,782 22,851,533 Investments 8,347 8,347 8,347 8,347

Ministry of Economic Affairs and 816,245,720 703,904,515 679,319,911 562,971,805 Communications, area of government Expenses 608,733,257 511,545,646 503,634,465 413,457,773 including funds with limits 329,838,944 293,225,525 288,825,158 269,774,952 Investments 165,408,372 152,203,667 137,635,581 115,610,333 including funds with limits 158,323,333 146,889,166 135,555,833 114,805,833 Value added tax 42,104,091 40,155,202 38,049,865 33,903,699 Performance area Transport 508,915,578 465,951,085 486,194,144 421,738,080 Transport programme 508,915,578 465,951,085 486,194,144 421,738,080 Expenses 346,622,745 316,219,918 351,051,896 308,621,080 Investments 162,292,833 149,731,167 135,142,248 113,117,000 Performance area Enterprise and 162,731,556 115,725,710 91,449,351 62,148,878 innovation Competitive business environment 127,535,251 100,493,002 81,524,007 52,212,488 Expenses 127,076,917 100,034,668 81,044,840 51,733,321 Investments 458,334 458,334 479,167 479,167 Construction programme 35,196,305 15,232,708 9,925,344 9,936,390 Expenses 35,196,305 15,232,708 9,925,344 9,936,390 Performance area Energy 43,501,017 26,828,381 16,417,160 4,924,654 Energy 43,501,017 26,828,381 16,417,160 4,924,654 Expenses 43,501,017 26,828,381 16,417,160 4,924,654 Performance area Information society 58,993,478 55,244,137 47,209,391 40,256,494 E-government and telecommunications 55,574,249 51,924,580 43,890,221 36,936,743 market development programme Expenses 52,917,044 49,910,414 41,876,055 34,922,577 Investments 2,657,205 2,014,166 2,014,166 2,014,166

Cybersecurity programme 3,419,229 3,319,557 3,319,170 3,319,751 Expenses 3,419,229 3,319,557 3,319,170 3,319,751

Ministry of Finance, area of government 230,114,446 191,890,186 173,713,776 161,679,462 Expenses 219,306,033 180,802,803 163,367,377 151,518,376 including funds with limits 107,887,823 108,649,429 109,840,605 108,963,269 Investments 4,814,337 4,966,833 4,110,167 4,110,167 including funds with limits 3,585,167 4,029,333 3,172,667 3,172,667 Value added tax 5,994,076 6,120,550 6,236,232 6,050,919 Performance area Public administration 224,120,370 185,769,636 167,477,544 155,628,543 Public finance 70,572,608 73,882,424 73,607,375 73,417,407 Expenses 69,949,938 73,551,424 73,276,375 73,086,407 Investments 622,670 331,000 331,000 331,000 Administrative policy 51,020,479 51,702,074 51,876,624 50,671,458 Expenses 46,828,812 47,066,241 48,097,457 46,892,291 Investments 4,191,667 4,635,833 3,779,167 3,779,167 Regional policy 101,194,154 58,843,818 40,629,276 30,175,291 Expenses 101,194,154 58,843,818 40,629,276 30,175,291 Financial policy 1,333,128 1,341,320 1,364,269 1,364,387 Expenses 1,333,128 1,341,320 1,364,269 1,364,387

Ministry of the Interior, area of 423,754,555 425,442,164 429,222,955 421,304,870 government Expenses 392,504,194 393,600,586 395,579,563 388,476,171 including funds with limits 340,887,416 344,610,571 343,749,558 342,461,770 Investments 13,008,622 13,509,117 14,847,864 14,291,664 including funds with limits 12,070,284 13,509,117 14,847,864 14,291,664 Value added tax 18,241,739 18,332,461 18,795,528 18,537,035 Performance area Internal security 397,027,104 398,607,513 401,905,460 394,258,319 Internal security 397,027,104 398,607,513 401,905,460 394,258,319 Expenses 384,086,090 385,173,943 387,148,746 380,057,494 Investments 12,941,014 13,433,570 14,756,714 14,200,825 Performance area Public administration 8,485,712 8,502,190 8,521,967 8,509,516 Civil society 8,485,712 8,502,190 8,521,967 8,509,516 Expenses 8,418,104 8,426,643 8,430,817 8,418,677 Investments 67,608 75,547 91,150 90,839

Ministry of Social Affairs, area of 5,720,067,99 6,009,748,51 6,261,338,48 6,484,927,31 government 5 1 3 3 5,712,427,05 6,003,877,54 6,256,227,02 6,479,885,93 Expenses 7 7 6 4 including funds with limits 118,988,018 130,654,845 131,067,953 137,524,812

173

Investments 2,493,963 1,748,500 1,917,666 1,917,666 including funds with limits 1,291,000 1,748,500 1,917,666 1,917,666 Value added tax 5,146,975 4,122,464 3,193,791 3,123,712 2,644,209,02 2,773,620,88 2,891,168,69 3,026,089,09 Performance area Social protection 8 7 9 9 2,553,343,30 2,695,943,30 2,818,967,17 2,954,378,15 Social security programme 9 8 4 0 Expenses 2,553,149,284 2,695,681,033 2,818,679,524 2,954,090,500 Investments 194,025 262,275 287,650 287,650 Welfare services programme 89,301,129 76,364,629 71,104,992 70,661,388 Expenses 88,864,316 76,224,749 70,951,579 70,507,975 Investments 436,813 139,880 153,413 153,413 Gender equality programme 1,564,591 1,312,950 1,096,533 1,049,561 Expenses 1,538,721 1,277,980 1,058,180 1,011,208 Investments 25,870 34,970 38,353 38,353 1,646,008,82 1,744,822,62 1,829,222,40 1,892,641,29 Performance area Health 1 8 0 7 1,620,210,32 1,720,718,64 1,805,256,09 1,869,438,73 Healthcare system programme 6 0 2 7 Expenses 1,619,050,352 1,719,949,300 1,804,412,318 1,868,594,964 Investments 1,159,974 769,340 843,773 843,773 Health risks programme 18,101,481 16,319,928 16,178,864 15,422,408 Expenses 18,049,741 16,249,988 16,102,157 15,345,701 Investments 51,740 69,940 76,707 76,707 Environmental health programme 7,697,015 7,784,060 7,787,444 7,780,152 Expenses 7,593,535 7,644,180 7,634,031 7,626,739 Investments 103,480 139,880 153,413 153,413 Performance area Family policy 754,451,457 761,488,509 808,668,308 834,381,173 Children and families programme 754,451,457 761,488,509 808,668,308 834,381,173 Expenses 754,205,692 761,156,294 808,303,952 834,016,816 Investments 245,765 332,215 364,357 364,357 Performance area Labour market 669,469,411 724,909,573 728,299,694 727,905,837 Labour Market Programme 669,469,411 724,909,573 728,299,694 727,905,837 Expenses 669,193,115 724,909,573 728,299,694 727,905,837 Investments 276,296 0 0 0 Performance area Internal security 782,302 784,449 785,591 786,194 Internal security 782,302 784,449 785,591 786,194 Expenses 782,302 784,449 785,591 786,194

