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 policy changes, and a funding plan for areas of government.
Implementation and updating of State Budget Strategy The State Budget Strategy is implemented via the implementation and action plans of sectoral development plans. According to the regulation of the Minister of Finance2 on drafting the state budget, constitutional agencies, the Government Office and ministries shall 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. Drawing on the summer economic forecast, the Ministry of Finance first analyses the drafts and resolves possible disputes and then submits a draft budget along with an explanatory memorandum to the Government of the Republic for approval. The Riigikogu begins a proceeding of the draft budget no later than three months before the start of the financial year. Upon entry into force of the State Budget Act, the Government of the Republic approves the complete State Budget Action Plan across areas of government and a supplementary budgetary nomenclature. 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. 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
1 https://www.riigiteataja.ee/akt/129062014131 2 https://www.riigiteataja.ee/akt/113012015029
5 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 2019–2022 The State Budget Strategy 2019–2022 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 Estonia 2020 and the Stability Programme. The ministries prepared the development plans of the area of government for the years 2019–2022 and submitted these along with financial plans to the Ministry of Finance by 1 March. The data received from the ministries was used as an input for preparing the economic forecast, the Stability Programme and the State Budget Strategy. In January and February, prior to discussions in the Government, the Ministry of Finance and the Government Office collaborated to arrange discussions involving all ministries related to the fulfilment of the Government’s priorities. In March, negotiations took place between the Minister of Finance and other ministers, with the goal of discussing the needs of the areas of government in order to fulfil the objectives. The outcome of the negotiations was an input to the Government’s discussions. Cabinet meetings were held to discuss economic and fiscal policy objectives as well as budget priorities in April. The State Budget Strategy 2019–2022 was submitted to the Government of the Republic for approval on 26 April 2018. The document will also be introduced to the commissions of the Riigikogu.
Inclusion of partners in preparation of the State Budget Strategy 2019–2022 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 2019–2022 This State Budget Strategy comprises three chapters. The first part of the document describes the priorities of the Government of the Republic in great detail. It provides an overview of the achievement of objectives thus far and sets out the most important development activities to implement the priorities for the next four years. The second part describes important activities performed to achieve the objectives in 2017 and 2018, includes a table of indicators and their target levels from the baseline to the next four years, as well as important activities 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. In comparison with previous years, the third part also includes a Stability Programme which was previously submitted as a separate document.
6 Stability Programme For the first time, the Stability Programme has been written into one single document with the State Budget Strategy. In accordance with the rules of coordination of EU’s budgetary policies, EU Member States shall annually submit updated Stability and Convergence Programmes (Member States of the euro area and Member States that have not adopted the euro respectively) Estonia, being a full member of the Economic and Monetary Union (EMU) as of 1 January 2011, shall submit its programme to the European Commission and the EU Council of Ministers for the seventh time. Therefore, this programme is essentially a continuation of what was submitted last year. 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 2018 spring economic forecast of the Ministry of Finance published on 16 April. An independent fiscal council shall evaluate the economic forecast of the Ministry of Finance. Economic experts of other areas of the general government and the private sector considered the forecast realistic at the forecast seminar, which was, as usual, held before the publication of the economic forecast of the Ministry of Finance. The document has seven appendices setting out the following: 1. the main indicators of the economic forecast prepared by the Ministry of Finance in spring 2018; 2. Funding Plan 2019–2022; 3. external funds across funds and areas of government; 4. estimated costs 2008–2022; 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, including real estate investments made via Riigi Kinnisvara AS.
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 MFF 2020+ – EU's multi-annual financial framework OSCE - Organisation for Security and Cooperation in Europe EIF - European Investment Fund EAS – Enterprise Estonia GoR – Government of the Republic ESA - European Space Agency CERN - European Organisation for Nuclear Research LG – local government RTK – State Shared Service Centre RMK - State Forest Management Centre RB – Rescue Board 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
8 Chapters and performance areas of the State Budget Strategy 2019–2022 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.
