State Budget Strategy 2019– 2022 and Stability Programme 2018
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STATE BUDGET STRATEGY 2019– 2022 AND STABILITY PROGRAMME 2018 April 2018 Table of Contents Introduction ....................................................................................................................... 5 1. PRIORITIES OF THE GOVERNMENT OF THE REPUBLIC .................................... 10 2. OBJECTIVES OF PERFORMANCE AREAS ................................................................. 16 2.1. Foreign and national security policy and national defence .................................. 16 2.1.1. Foreign and EU policy ........................................................................................ 16 2.1.2. National security and defence ............................................................................. 20 2.2. Economic policy, public investments and taxation ............................................. 23 2.2.1. Public finance ................................................................................................... 23 2.2.2. Enterprise and innovation ................................................................................ 24 2.2.3. Transport .......................................................................................................... 27 2.2.4. Information society .......................................................................................... 30 2.3. Demographics, public administration and civil society ..................................... 34 2.3.1. Public administration ....................................................................................... 34 2.3.2. Development of civil society ........................................................................... 35 2.4. Research and education policy ............................................................................. 37 2.4.1. Research ........................................................................................................... 37 2.4.2. Education ......................................................................................................... 39 2.4.3. Estonian language and identity ........................................................................ 44 2.5. Culture and sports ................................................................................................. 46 2.5.1. Culture .............................................................................................................. 46 2.5.2. Sports ............................................................................................................... 50 2.5. Integration .............................................................................................................. 53 2.5.1. Integration ........................................................................................................ 53 2.5.2. Citizenship policy ............................................................................................ 55 2.6. Environment and energy ...................................................................................... 55 2.6.1. Environment ..................................................................................................... 55 2.6.2. Energy .............................................................................................................. 58 2.7. Local governments and regional policy ............................................................... 60 2 2.7.1. Regional development and rural life ................................................................ 60 2.8. Rural life ................................................................................................................. 62 2.8.1. Agriculture and fishing .................................................................................... 62 2.9. Internal security and legal space .......................................................................... 65 2.9.1. Internal security ............................................................................................... 65 2.9.2. Legal order ....................................................................................................... 69 2.10. Social policy and health ........................................................................................ 73 2.10.1. Family policy .................................................................................................. 73 2.10.2. Labour market ................................................................................................. 76 2.10.3. Social protection ............................................................................................. 77 2.10.4. Health .............................................................................................................. 80 3. FISCAL FRAMEWORK .................................................................................................... 84 3.1. Fiscal policy objectives of the Government of the Republic .............................. 84 3.1.1. Objective of the budgetary position of the general government and comparison with the previous State Budget Strategy ....................................................................... 85 3.1.2. Tax policy objectives ....................................................................................... 85 3.2. Revenue and expenditure measures..................................................................... 86 3.3. Budgetary position of the general government ................................................... 89 3.3.1. Revenue and expenditure of the budget of the general government ................ 94 3.3.2. Budgetary position of the central government ................................................. 96 3.3.2.1. State budget revenue ...................................................................................... 97 3.3.2.2. State budget expenditure ............................................................................... 99 3.3.3. Budgetary position of local governments ...................................................... 105 3.3.4. Budgetary position of social security funds ................................................... 107 3.4. Tax policy ............................................................................................................. 108 3.4.1. General tax burden ......................................................................................... 108 3.4.2. Implicit tax rate and tax wedge ...................................................................... 109 3.4.3. Tax expenditure .............................................................................................. 110 3.5. Debt burden and the reserves of the general government ............................... 112 3.5.1. Debt burden of the general government ......................................................... 112 3.1.1. General government reserves and net position .............................................. 114 3.2. Long-term sustainability ..................................................................................... 115 3.3. Public finance reforms ........................................................................................ 117 APPENDICES ........................................................................................................................... 121 Appendix 1. Economic forecast of spring 2018 of the Ministry of Finance and sensitivity analysis ......................................................................................................... 121 3 Appendix 2. Funding Plan of the State Budget Strategy 2019–2022 ........................ 128 Appendix 3. External grants across funds and areas of government ....................... 130 Appendix 4. Calculated and transferred costs 2018–2022 ......................................... 132 Appendix 5. Use of revenue from the EU scheme for greenhouse gas emission allowance trading in 2013–2020 ................................................................................... 134 Appendix 6. Personnel and salary analysis of the general government ................... 141 Appendix 7. Four-year plan of investments, including real estate investments made via Riigi Kinnisvara AS, million euros ........................................................................ 152 4 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. 1 The first document to serve as a budget strategy was drawn up in 2000. The State Budget Act (in 2002 and 2014) clarified the requirements for the annually prepared budget strategy to be approved by the Government of the Republic, at the proposal of the Minister of Finance, no later than eight months before the beginning of the next financial 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