Ministry of Foreign Affairs 75,274,529 70,811,388 70,856,018 70,893,911 Expenses 66,246,621 67,335,605 67,380,235 67,418,128 including funds with limits 66,150,621 67,239,605 67,284,235 67,322,128 Investments 8,504,030 3,046,739 3,046,739 3,046,739 including funds with limits 8,504,030 3,046,739 3,046,739 3,046,739

Value added tax 523,878 429,044 429,044 429,044 Performance area Foreign policy 74,750,651 70,382,344 70,426,974 70,464,867 Development cooperation and 13,981,959 14,070,894 14,070,894 14,067,354 humanitarian aid Expenses 13,981,959 14,070,894 14,070,894 14,067,354 Foreign policy 60,768,692 56,311,450 56,356,080 56,397,513 Expenses 52,264,662 53,264,711 53,309,341 53,350,774 Investments 8,504,030 3,046,739 3,046,739 3,046,739

175

Appendix 3. External grants across funds and areas of government

SBS 2020, SBS 2021, SBS 2022, SBS 2023, By funds thousand thousand thousand thousand euros euros euros euros TOTAL 1,064,516 916,626 737,640 471,601 European Regional Development Fund 367,329 280,768 177,969 76,032 European Social Fund 101,810 75,250 43,005 8,702 Fund for European Aid to the Most Deprived 1,349 134 0 0 Cohesion Fund 159,878 111,857 59,267 16,310 European Maritime and Fisheries Fund 16,099 19,238 18,979 14,165 European Agricultural Guarantee Fund 173,254 171,856 176,788 181,723 European Agricultural Fund for Rural Development 135,881 144,398 122,301 90,883 Norwegian and EEA financial instrument 11,672 11,539 10,766 6,272 Interreg 14,320 6,001 4,794 902 Others (direct payments to institutions) 70,779 87,556 115,995 74,452 Internal security funds 12,146 8,029 7,775 2,160 SBS 2020, SBS 2021, SBS 2022, SBS 2023, By areas of government thousand thousand thousand thousand euros euros euros euros TOTAL 1,064,516 916,626 737,640 471,601 Area of administration of the Government Office 853 658 438 413 Ministry of Education and Research, area of government 149,939 122,916 74,007 22,210 Ministry of Defence, area of government 21,975 13,369 2,335 0 Ministry of the Environment, area of government 95,508 84,898 64,978 17,833 Ministry of Culture, area of government 4,921 3,887 1,912 440 Ministry of Economic Affairs and Communications, area 252,835 198,341 174,041 109,294 of government Ministry of Rural Affairs, area of government 325,305 335,510 318,081 286,771 Ministry of Finance, area of government 78,145 53,314 34,832 24,269 Ministry of the Interior, area of government 13,938 9,667 9,199 2,387 Ministry of Social Affairs, area of government 118,374 92,004 55,956 7,316 Ministry of Justice, area of government 2,722 2,063 1,861 668

Appendix 4. Calculated and transferred costs 2019–2023 SB 2019 SBS 2020 SBS 2021 SBS 2022 SBS 2023 Riigikogu 8,338,000 7,492,000 7,903,000 8,281,000 10,522,000 Wage fund of members of the Riigikogu 8,338,000 7,492,000 7,903,000 8,281,000 10,522,000 Office of the President of the Republic 308,000 337,000 375,000 454,000 473,000 Special pensions paid during the financial 134,000 147,000 170,000 227,000 236,000 year and pension increases President's wage fund 174,000 190,000 205,000 227,000 237,000 National Audit Office 702,000 774,999 816,953 840,375 926,140 Special pensions paid during the financial 608,000 673,653 709,862 728,147 759,458 year and pension increases Wage fund of the Auditor General 94,000 101,346 107,091 112,228 166,682 Office of the Chancellor of Justice 175,000 185,000 244,000 255,000 261,000 Special pensions paid during the financial 80,000 87,000 137,000 143,000 149,000 year and pension increases Wage fund of the Chancellor of Justice 95,000 98,000 107,000 112,000 112,000 Supreme Court 2,541,000 2,742,000 2,989,000 3,181,000 3,319,000 Special pensions paid during the financial 922,000 996,000 1,147,000 1,251,000 1,306,000 year and pension increases Judges' wage fund 1,619,000 1,746,000 1,842,000 1,930,000 2,013,000 1,659,052,0 1,768,842,0 1,833,579,0 1,919,359,0 Government of the Republic 18,234,000 00 00 00 00 Customs duty 0 290,050,000 335,160,000 339,100,000 357,160,000 Environmental charges 0 19,692,000 19,905,000 19,905,000 19,905,000 Support fund 18,234,000 19,510,000 17,977,000 16,774,000 16,494,000 Land tax – for local government units 0 58,800,000 58,800,000 58,800,000 58,800,000 1,271,000,00 1,337,000,00 1,399,000,00 1,467,000,00 Income tax – for local government units 0 0 0 0 0 Ministry of Education and Research, 5,880,000 8,523,000 7,947,000 7,957,000 7,957,000 area of government Costs related to repayment of student loans 5,000 5,000 5,000 5,000 5,000 Beginner’s allowances for teachers 1,150,000 3,514,000 2,914,000 2,914,000 2,914,000 Social tax payable for Doctoral allowance 4,595,000 4,604,000 4,608,000 4,608,000 4,608,000 Estonian language proficiency exams and 130,000 400,000 420,000 430,000 430,000 reimbursement of language learning costs Ministry of Justice, area of government 25,797,000 29,566,270 31,411,294 33,172,975 34,163,298 State fee of activities of the Patent Office - to 1,000,000 1,050,000 1,100,000 1,100,000 1,100,000 the European Patent Office Special pensions paid during the financial 3,335,000 5,654,507 6,252,478 6,916,971 7,167,217 year and pension increases Advance payments to bailiffs 24,000 20,880 20,880 20,880 20,880 Judges' wage fund 14,367,000 15,496,233 16,348,286 17,128,474 17,868,551 Legal fees of third parties 570,000 495,900 495,900 495,900 495,900 Postage expenses for courts 525,000 456,750 456,750 456,750 456,750 Wage fund of State Prosecutors 5,976,000 6,392,000 6,737,000 7,054,000 7,054,000 Ministry of Defence, area of government 17,867,000 20,316,073 22,241,842 24,902,967 27,472,023