State Budget Strategy Performance area 4. National security and defence I Foreign and national security policy and national defence 5. Foreign and EU policy 2.1. Public finance II Economic policy public investments 2.2. Enterprise and innovation and taxation 2.3. Transport 2.4. Information society 3.1. Public administration III Demographics, public administration and civil society 16. Development of civil society 10.1. Research IV Research and education policy 10.2. Education 11.1. Culture Culture and sports 11.2. Sports 13th Citizenship policy and integration VI Integration 12th Estonian language and identity 14. Environment VII Environment and energy 6. Energy VIII Local authorities and regional policy 3.2. Regional development and rural life 7.1. Labour market 7.2. Social protection XI Social Policy and Health 7.3. Health 1. Family policy X Internal security and legal space 8. Legal order 9. Internal security IX Rural Life 15th Agriculture and fishing
9 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. Below, we shall outline the most important objectives and activities that the Government is planning to achieve and implement and for which the financing of resources is planned in the strategy. 1. GUIDING ESTONIA OUT OF ECONOMIC STAGNATION Implicit tax rate on labour shall be lower than 34.1% by 2019 (34.3% in 2017). Productivity per employed person as a ratio to the EU average shall increase to 79% by 2019 (71.8% in 2016). The Government sees economic growth as the source of increase in social welfare. Faster economic growth enables increased contribution to improving our population, national security and welfare of people. In order to achieve a faster economic growth, we are reducing labour taxes and directing public resources to activities that help increase the competitiveness of our people and our companies through an increase in productivity. Planned activities: New taxes shall not be imposed: economic development prospects are positive. The Ministry of Finance forecasts economic growth to be 3.2% in 2019 and 2.9–3% in following years. The average wage will continue to increase, the tax burden will remain at 34% in the upcoming years – the Government is not planning any tax changes. Increase and more efficient use of research and development resources, incl.: 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. In doing so, it is important that increasing the state’s contribution also motivates the private sector to contribute more to R&D investments. In regard to the financing of research, the aim is to achieve the balance of base financing and competitive research grants, which would provide greater stability to researchers, as well as the freedom to choose research topics in accordance with the needs of society. An additional 13.3 million euros shall be allocated for the implementation of main instruments of research in 2019 (53.2 million euros per 4 years). More attention shall be given to supporting applied research so that research and development would contribute more to achieving socioeconomic objectives. In the period of 2019–2022, work will be continued to organise and consolidate the network of universities, research institutions and institutions of professional higher education. Improving the availability of labour, incl.: One of the greatest factors restricting the development of enterprises is the lack of labour and, in particular, specialists, which makes it extremely important to involve foreign specialists. Additional changes to promote the migration of foreign labour shall be analysed. Implementation of the development programme of the ICT sector shall alleviate the lack of ICT specialists. Investments in the infrastructure support economic growth, incl.:
10 In 2019–2022, 822.5 million euros shall be allocated to road management, its most important projects being the construction of Kose-Mäo highway section into a 4-lane highway; construction of the Tallinn ring road to have 2+2 lanes in the section of Jüri-Väo; construction of Aaspere-Haljala highway section to have 2+2 lanes; construction of 2+1 bypass lanes in the sections of Tallinn-Pärnu and Tallinn-Tartu highways; and construction of Sillamäe traffic node in order to increase the traffic safety of Tallinn-Narva highway. 0.8 million euros is planned for deepening the Rukki Channel. A total of 394 million euros is planned in support of public transport, including a total of 168.8 million euros for highway transport (including 84 million euros for facilitating county public transport), 121.8 million euros for railway transport, 80.6 million euros for water transport and 22.7 million euros for air transport, which enables to acquire 2 separate aircrafts for Kärdla and Kuressaare route. The reconstruction of Tapa-Narva railway and increasing travel speed on some sections to 135 km/h shall be supported with 10.8 million euros in total, incl. EU funding in the amount of 10.4 million euros. Tallinn-Tartu railway will be renovated and travel speed increased (135 km/h) in the extent of 10 million euros. The construction of Rail Baltic and other strategic infrastructure will continue as well. The technical design of the railway route and acquisition of lands will commence in 2018. In 2019, the construction of passenger terminals in Pärnu and Ülemiste will start, intended to be completed by the end of 2020. Development work on the sustainable and integrated movement environment between the Tallinn Passenger Port and the City Centre will commence in 2019. The reconstruction of the transit route through Narva will commence to the extent of 8.9 million euros. Until 2022, the Government is planning to invest 255 million euros in the construction of important infrastructure objects and developing Estonian living environment. The construction of the passive infrastructure of access networks of broadband internet will continue in the extent of 10 million euros, improving the availability of internet connectivity in regions where broadband connectivity has not been available to end users until now. Supporting the increase in the private sector investments and productivity, incl.: Investments in increasing knowledge-intensity and added value in various sectors in order to accelerate the growth of productivity. On the basis of pilot results, the next stage of the product and technology development programme for companies will commence with the objective to increase investments to research and development activities and innovation and thereby increase sales revenues from new products and services (20 million euros). The digital revolution in the manufacturing and construction industries shall receive more active support via the ICT development programme. The total budget of the programme for 2018–2020 is 28 million euros. Support measure of a major investor (10 million euros for 2019–2022) creates conditions for the creation of new jobs with high added value in Estonia. Major investors shall also be offered more favourable opportunities for connecting to infrastructure networks and development will include conditions for offering discounts on energy and gas price for large consumers. 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). Substantive preparations (preparation of an assessment report, training, notification and assignments for the crew, ) will
11 commence in regard to Estonia joining CERN, i.e., the European Organisation for Nuclear Research (5.7 million euros). These actions will result in higher investments by companies to research and development. It is hoped to decisively improve the tax environment of shipping companies and establish conditions for bringing cargo vessels under the Estonian flag. It is also hoped to promote competition on the market of pension funds and pension fund investments into Estonia. Supporting the increase in energy efficiency and energy security, incl.: Development of renewable energy and measures of energy conservation shall be 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 47.5 million euros. To ensure energy security, the Government is making preparations for synchronising the Estonian power network with the European frequency band by 2025. In order to increase resource productivity, the conduct of resource audits and investments into resource efficient solutions shall be supported in the amount of 81 million euros. Investments in the agricultural and fishing sector will continue, incl.: In 2018–2020, 72 million euros will be invested in the Estonian fishing sector and a total of 482 million euros in the development of the agricultural sector and rural life. In doing so, 15 million euros will be allocated to a major project as investment aid for processing and marketing agricultural products, thereby establishing a new dairy industry in Estonia under the control of the associations of agricultural producers. In order to improve the competitiveness of Estonian agricultural producers in comparison with other producers of the European Union, funding for the agricultural sector shall be increased to the extent of the maximum rate of transitional allowance (19.9 million euros in 2017, 18.4 million euros in 2018, 16.9 million euros in 2019). The implementation of the comprehensive programme of organic economy will commence in order to make the organic economy sector into a considerable economy and export industry and to take advantage of the competitive advantage arising from the clean environment of Estonia, making the administration associated with organic economy simpler, more coordinated and contributing to the export of organic products and services. Investments will be made to laboratory and testing centres that ensure compliance with the requirements of laboratory research, thereby providing better supervision over food safety. Food safety monitoring and supervision shall be extended with additional funding of 0.4 million euros per year. The support measure for bee colonies shall be launched (0.5 million euros per year), which will facilitate preservation of biodiversity and higher yields from agricultural crops. Reducing bureaucratic demands of the administrative burden of companies, incl.: The objective is to implement the proposals for reduction of bureaucracy made by enterprises, develop and implement the mechanism of continuous reduction of the administrative burden of the enterprises stemming from communication with the state and from the requirements of the legislation and of continuous reduction of bureaucracy in the public sector.