177

Special pensions paid during the financial 8,347,000 9,514,127 10,485,688 11,527,032 12,951,863 year and pension increases Compensation in the case of a fall or injury 159,000 159,100 159,100 159,100 159,100 Social tax payable for conscripts 5,287,000 6,179,354 6,957,976 8,205,947 9,181,662 Benefits for conscripts 3,360,000 3,718,709 3,830,917 4,133,511 4,231,383 Social tax paid for people in alternative 129,000 134,719 148,191 163,010 179,311 service Support of people in alternative service and 585,000 610,064 659,970 714,367 768,704 travel expenses of drafted persons Ministry of the Environment, area of 58,976,000 68,168,000 50,511,000 49,834,000 48,379,000 government Projects financed from the sale of 57,460,000 66,652,000 48,995,000 48,318,000 46,863,000 greenhouse gas emission quotas Land tax and maintenance costs of state 1,516,000 1,516,000 1,516,000 1,516,000 1,516,000 lands Ministry of Finance, area of government 6,108,000 8,844,700 12,703,700 12,696,700 12,696,700 Costs related to repayment of student loans 453,000 391,000 360,000 342,000 340,000 Organisation of settlements 754,000 767,000 772,000 774,000 776,000 Land tax expenditure of unreformed lands 1,500,000 1,300,000 1,300,000 1,300,000 1,300,000 Tax stamps 427,000 384,000 384,000 384,000 384,000 Legal aid and compensation for unjust 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 deprivation of liberty Interest expenditure 1,974,000 5,002,700 8,887,700 8,896,700 8,896,700 Ministry of the Interior, area of 31,097,331 33,854,464 35,286,900 38,030,991 41,041,151 government Special pensions paid during the financial 21,478,331 23,475,164 25,563,267 27,647,191 30,081,018 year and pension increases Advance payments to bailiffs 251,000 251,000 251,000 251,000 251,000 IT Agency benefits 50,000 50,000 50,000 50,000 50,000 Compensations in the case of a fall or injury 297,000 297,000 297,000 297,000 297,000 Issuing of personal identification 8,774,000 9,562,134 8,893,133 9,539,967 10,116,300 documents Postage expenses of fine notices 247,000 219,166 232,500 245,833 245,833 Ministry of Social Affairs, area of 4,572,509,0 5,465,067,4 5,771,130,1 6,061,941,1 6,329,228,1 government 00 36 67 67 67 Allocation to the Health Insurance Fund 139,994,000 158,364,000 184,436,000 209,712,000 219,361,000 from the state budget Funded pension 0 508,500,000 541,800,000 573,000,000 605,400,000 National Health Insurance resources 1,311,914,00 1,404,376,00 1,480,551,00 1,550,552,00 1,624,426,00 0 0 0 0 0 National pension insurance resources 1,741,695,00 1,881,447,00 1,986,435,00 2,073,149,00 2,170,967,00 0 0 0 0 0 Unemployment insurance premium 200,000,000 216,000,000 228,000,000 239,000,000 250,000,000 Expenditure related to statutory rates 5,666,000 5,931,000 6,338,000 6,625,000 7,046,000 Family allowances 298,935,000 297,358,000 290,016,000 286,857,000 283,497,000 Parental benefit 245,504,000 274,050,000 289,748,000 365,691,000 397,982,000 Maintenance allowance fund 4,584,000 4,926,000 5,268,000 5,610,000 5,952,000 Technical aids service 11,314,000 11,823,269 0 0 0 Monthly social benefits for people with 75,888,000 83,826,000 85,345,000 87,028,000 88,875,000 disabilities

Allocations to the mandatory funded 19,372,000 24,161,000 25,013,000 25,851,000 26,667,000 pension fund National pension and pension supplements 54,501,000 54,823,000 56,753,000 58,830,000 60,644,000 Social tax payable by the state in special 81,678,000 88,445,000 92,958,000 70,349,000 65,140,000 cases (parents) Social tax paid by the state, in special cases, 24,023,000 19,038,000 20,383,000 21,344,000 22,027,000 for registered unemployed persons Unemployment benefit to the 11,090,000 11,707,000 12,203,000 12,678,000 13,337,000 Unemployment Insurance Fund Conscript’s child allowance 21,000 94,000 94,000 107,000 107,000 Support for winners of the Olympic Games 157,000 164,000 173,000 181,000 190,000 Increase in civil servants' pensions 14,187,000 16,879,000 18,033,000 19,091,000 20,208,000 Social tax paid by the state, in special cases, 48,311,000 60,668,000 68,407,000 51,507,000 46,060,000 for a person receiving pension for incapacity for work while working Working ability allowance 242,180,000 302,168,000 339,579,000 362,755,000 376,694,000 Additional holiday pay 16,917,000 16,586,000 15,304,000 17,454,000 19,806,000 Damages paid in relation to accidents at 6,079,000 6,759,000 7,091,000 7,408,000 7,711,000 work Benefits for repressed persons 2,348,000 2,165,000 2,123,000 2,041,000 1,954,000 Services for asylum seekers 429,000 394,167 394,167 394,167 394,167 Single pensioner allowance 10,091,000 9,216,000 9,343,000 9,239,000 9,186,000 Parliament pensions 5,631,000 5,199,000 5,342,000 5,488,000 5,597,000

179

Appendix 5. Use of revenue from the EU scheme for greenhouse gas emission allowance trading in 2013–2020

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) in the EU for the period 2013–2020. Within the scheme, Member States must auction 115 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 basic scenario 116 of the economic forecast of spring 2019 of the Ministry of Finance are as follows: 2013 2014 2015 2016 2017 2018 2019 2020 Total Auctioned amount 4.0910 1.2445 2.7675 4.4795 6.8215 9.0824 6.7640 5.6246 40.8750 (data from the

Ministry of the Environment), excluding free-of- charge electricity (million allowances) Revenue forecast 539.508 (million euros) 18.074 7.409 21.125 23.569 39.308 141.147 155.572 133.304 In accordance with Article 10 of Directive 2003/87/EC 117 and the Atmospheric Air Protection Act 118 , 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; 4) improve energy efficiency and ensure energy savings; 5) cover the administrative expenses of managing the EU emissions trading scheme;

115 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.

116 According to the decision of the Cabinet of 23 May 2019, the revenue forecast of the Ministry of Finance's spring forecast of 2019 has been adjusted in relation to the average unit price of auctions, based on the forecast of experts providing analyses related to the international CO 2 trading system.

117 The Directive can be found at: http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2003L0087:20090625:et:PDF

118 The Act can be found at: https://www.riigiteataja.ee/akt/123122016002 ; see subsection 161 (4)

6) fund research and development as well as demonstration projects for reducing greenhouse gas emissions and for adaptation to climate change; contribute to the Global Energy Efficiency and Renewable Energy Fund and to the Adaptation Fund; 7) adapt to climate change; 8) participate in Estonian and European initiatives within the framework of the European Strategic Energy Technology Plan and the European Technology Platforms; participate in the planning of climate change mitigation and energy policies as well as in the monitoring of the effectiveness of these policies; 9) 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; 10) carbon sequestration in forestry. 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. 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 change objectives are implemented during the budget strategy period through energy and environmental protection policies, utilising the funds received from auctioning allowances. The list of measures planned from the auctioning revenue (based on the revenue forecast in the previous table) is presented in the table below. 119 Table 1. Measures in the State Budget Strategy 2019–2022 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, 2013– measure 2013 2014 2015 2016 2017 2018 2019 2020 2020 Responsible authority 50% of the revenue forecast for climate policy 10.56 11.78 70.57 77.78 66.65 objectives (million euros) 9.037 3.704 3 4 19.654 3 6 2 269.753

119 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, because records of the 50% use of auctioning revenue (reference in the footnote preceding the previous) according to the EU Directive 2003/87/EC are kept on a cash basis. 181

10.78 53.16 40.40 31.38 6. Energy 9.037 3.200 8.410 4 18.654 6 5 6 175.041 Minister of Economic Energy saving measures in Affairs and apartment buildings 9.037 0.000 0.000 0.000 0.000 6.189 0.000 5.166 20.392 Infrastructure Increasing the use of Minister of Economic alternative fuels in 15.90 Affairs and transport (biogas) 0.000 0.000 0.000 2.584 8.952 2 5.596 9.470 42.504 Infrastructure Promoting energy efficiency and the use of Minister of Public renewable energy in public 31.07 34.80 16.75 Administration sector buildings 120 0.000 0.000 8.410 8.201 9.702 5 9 1 108.946 Supporting small residences Minister of Economic in taking renewable energy Affairs and into use and updating their Infrastructure heating systems 0.000 3.200 0.000 0.000 0.000 0.000 0.000 0.000 3.200 14. Environmental 17.40 17.05 protection 0.000 0.423 1.000 1.000 1.000 7 5 3.174 41.059 Estonia’s contribution to Minister of the international climate Environment change co-operation 0.000 0.423 1.000 1.000 1.000 2.906 0.000 0.094 6.423 Managing the risk of Minister of the flooding 0.000 0.000 0.000 0.000 0.000 2.847 0.847 2.858 6.552 Environment Minister for the Pilot projects designed to Environment, Minister implement the climate 11.65 16.20 of Economic Affairs policy objectives 121 0.000 0.000 0.000 0.000 0.000 5 8 0.221 28.084 and Infrastructure The dedicated use of 50% of the additional revenue/income in According to the decision of 2019–2020 resulting from the the Government of the renewal of the so-called forecast Republic bases will be decided by the 20.32 32.09 Government of the Republic* 6 2 52.418 Implementing the climate 11.78 70.57 77.78 66.65 policy objectives, total**: 9.037 3.623 9.410 4 19.654 3 6 2 269.753

120 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.

121 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, 50% of the environmental performance area primarily into implementation of climate change adaptation and mitigation actions; from the auctioning revenue of 2019, 0.1 million euros of the environmental protection performance area resources and 0.3 million 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.

* The dedicated use of 50% of the additional revenue/income in 2019 and 2020 resulting from the renewal of the so- called forecast bases will be decided by the Government of the Republic based on the decision of 23 May 2019 of the Cabinet. ** The unplanned remaining balance of 2014 and 2015 has been added to the expenditure volume of 2018.

The new period for trading with greenhouse gas emission allowances in the EU will start in 2021. Drafts of implementation provisions are still under negotiation, which is why the rules related to the auctioning system (and the use of revenue arising from it) have not been established by May 2019. The planning of the use of funds from the trading period 2021– 2030 is planned for the coming years in the framework of the long-term strategic planning process as part of the process of SBS 2021–2024, similarly to the planning of the use of EU structural and rural development funds and other state budget funds for the period 2021– 2027. It was presumed upon preparing the economic forecast of spring 2019 of the Ministry of Finance that the EU Member States must auction all the allowances that are not allocated free of charge in the new period for trading as well. However, it is not yet clear whether Estonia can use the allocation under Article 10c of Directive 2003/87/EC to support the modernisation of energy production, as the relevant EU state aid rules will be established in the winter of 2019–2020 according to plan. Based to the aforementioned, the forecast for 2021–2023 is initially, until the circumstances that enable more specific planning of the use of revenue have become clear, planned as nationwide in the budget of the Ministry of the Environment and the cost estimate is initially planned as nationwide. 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/EC 122 and the Atmospheric Air Protection Act 123 , 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; 5) participate in Estonian and European initiatives within the framework of the European Strategic Energy Technology Plan and the European Technology Platforms; 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;

122 The Directive can be found at: http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2003L0087:20090625:et:PDF

123 The Act can be found at: https://www.riigiteataja.ee/akt/123122016002 ; see subsection 161 (6) 183

8) research and development in climate change mitigation and adaptation, especially in aeronautics and air transport. The allowance amounts sold in Estonia and the forecast revenue from trading with aviation allowances in 2013–2020 based on the basic scenario of the economic forecast of spring 2019 of the Ministry of Finance are as follows: 2013 2014 2015 2016 2017 2018 2019 2020 Total in 2013– 2020 Auctioned 7,000 7,869 7,415 7,415 7,415 7,415 7,415 7,415 59,359 amount (data from the Ministry of the Environment) Revenue 0.046 0.051 0.049 0.049 0.052 0.052 0.056 0.056 0.411 forecast

(million euros)

Pursuant to subsection 161 (1) of the Atmosphere 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 EU climate change objectives are implemented during the budget strategy period through energy and environmental protection policies, 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 climate policy objectives (e.g. climate-themed development event Garage48 and supporting the best IT solutions developed at its follow-up event; Europe’s largest competition on clean technology ideas, i.e. the so-called startup business ignition 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 emissions 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 decision establishes the annual emissions allocation, i.e. AEA, being equal to 1 tonne of CO 2 equivalent (t CO 2 eq), as a new 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 Appendix 124 to the decision of the European Commission dated 10 August 2017 . Estonia’s growth of emission quantities will be restricted linearly until 2020 when the maximum emission quantity in sectors outside the trading system may be 6,023,720 t CO 2 eq. Actual emission quantities are compared with the annual emission allocations in each year during the period of 2013–2020. 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: trading with units (AEAs), transferring the surplus of units to subsequent years (to an unlimited extent) or borrowing from subsequent years (up to 5%), use of project-based units (up to 3% of the country’s 2005 emission quantity), trading with the right to use them or transferring it to subsequent years, cancelling of units. In the next trading period of 2021–2030, the country's ability to trade with AEAs will depend primarily on whether the relevant Estonian sectors (including transport, waste, agriculture, small-scale energy and industrial processes) outside the system of auctioning allowances are able to achieve the mandatory annual CO 2 emission targets based on the Energy Sector Development Plan until 2030 and the General Principles of Climate Policy until 2050. If the target level is exceeded, there would be a 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 emission 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 for the state budget, among others. The stocktaking reports are always submitted for the year before the last (so-called x-2 rule). Pursuant to the European Parliament and Council Regulation 125 , all transactions of the Member States needed for ensuring their compliance with the emission quantities based on the European Commission’s shared responsibility decision must be performed within four months after the approval of those amounts. This requires that the transaction partners have previously agreed on the transaction conditions (incl. the allowed purpose which the trading revenue can be used for), prepared the agreements and performed other possibly necessary administrative steps. In the system of bilateral trading 126 established with the so-called EU shared responsibility decision No. 406/2009/EÜ, the Ministry of the Environment has, in cooperation with potential interested buyers, sought out opportunities for trading in AEAs and to prepare an