12 Statistics Estonia will review the need for the statistics being collected and will seek opportunities to reduce the statistics-related obligations and for cross-use of data with the registers of the Tax and Customs Board and Bank of Estonia. An unbureaucratic business form for small scale entrepreneurs has been created – enterprise account for the sale of services and goods to natural persons or for the sale of goods to legal persons to the extent of up to 25,000 euros a year, which simplifies the taxation of and reporting by self-employed persons. 2. INCREASING THE ESTONIAN POPULATION Increase in the total birth rate in 2019 to 1.67 (in 2016 that indicator was 1.60). The population will remain at the level it was on 1 January 2016, i.e., 1,315,944 (as at 1 January 2018, the population was 1,318,705 people). In order to increase the population, it is important to pay attention to developing different services and allowances aimed at children and families and to support the aligning of work and family life.
Planned activities: Changes to the system of parental leave and parental benefits will be implemented – the period that forms the basis for calculating the size of parental benefit shall change as of 1 September 2019. As of 1 July 2020, the 30-day paternity leave and additional parental benefit for the father will enter into force and parents will have the opportunity to pause and resume payment of parental benefit on a calendar month basis during the course of three years. The following changes are planned to be implemented in 2022 under the II draft of parental leave and benefits: current pregnancy leave and pregnancy benefit will be replaced by maternal leave and maternal benefit, parents will have the opportunity to receive parental benefit on a calendar day basis and be on paid leave simultaneously to in extent of 60 days. The conditions of child care leave and adoption leave shall be changed as well. The availability of motivated teachers and the addition of young teachers will be ensured. An additional 9.7 million euros per year shall be allocated to the wage fund of teachers for this purpose. Academic and career counselling, career orientation year in vocational training and services offered to youths at risk and their families (including parenting programmes) help reduce dropping out of school and the number of youths with a low level of education. Inactive youths shall be systematically addressed in order to offer them suitable application in the education system or on the labour market. The availability of multidimensional family therapy (MDFT) shall be improved as of 2019 in order to ensure that children with complicated and varied problems receive evidence-based help that helps to prevent the problems from intensifying and commitment of further offences. The revenue base of the Estonian Health Insurance Fund shall be gradually extended in order to ensure better availability of medical care and sustainability of the health care system. Health care expenses shall be transferred to the budget of the Estonian Health Insurance Fund in order to reduce fragmentation of health care funding. Additional funds will offer an opportunity to reduce health care waiting times, improve the availability of health care services and the consistency and quality of treatment. Attention shall be focused towards prevention activities that will help improve health behaviour, reduce risky behaviour, injuries and injury-related deaths.
13 3. INCREASING THE NATIONAL SECURITY At least 2% of GDP shall be allocated for defence expenditure, plus additional costs for Estonia as a recipient country and the expenditure of a national defence investments programme. In the context of this SBS, it was decided to extend the national defence investments programme until years 2021 and 2022. In the area of military defence, the creation of manned and equipped units shall be continued in accordance with the National Defence Development Plan. Foreign services are strengthened in the area of security and cyber and digital capacity. Planned activities: o In regard to the development of independent defence capacity, the share of persons who have undergone compulsory military service and the number of active servicemen shall be increased. o Equipment and supplies will be bought, significant investments shall be made in regard to stocking up on large-calibre munition. Technology shall be updated and improvement of training opportunities will be addressed. Investments shall be made to the improvement of management and communication capabilities. The uptake of combat vehicles shall be continued and the self-propelled artillery programme will be launched. o An infrastructure relating to the acceptance and training of troops will be developed with co-funding from NATO. o The integration of NATO’s eFP battalion battle group, which has been present in Estonia since spring 2017, shall be continued. The infrastructure that supports the presence of allies will be largely completed by 2022. o Participation in international operations ensuring national security and peace together with allies and partners will continue. o The structure of the defence forces will increase by 2022, which includes, inter alia, the creation of the management of cyber force and additional companies for strengthening military land defence. o Resistance of the state and the society to crises will improve. The focus shall 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 shall improve the awareness and crisis behaviour skills of residents. o Wages shall increase significantly in the area of internal security – nearly 23 million euros annually. Furthermore, there shall be an additional wage growth among ICT employees. o Expenditure shall also increase in regard to increasing teaching Estonian to foreigners and further development of the e-residency programme. 