124 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

125 Regulation (EU) No. 525/2013 of the European Parliament and of the Council of 21 May 2013 on a mechanism for monitoring and reporting greenhouse gas emissions and for reporting other information at national and Union level relevant to climate change and repealing Decision No. 280/2004/EC: http://faolex.fao.org/docs/pdf/eur125075.pdf

126 Pursuant to the so-called shared responsibility decision, the GHG emission quantities must be restricted 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. 185

agreement to do so. So far, Estonia has not entered into any agreements in this EU system. When communicating with potential interested buyers, Estonia has based the unifying of the proposals and the quota buyers’ interests on the possible volume of units 127 . The agreement volume depends on the situation of the trading market (where the supply of units significantly exceeds the demand) and on an agreement with the buyer. However, taking into account the market situation, it is likely that no agreements will be reached in the coming years. The stocktaking reports and forecasts serving as a basis for AEA trading are adjusted at least once a year. Use of the possible revenue from AEA trading is planned on the basis of priorities declared in the State Budget Strategy, accounting for the transaction partner’s preferences and the joint effect of planned measures funded by the 2014–2020 European Union funds and measures and activities funded by other internal and external funds (similarly to the procedures of the international trading system for 2008–2012). Forecasts of AEA quantities allocated to Estonia in terms of sectors included in the so-called shared responsibility decision as well as the emission quantities from those sectors, and also the forecasts of revenue received from potential trading with those (based on the Ministry of the Environment’s data from 2019 and the updated GHG emission quantity forecast of Estonian Environmental Research Centre for 2017) are presented in the table below 128 . Table 2. Forecast of the surplus of GHG emission allocations in 2013–2020 and the trading revenue in the case of a scenario based on the development plans in force 201 201 2015 201 2017 2018 2019 2020 Total 3 4 6 in 2013– 2020 Remaining balance of GHG emission quantities in case of a scenario based on the measures of current development plans (t CO 2 eq; according to data from the - - Ministry of the 544,02 201,22 151,91 276,05 192,30 Environment) 0 0 5 238,219 5 4 7 5 722,931 Forecast revenue from sales of AEAs (million euros*) 0 0 0 0 0 0 0

127 Difference between the quota amounts allocated to Estonia in Appendix 2 to the Decision of 26 March 2013 of the European Commission (hereinafter the decision of 10 August 2017) and the Ministry of the Environment’s forecast of the emission quantities of the aforementioned sectors.

128 As an exception among other data of the State Budget Strategy, this forecast is presented as a revenue-dependent expenditure – both the volume of revenue and expenses is based on revenue forecast.

* As the sales of annual GHG emission quota (AEA) take place in the year after the next from the accounting year, the forecast of expected revenue is also indicated in the year after the next. Depending on the changes on the trading market, transactions might not be achieved during the 2013–2020 trading period.

When implementing one of the cooperation mechanisms stipulated in the Renewable Energy Directive 2009/29/EC 129 , 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 previous year but one (x-2) (e.g. trade with certified amounts from 2017 in 2019). 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 at the end of 2017, establishing the sale of renewable energy units in 2018–2020. The funds received on the basis of that contract 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 years when the sales revenue is received; as a result, the cost of electricity will be decreased for final consumers. Pursuant to the fact that, according to a forecast, in addition to the units sold on the basis of the contract, 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.

129 Accessible at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:140:0016:0062:et:PDF Directive 2009/28/EC, 23 April 2009, on the promotion of the use of energy from renewable sources 187

Appendix 6. Personnel and salary analysis of the general government

The labour costs of the general government 130 increased by 9.4% in 2018, which is the largest increase in recent years. Labour costs in social security funds increased the most, that means by 13.5%, where the growth is mainly related to the recruitment of additional labour force to the Unemployment Insurance Fund for the implementation of the work ability reform. In 2018, the number of employees of the Unemployment Insurance Fund increased by 57. In local government units, labour costs increased by 11.1% and in the central government by 7.9%. Within the central government, compared to the previous year, labour costs increased the most in foundations (13.4%) and in agencies governed by public law (10.8%); the labour costs increased in companies and non-profit organisations by 7.3% and in state authorities by 4.9%.

Figure 1. Labour costs of the general government in 2008–2018

Source: Balance data information system of the Ministry of Finance

The general government wage growth in 2018 was 2.9 percentage points faster than the growth of average wage in Estonia. In 2018, the average wage in Estonia increased by 7.3% and the average wage in the general government increased by 10.2%. In 2018, the government allocated 2.5% additional funds to the wage fund of institutions for general wage growth. The most additional funds were allocated to the wage fund of cultural workers and teachers, that means respectively 17.6% (10 million euros) and 13.2% (36 million euros). In

130 Labour costs from all sources, not just from the state budget, do not include special pensions or pension increases.

addition to the previous wage fund, teachers in the area of administration of the Ministry of Education and Research received an additional 1.5% (4 million). An additional amount of 2.8 million euros was allocated for the implementation of the salary agreement of health care professionals. An extra 4.5% was added to the wage fund for the area of internal security and social welfare. Thus, the general wage growth of the general government in 2018 was mostly influenced by the increase in wages of teachers and cultural workers, as they were allocated considerably more additional funds than other target groups. At the same time, wage growth in other general government institutions has still been higher than the amount of additional funds allocated, which means that wage growth has continued partly at the expense of the internal resources of the institutions by reducing the number of employees and reorganising work. Figure 2. Average wage of the general government in 2008–2018

Source: Balance data information system of the Ministry of Finance

In the general government, wage growth was the fastest in local government units, reaching 12.1%. Local government wage growth has largely been possible due to the wage growth of teachers. Approximately 58% of local government employees work in the field of education, hence wage growth of teachers has a significant impact on the overall wage growth of local governments. Wage growth was the lowest in state authorities, where it was 7.6%, that means the wages grew at a pace similar to the average wage in Estonia. In 2018, the average wage position of the general government, in comparison with the average wage in Estonia, improved in most areas, most notably in the field of health care and education (5 percentage points). In the areas of leisure and culture, and in the 189

area of social protection, wage positions also improved considerably (3 percentage points). All of these areas include target groups where wage growth was higher than the overall wage fund growth, which means that the wage position was expected to improve. Wage position has fallen in two areas - national defence (by 3 percentage points) and environmental protection (by 2 percentage points).