4. INCREASING SOCIAL WELFARE AND COHERENCE Decreasing the rate of relative poverty to 15.5% (in 2016, 21.1% of the Estonian population lived in relative poverty). Increase the share of people with strong national identity among all people of non-Estonian nationalities to 38% and the share of people with moderate national identity to 51% by 2019 (according to the integration monitoring of 2017, the share of people with strong and moderate national identity among people of non-Estonian nationalities is 39% and 47% respectively). In order to increase social welfare and coherence, it is important to support the independent coping of people and reduce the inequality of wages. Planned activities: Changes in the management of long-term care are planned in order to support the
14 maximum independent coping of people, participation of caregivers in working life, the coping of households with a member requiring long-term care alleviate the burden of relatives. In 2019, the Ministry of Social Affairs shall support the construction of an innovative elderly home with 1.5 million euros on the basis of “Financing proposals for the primary measures of decreasing the burden of care for 2018–2021” confirmed by the Government of the Republic. Service places shall be created for elders with more complex care needs, who are presently under the care of relatives due to their specific care needs. The home to be created shall have a maximum of 50 service places. In the context of the second stage of the work ability reform, the direction shall be taken to ensure that employers assess the risks of the working environment and support the promotion of health of an employee and that new methods of working and hazards of the working environment are adapted to. Offering the required and high-quality language training to people with a non- Estonian native language by the state contributes to increasing social coherence. For this, Estonian language houses will be opened in Narva and Tallinn, the task of which is to organise free Estonian language courses, prepare academic and methodological materials, etc. An administrative reform was carried out, the aim of which was to offer better public services to people. Supporting local governments that are to merge also contributes to this. Additionally, local governments will be provided support for organising the merger and for developing services in the merged local governments. Tasks and funding of local governments will be reviewed. Ida-Viru and South Eastern Estonia programmes shall be launched to the full extent of 19.8 million euros and 3.2 million euros respectively until year 2022.
15 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. This chapter also outlines the most important activities contributing to the achievement of the objectives. 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. Foreign and national security policy and national defence
2.1.1. Foreign and EU policy
Objective and indicators Ensuring the continuation of the independence of the Republic of Estonia, efficient representation, protection and improvement of Estonia’s national interests in the international arena. This is reflected by the increase of Estonia’s reputation and inclusion in the world, ensuring national security and protection of its citizens, creating better opportunities for our entrepreneurs in global competition and facilitating democracy, human rights, rule of law and economic freedoms. Important activities to fulfil the target levels for 2017 and 2018 Strengthening of external service, including in the area of security and foreign trade. Sending two diplomats to NATO’s centre of excellence for energy security in Vilnius and European centre of excellence against hybrid threats in Helsinki as well as sending an additional diplomat to the Embassy in Washington. Participating in the decision-making process of NATO and the shaping of decisions in matters most important to Estonia, preparation of the Brussels summit (introducing standpoints prior to the summit in the capitals of NATO at different levels), implementation of decisions made at Warsaw and Brussels summits. Cooperation with partners and allies was strengthened, activities continued in the coalition against ISIL as well as for participating in the missions of UN and NATO and sending an Estonian expert to NATO’s Hub for the South in Naples. Strengthening the external and internal security policy and the joint security and defence policy of EU, convincingly and capably ensuring EU’s operative response capability, participating in international crisis management and operations of EU, and developing crisis management capability; Organisation of the EuroDig conference in Tallinn in 2017 0.2 million euros. Developing bilateral transatlantic relations and cooperation on national security with the US and Canada and strengthening the relations of EU and NATO continues. Representing Estonia’s positions and interests in the United Kingdom’s exit process from the EU and transition to new relations.