Figure 3. Average wage positions of the general government by sectors in 2008–2018.

Source: Balance data information system of the Ministry of Finance

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. The state sees foundations established by the state and legal persons governed by public law as equals to state authorities in the case of optimal configurations. The wage fund of cultural workers with higher education employed in the Ministry of Culture increased by 5.7% in 2019, and in other areas of government (Ministry of Rural Affairs, Ministry of Environment, Ministry of Education and Research) slightly more or 7.9% due to the higher wage gap. This year, the minimum wage of cultural workers with higher education is 1,300 euros, which has increased by 13% compared to 2018. Thus, the minimum wage is currently 93% of the average wage in Estonia. In addition to the minimum wage, the wage fund also increased by 7% for those cultural workers whose salary is already above the minimum or who provide support services. This means that the average basic salary of cultural workers with higher education is higher than the minimum wage, that means 1,457 euros.

191

Figure 4. Proportion of the minimum wage of a cultural worker with higher education in the area of administration of the Ministry of Culture in the average wage in Estonia in 2016–2019.

Source: Ministry of Culture

In 2019, in the case of teachers , the goal is to reach a level where the average salary of teachers comprises 120% of the average wage of Estonia. In 2018, the average wage of teachers was 113% of the average wage of Estonia. This means that the wage position of teachers improved significantly compared to previous years, but the achievement of the wage target level is difficult due to the rapid growth of Estonia's average wage. In 2019, the average wage of Estonia will increase to 1,398 euros, that means by 6.4%, according to the spring economic forecast of the Ministry of Finance. The coalition agreement allocated 68 million to the teachers’ wage growth in 2019. In addition, the wage fund of teachers increased by an additional 3.1% in 2019. The planned average wage of teachers should be at least 1,500 euros this year, which is 7.3% higher than the country’s average, the minimum wage of teachers is 1,250 this year.

Figure 5. The proportion of the average wage of teachers in the average wage of Estonia in 2008–2018.

Source: Balance data information system of the Ministry of Finance

Although the wage position of the social welfare sector improved in 2018, the ratio to the average wage in Estonia is still a percentage lower than in 2009. This means that in the meantime, wage competitiveness in this area has not improved. 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 low. In 2018, the average wage in the social welfare sector increased by 12%, but the wage level was only 866 euros. For 2019, a government decision allocated 12% additional funds to the wage fond for social protection sector, which should slightly improve the wage position this year. Figure 6. The ratio of the average wage in the social welfare sector to the Estonian average wage in 2008–2018.

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Source: Balance data information system of the Ministry of Finance

The handling of the internal security target group has been institution-based since last year and it 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. Institution-based approach gives the heads of institutions more flexible options to direct additional funds to those public servants whose wages need the most correction from the viewpoint of internal security. 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 complexity 131 is in prisons 9% higher and in the Police and Border Guard Board 7% higher than in the entire reference group. The wage position of the Rescue Board is the worst, where 14% lower salary is paid for work of similar complexity than in the entire reference group.

131 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.

Figure 7. Wage positions of internal security institutions in 2018.

Source: Fontes’ 2018 wage survey of state authorities

In 2019, wages increased in all internal security institutions, the most in the Rescue Board (20.4%) and in the Police and Border Guard Board (12.3%), to whom more additional resources were allocated. The wage fund of the Rescue Board increased by 20% and the wage fund of the Police and Border Guard Board by 10.7%. Of the most important occupational groups, compared to other institutions, the rescuers of the Rescue Board have the lowest basic wage (1,005 euros) as well as the rescue operators of the Emergency Response Centre (1,132 euros). Figure 8. Basic wages of internal security institutions in 2019.

Source: Information from internal security institutions, March 2019

Last year, by a government decision, 20% of additional funds were added to the wage fund of the IT institutions for 2019 to improve wage competitiveness with the private market and reduce staff turnover. 195

The negative gap between the basic wages of IT positions of public IT institutions compared to private market IT positions varies across institutions and was the following based on 2018 data: Information Technology Centre of the Ministry of the Environment (KEMIT) -28%, Health and Welfare Information Systems Centre (TEHIK) -17%, Information Technology Centre for the Ministry of Finance (RMIT) -14%, Centre of Registers and Information Systems (RIK) -10%, IT and Development Centre at the Estonian Ministry of the Interior (SMIT) -3% and the Information System Authority (RIA) +2%. As a result of the allocation of additional funds, the wage position of all IT institutions should improve. According to the forecast, the largest increase in the basic wage this year will be in the Centre of Registers and Information Systems (19%). Wage growth is currently the lowest in the Information System Authority (4%), but the basic wages are usually changed there in the autumn after the results of the private sector ICT wage survey have been published. In the rest of the institutions, wage growth will remain now between 7–10%. The reason why wage growth in other institutions does not increase is that some of the additional funds allocated have been reserved by the institutions for the recruitment of additional staff. Among other things, the IT capacity of a state also impacts how the number of central government employees can be decreased in accordance with the decrease in employment-age population. Therefore, in some cases it is justified to increase the number of IT employees, as this ensures higher quality of state services and allows for decreasing the number of other employees. At the same time, the plan for the recruitment of additional employees may not materialise in the planned volume, given the scarcity of employees in the IT sector. Figure 9. Basic wages of IT institutions in 2018 and 2019.

Source: Fontes’ 2018 wage survey of state authorities; information from IT institutions, March 2019

The average wage increase on the general wage market in Estonia is forecast to be 6.4% in 2019 and 5.2% in 2020. The continued wage growth on the labour market will also put pressure on general government authorities, as it is becoming increasingly difficult to retain employees and recruit new employees while the labour force decreases in number. At the same time, it must be ensured that the tasks assigned to the state are fulfilled to a high

standard. According to the Fontes’ wage survey, the average negative gap of state authorities' basic monthly wage in 2018 was 14.5% of the private sector median. In addition to the current target groups, for the wage growth of which more funds have been allocated than to the rest of the general government, there are also a number of other state authorities whose wage levels are clearly below the level of wage paid in other state authorities for similarly complex work. Figure 10. Institutions with the highest pay gap in the state authorities reference group in 2018.