16 Participating in EU’s decision-making processes and discussions and shaping the decisions on the basis of the interests of Estonia. Maintaining the unity of EU and shaping the future of EU. Implementing the enlargement policy stemming from fundamental EU values and strict conditionality. Representing and protecting Estonia’s positions and interests in discussions on EU’s next multi-annual financial framework (MFF 2020+). Developing the EU Neighbourhood Policy, incl. the Eastern Partnership (participation in preparing the joint texts of the EU, participation in platform meetings of the Eastern Partnership, policy formation, organisation of events in co-operation with the Centre of Eastern Partnership, etc.). Developing relations with neighbouring countries and regions. EU Strategy for the Baltic Sea Region Presidency from II semester of 2017 until I semester of 2018 to the extent of 0.1 million euros and organising the annual forum on the EU Strategy for the Baltic Sea Region in Tallinn in 2018 0.4 million euros in order to intensify the cooperation between the countries and regions of the Baltic Sea Region and to promote the Strategy for the Baltic Sea Region. Contributing to the civil missions (civil missions of NATO, EU, OSCE and the UN), pre- mission preparations, training, etc. Supporting entrepreneurs (business visits, briefings, contact establishment, etc.) in international activities, facilitating the entry of investors and investments into Estonia. Providing consular services and consular assistance, protecting the interests of Estonian people in trouble in crisis and accident regions. Organising the Conference of the Honorary Consuls and the cyber security summit of Munich Security Conference in Tallinn in 2018 0.2 million euros. Reinforcing Estonia’s image concerning human rights and democracy through participation in international organisations and cooperation formats founded for the purpose of promoting fundamental democratic values. Gathering support for Estonian candidacies as temporary members of the UN Security Council in 2020–2021 and in other organisations and sub-organisations; preparing for membership of the Security Council (personnel, infrastructure, contents). Contributing to carrying out the Republic of Estonia 100 by way of communication and activities of cultural diplomacy. Celebrating the Ministry of Foreign Affairs 100 with activities of public diplomacy. Shaping the policy and activities concerning development cooperation and humanitarian aid. A total of 11.5 million euros was used in 2017, there were 160–170 ongoing projects (primary target countries: Georgia, Moldova, Ukraine, Belarus, Afghanistan). 3.4 million euros was allocated for humanitarian aid, which was primarily directed towards alleviating the humanitarian crisis in Ukraine and Syria (including supporting refugees in Syria’s neighbouring countries Jordan, Lebanon and Turkey). Alleviating the humanitarian situation of inhabitants of the Gaza Strip, humanitarian initiatives and managing the consequences of natural disasters in Bangladesh, India, Nepal, Sierra Leone and Caribbean Islands continued to receive support. The budget for 2018 is in the same magnitude and the actions continue. Preparation of Foreign Policy Development Plan 2030.