Source: Fontes’ 2018 wage survey of state authorities

In the service groups that are important in relation to fulfilling the state’s main functions (that means in the areas of advisory and controlling supervision, policy implementation and data analysis and monitoring), the institutions of the areas of government of Ministry of the Environment, the Ministry of Social Affairs and the Ministry of Rural Affairs, but also Statistics Estonia, are distinguished from the others because of their low wage level. The Civil Aviation Administration's wage level is also not sufficient to compete with the aviation sector despite the government's last year decision to allocate additional funds to the wage fund (5%) in 2019.

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

2020–2023 2,020 2,021 2,022 2,023 Total investments planned in the state budget and by Riigi 1,033,691 854,918 801,225 602,332 Kinnisvara AS by accounts: Investments in state budget 322,112 316,772 359,781 365,749 Investment subsidies 658,743 502,214 422,580 217,719 Built-up real estate investments from the budget of Riigi Kinnisvara AS* 52,836 35,932 18,865 18,865 Total investments planned in the state budget and by Riigi 1,033,691 854,918 801,225 602,332 Kinnisvara AS by budget types: From external funds 556,171 440,329 366,500 190,015 From public revenues 423,091 377,285 414,467 392,068 From own revenue 1,593 1,372 1,393 1,384 Built-up real estate investments from the budget of Riigi Kinnisvara AS* 52,836 35,932 18,865 18,865 Total estimated volume of real estate investments: 396,135 277,670 238,570 178,252 From external funds 211,268 137,733 99,637 59,288 From public revenues 131,966 103,990 120,053 100,084 From own revenue 65 15 15 15 Built-up real estate investments from the budget of Riigi Kinnisvara AS* 52,836 35,932 18,865 18,865 Investments of areas of government by types and objects: 208,736 192,209 224,510 231,343 Riigikogu 611 436 332 332 Inventory 39 9 9 9 IT investments 324 320 211 211 Machinery and equipment 82 Renovation of Riigikogu buildings 167 107 112 112 Office of the President of the Republic 251 11 11 11 Inventory 11 11 11 11 Main building of the Office of the President of the Republic 240 Supreme Court 194 Renovation of Lossi 17 194 National Audit Office 8 8 8 8 IT investments 8 8 8 8 Area of administration of the Government Office 336 14 14 14 IT investments 21 14 14 14 Renovating the buildings located at Rahukohtu 1 and 3 315 Ministry of Education and Research, area of government 62,837 56,739 32,360 10,633 Organisation of the basic school network 1.4.1 20,846 20,846 6,194 3,718 Organisation of the network of upper secondary schools 1.4.1 25,429 24,487 18,091 3,807 Organisation of the SEN school network 1.4.1 9,200 3,500 Inventory 200 100 100 100 IT investments 1,022 1,631 1,639 1,301 Machinery and equipment 833 769 769 791 Investments of institutions of professional higher education 772 772 772 772 Scientific infrastructure of national importance 4.1.2 4,341 4,490 4,651 Investments of the area of government of the Ministry of Education and 129 129 129 129 Research Real estate investments of the Tartu Health Care College 65 15 15 15 Ministry of Justice, area of government 275 275 275 275

IT investments 197 197 197 197 Machinery and equipment 78 78 78 78 Ministry of Defence, area of government 117,856 111,555 126,626 155,141 Renovation of cemeteries of the Defence Forces 37 37 37 37 Purchase and renovation of buildings and facilities 33,406 25,934 8,783 18,333 Inventory 86 53 48 236 IT investments 2,040 1,717 2,178 2,497 Defence-related special equipment 75,657 80,108 112,118 128,724 Renovation of access roads of the Defence Forces 1,330 800 Infrastructure of the allies 4,255 1,872 2,038 4,131 Machinery and equipment 2,376 505 624 1,182 Ministry of the Environment, area of government 144,247 110,677 95,968 55,919 Ex situ conservation (8.1.9) 100 100 156 IT investments 1,588 1,546 1,546 1,046 Reutilisation of waste (4.3.6) 2,000 1,000 500 Circular economy of waste (4.3.5) 3,000 4,868 3,000 Infrastructure of visiting organisation of protected areas (8.1.4) 984 480 Projects financed from the sale of greenhouse gas emission quotas 66,737 48,995 48,318 46,863 Machinery and equipment 728 Other Investments 110 Conservation of semi-natural habitats (8.1.2) 2,000 2,200 1,158 Increasing resource productivity (4.3.1) 32,000 20,000 17,000 5,835 Transport vehicles 263 175 175 Developing the Infrastructure of Water Economy (7.1.1) 35,000 31,225 24,115 2,000 Ministry of Culture, area of government 23,844 9,163 9,163 9,163 Eesti Kontsert SA (Estonian Concert Foundation) 500 500 500 500 Acquiring fixed assets for the Estonian Children’s Literature Centre 23 23 23 23 Building of the National Library of Estonia 77 77 77 77 IT investments 249 32 32 32 Machinery and equipment 150 National Heritage Board 2,864 2,864 2,864 2,864 Other Investments 1,699 1,663 1,663 1,663 2,017 (thousand Estonian Public Broadcasting 2,017 2,017 2,017 euros) SA Teatrimaja (Rakvere Theatre Foundation) 60 Tehvandi Spordikeskus SA (Tehvandi Sports Centre Foundation) 5,737 1,837 1,837 1,837 Virumaa Muuseumid SA (Viru County Museums Foundation) 100 (reserve for specific purposes) 7,264 Narva Muuseum SA (Narva Museum Foundation) 154 Reconstruction of Kalev Central Stadium 2,400 Jõulumäe Tervisespordikeskus SA (Jõulumäe Sports Centre Foundation) 150 150 150 150 Eesti Vabaõhumuuseum SA ( Foundation) 65 Teater Vanemuine SA (Vanemuine Theatre Foundation) 64 Eesti Draamateater SA ( Foundation) 202 Eesti Ajaloomuuseum SA ( Foundation) 70 Ministry of Rural Affairs, area of government 72,861 71,905 46,478 12,310 Investment subsidies of the development plan of rural life 61,989 58,843 37,488 7,492 Investment subsidies of the operational programme of fishery 8,887 10,778 6,855 2,833 IT investments 1,757 1,757 1,757 1,757 Machinery and equipment 200 500 350 200 Transport vehicles 28 28 28 28