17 Target level Target Actual Indicator Base level level 2018 2019 2020 2021 2022 2017 2017 The capacity to respond to and process the requests Maintain from Estonian enterprises the and enterprises of the capacity to country of location 1,825 respond to Maintain the capacity to respond to concerning business and 2,030 (2016) requests requests according to their number economy / No. of requests according per year. to their Source: Ministry of Foreign number Affairs No. of experts participating According in international civil to the Civil 18 missions. Missions 16 According to the Civil Missions (2016) Action Plan Action Plan and its budget Source: Ministry of Foreign and its Affairs budget 34 35 embassies, embassies, Sustainable 7 7 level of permanent permanent diplomatic representati Increasing and reinforcing Estonia’s representati representati Estonia represented in ons foreign services according to the foreign countries. ons, 2 on needs and opportunities. Opening consulates correspondi 2 representations in the United Arab Source: Ministry of Foreign general, ng to consulates Emirates and west coast of the US, Affairs 1 service, Estonia’s general reopening a representation in 200 needs and 1 service Budapest honorary opportuniti consuls es 201 honorary (2016) consuls 126,062 Readiness 144,578 Readiness to provide visa to provide visa consular services and application consular application assistance. s; services s Readiness to provide consular according Source: Ministry of Foreign 89,685 services according to the number and to the 91,702 Affairs consular location of clients number and acts consular location of acts (2016) clients The proportion of budget allocated to Estonia’s 0.17. development cooperation Maintain at Furthermore, due to the decisions of 0.15 and humanitarian aid of least the Approxima 25 May 2005 and 26 May 2015 by total revenue (of GNP), %. (2015) actual level tely 0.17 the EU Council of Ministers, Estonia of 2015 has committed to achieve the 0.33% Source: Ministry of Foreign level by 2030 Affairs
Important activities to achieve the objectives of 2019–2022 Strengthening of the external service, including in the area of security and foreign trade, creation of cyber and digital capacity, implementing performance management, opening
18 representations in the United Arab Emirates and west coast of the US, reopening a representation in Budapest, 14 million euros for 2019–2022. Active activity in the name of maintaining NATO’s collective defence and strengthening deterrence and defence; implementation of decisions made at NATO’s Brussels Summit. Strengthening the foreign and security policy and the joint security and defence policy of the EU; developing the crisis management capability of Estonia and the EU. Developing transatlantic relations and security co-operation with the US, incl. cyber security co-operation with the US, strengthening the relations between the EU and the US. Maintaining close allied relationships with all State Parties of NATO and all Member States of the EU (developing a policy, meeting partners, co-ordinating policies with allies and the EU countries, finding joint solutions, etc.). Representing Estonia’s positions and interests in the United Kingdom’s exit process from the EU and transition to new relations. Participating in EU’s decision-making processes and discussions and shaping the decisions on the basis of the interests of Estonia. Maintaining the unity of EU and shaping the future of EU. Implementing the enlargement policy stemming from fundamental EU values and strict conditionality (shaping of EU policies, discussing the topic of enlargement in EU and at bilateral meetings; visits to candidate countries and sharing Estonia’s reform experience with candidate and potential candidate countries). Representing and protecting Estonia’s positions and interests in discussions on EU’s next multi-annual financial framework (MFF 2020+). Increasing political and practical cooperation with countries around the Baltic Sea that are part of the EU and/or NATO. Coordinating the cooperation between the Nordic-Baltic Eight countries (NB8) and the Baltic countries during its presidency in 2020. Developing the EU Neighbourhood Policy, incl. the Eastern Partnership (participation in preparing the joint texts of the EU, participation in platform meetings of the Eastern Partnership, policy formation, organisation of events in co-operation with the Centre of Eastern Partnership, etc.). Supporting entrepreneurs (business visits, contact establishment, information spreading, counselling, etc.) in international activities, facilitating the entry of investors and investments into Estonia. Providing consular services and consular assistance, incl. assistance in crisis and accident regions. Affirming Estonia’s positive image in foreign media. Gathering support for Estonian candidacies as nonpermanent members of the UN Security Council in 2020–2021 and in other organisations and sub-organisations: introducing the Estonian candidacy, organising events introducing Estonia, involving agencies in campaign activities, etc. Elections will take place in June 2019. Membership funding shall be planned for 2020–2022. Implementing development cooperation projects and providing humanitarian aid, preparation of a plan for new substantive actions. Preparation of Foreign Policy Development Plan 2030 by February 2019.