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Ministry of Economic Affairs and Communications, area of 382,721 321,485 323,647 230,542 government Construction of the Aaspere-Haljala 2+2 highway section 9,167 Arbavere drill core depositories 375 375 375 375 Reconstruction of harbours for regular public services 1,298 724 60 Construction of traffic nodes of the E20 Tallinn-Narva highway 8,500 Stage II of the construction of E265 Tallinn ring road 16,405 Straightening of the Nurme road section on the E67 Tallinn -Pärnu -Ikla 5,882 highway IT investments 4,610 3,956 3,956 3,956 Projects financed from the sale of greenhouse gas emission quotas 14,746 Supporting investments in the housing stock of local governments 18,750 8,750 Construction of the Kose-Mäo highway section into 2+2 lanes 4,500 31,250 20,417 Continued construction of the broadband distribution network 4,100 4,200 4,200 5,100 Renovation of buildings of the Road Administration 417 417 333 333 Purchase of land of the Road Administration 1,500 1,500 1,500 1,500 Other Investments 1,589 1,600 1,379 1,379 Reconstruction of Pärnu Airport 17,300 Development of Rail Baltic 48,977 82,970 141,305 99,683 Supporting regional companies for establishing electrical connections 1,500 2,000 2,000 2,000 Summary project of the renovation of national roads 112,442 108,297 107,547 107,516 Implementation of renewable energy 1,000 1,000 1,000 1,000 Improving the environmental condition of the air traffic area of Tallinn 8,494 Airport Renovation of the Tallinn City Hall 20,000 20,000 Reconstruction of the traffic management system of Tallinn -Keila - 10,814 10,814 Paldiski Tallinn-Keila-Paldiski; repair works II of Keila-Riisipere railway 3,225 3,225 Construction of Via Baltica on Tallinn-Pärnu highway 24,167 Renovation of the Tallinn -Tartu railway and increase of travel speed to 10,000 135 km/h Reconstruction of the Tapa-Narva railway 3,766 3,766 Increase of travel speed to 135 km/h on the Tapa-Narva railway 400 Reconstruction works of the TEN-T transit roads in Narva 4,488 4,488 Transport vehicles 75 75 Lighthouses 300 300 300 300 Developing the movement environment between the old harbour and 4,300 4,354 the city centre Renovation of buildings of the Maritime Administration 100 100 100 100 Renovation of the Rohuküla production base of the Maritime 167 167 Administration Deepening of waterways 333 333 Home support to improve housing conditions for families with many 3,200 1,600 3,200 3,200 children Upgrading residential electrical installations 300 Increasing the energy efficiency of small homes 1,700 915 1,400 1,400 Reconstruction of apartment buildings 7,500 Supporting the production of biomethane and its consumption in the 3,500 2,001 transport sector District heating boiler renovation and/or construction and fuel 5,000 4,000 2,000 484 exchange Renovation of depreciated and inefficient heat pipelines 5,000 4,000 1,000 161 Construction of local heating solutions instead of district heating 2,500 2,405 solutions Renovation of street lighting infrastructure 10,000 12,000 11,000 1,813

Improving connectivity at public transport stops 577 478 Ministry of Finance, area of government 76,006 43,880 26,212 20,062 IT investments 4,483 4,636 3,779 3,779 Projects financed from the sale of greenhouse gas emission quotas 16,711 Machinery and equipment 331 331 331 331 Other Investments 54,481 38,913 22,101 15,952 Ministry of the Interior, area of government 35,146 25,095 24,568 14,292 Continued construction of the eastern border – infrastructure (reserve 15,475 11,586 9,720 for specific purposes) Issuing of personal identification documents 1,125 1,125 1,125 1,125 IT investments 3,687 5,084 6,110 5,554 Machinery and equipment 50 50 50 50 Other Investments 1,904 1,954 2,050 2,050 Kase street complex of the Estonian Academy of Security Sciences 500 500 500 500 Narva College of the Estonian Academy of Security Sciences (reserve for 7,600 specific purposes) Transport vehicles 3,271 3,488 3,705 3,705 Maintenance and spare parts of aircraft 1,533 1,308 1,308 1,308 Ministry of Social Affairs, area of government 53,293 41,654 28,952 6,818 Health centres (measure activities in 2.4.2) 17,135 12,586 7,160 4,900 Special care institutions (measure activities in 2.5.1) 15,046 5,953 4,067 Hospital network (measure activity 2.4.1) 11,218 17,066 12,307 Design works for the active treatment section of the Ida -Viru Central 6,700 4,300 3,500 Hospital IT investments 2,494 1,749 1,918 1,918 Investment of the SA Agrenska Fond 700 Ministry of Foreign Affairs 8,504 3,047 3,047 3,047 Other Investments 900 900 900 900 Construction investments of the Ministry of Foreign Affairs and of 7,604 2,147 2,147 2,147 foreign representative offices Built -up real estate investments from the budget of Riigi Kinnisvara 52,836 35,932 18,865 18,865 AS Fine Art School 15,295 15,146 Development of the joint building of Pärnu police and rescue board 14,253 (entire development) Estonian Knighthood House 18 Sillamäe joint building (construction) 2,170 Sillamäe joint building (design works) 10 Optimisation reserve 18,865 18,865 18,865 18,865 Design works and construction of Rahukohtu 1 2,226 1,920 *Only includes investments by objects that have been decided by the Government of the Republic.

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Appendix 8. Rail Baltic construction action plan for 2020 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 June 2017). In 2020, the large-scale design works of RB, which began in 2019, will continue in Estonian territory. By the end of 2019, design contracts have been signed for all three design sections (-Pärnu, Tallinn-Rapla and Pärnu-Ikla). The design of the Ülemiste and Pärnu passenger terminal, which will be started in 2019, will also continue. In parallel, studies are carried out which will be used as input in design or construction. In 2020, the acquisition of land for the construction of RB started in 2018 will continue. The construction plan includes building the Saustinõmme viaduct on the Saku-Luige section of the Tallinn ring road, the construction of which started in May 2019. In 2020, the construction of five road junctions and the relocation of high voltage lines and gas pipelines will begin. The construction of 4 wildlife crossings will begin. In 2020, activities started in 2018–2019 will 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 estimated total cost of the sections’ design is about 32 million euros (not including communication and security system and electrification costs, these works will be performed after 2022). ● Environmental studies will be conducted until 2021 pursuant to the strategic environmental assessment (SEA) of RB, the results of which are necessary as input during the design works, construction or operation stage (incl. the test programme of abandoning fences around RB, studies of the water system in bogs, additional identification of species); with a cost of about 0.7 million euros. ● The construction of RB will continue until 2022, in compliance with the completed and approved technical project and construction licences acquired (RB main line and terminals). The budget for construction works in 2019–2022 is about 118 million euros. ● The design works of the RB Ülemiste terminal and Pärnu terminal, which started in 2019, will be continued until 2021; with a cost of about 2.5 million euros. ● Until 2021, the detailed planning and design works of the Muuga Multimodal Terminal started in 2019 will continue (cost about 1.2 million euros). ● Until 2021, the RB rolling stock depot started in 2019 will continue to be designed in Rae rural municipality (cost about 0.6 million euros). ● Until the end of 2020, the acquisition of lands will be continued in accordance with the Acquisition of Immovables in Public Interest Act of 2018. ● In 2020, the preliminary project for the Tallinn Old City Harbour tram connection will be completed (cost approximately 0.5 million euros).