19 2.1.2. National security and defence
Objective and indicators: National security and defence is reflected in increased deterrence against military aggression, fast development of independent military defence capacity, ability to stand against an attack with the activities of the entire society, ability to quickly solve hybrid conflicts, increasing the cohesion of Estonia’s society, and preparedness to withstand an information war. Important activities to fulfil the target levels for 2017 and 2018 The central objective of the area of government is creating and maintaining units capable of combat. In 2017, Estonia was one of four NATO countries with a defence expenditure of at least 2% of GDP. Estonia’s defence expenditure together with additional resources allocated to allies in 2017 was 479.2 million euros. The level of defence expenditure with additional resources allocated to allies in 2017 was 2.08%. It was agreed in 2017 that in addition to the hosting costs of NATO’s allied units, 60 million euros for procuring ammunition in regard to the defence investments programme for 2018–2020 will be added to defence expenditure as well. According to the spring forecast of 2018, the share of defence expenditure in 2018 will be 2.12% of GDP (ca 524 million euros). In July 2016, a decision was made at the top-level meeting in Warsaw to position combat units of NATO battalions in Estonia, Latvia, Lithuania and Poland. In April 2017, the combat unit of NATO battalion led by the United Kingdom arrived in Estonia; three barracks, a modern catering complex and service buildings for equipment were built for the purpose of hosting the combat unit. Integration and interoperability of the combat unit with Estonian units will continue. 24/7 air policing is carried out at Ämari Air Base and the Air Base is capable of hosting and handling the aircrafts of allies 365 days a year. NATO Force Integration Unit is located in Tallinn. Large-scale infrastructure investments continued in 2017. Investments to the infrastructure for developing defence capabilities and hosting allies amounted to 70 million euros. Most important objects finished in 2017 were the barracks and maintenance and study halls for armoured fighting vehicles in Tapa. The construction of the infrastructure that supports the mechanisation of the Scouts Battalion continues in 2018. Training opportunities in the Central Polygon and in Nursipalu will significantly increase as well. The priority for defence-related procurements in 2017 and 2018 is ammunition procurements, the amount of which is 41 million and 65 million euros respectively. Investments are mainly directed towards procuring large-calibre ammunition (120 mm, 155mm). Payments for combat vehicles will continue. Contracts for procuring automatic weapons and self-propelled artillery will also be entered into. For the first time after the restoration of independence, the GoR carried out the additional training exercise “Okas” at the battalion level. Additional training exercises on short notice are also planned for 2018 and onwards. In 2018, yet another military exercise “SIIL” will take place, the focus of which will be military land defence this time. The presence of reserve and active servicemen who have received high-quality unit-based training and who can quickly respond in case of an emergency is necessary for manning military units. Over 3,300 youths will begin military service between 2016–2018. The number of active servicemen continued to grow – there were 3,287 active servicemen in service at the
20 end of 2017, which was 35 persons more than in 2016 (3,252). Increasing the amount of active servicemen is one of the priorities of the area of government for 2018. People’s will to protect is one of the important staples of national military defence. Public opinion polls indicate that 54% of respondents believe that Estonia can definitely or likely be defended. Belief in the defendability of Estonia has grown in comparison with last year, as 50% of respondents believed this in the previous period. 66% of Estonians are also willing to participate in defending Estonia (this indicator was 63% in 2016). Target level Target Base Actual Indicator level level 2018 2019 2020 2021 2022 2017 2016 2017 Level of military defence expenditure of GDP, plus additional costs for Estonia as a recipient country and the expenditure of an 2.13%3 2.17%4 2.08% ≥2% ≥2% ≥2% ≥2% ≥2% additional national defence investments programme, %. Source: Ministry of Defence Residents’ belief in defendability (residents’ assessment of Estonia’s defence ability in case of an armed attack by a foreign country, % – proportion of respondents replying “Yes, definitely” 48% ≥51% 54% ≥51% ≥51% ≥51% ≥51% ≥51% (would be possible to defend Estonia) and “Probably yes”) Source: Ministry of Defence, survey Public Opinion and National Defence Number of active servicemen at the end of the year (at least) 3,252 3,370 3,287 3,410 3,460 3,510 3,560 3,610 Source: Ministry of Defence Number of youths called up for compulsory military service 3,305 3,230 3,430 ≥3200 ≥3200 ≥3500 ≥3500 ≥4000 Source: Ministry of Defence
3 Proportion of defence expenditure based on actual GDP 4 During preparation of 2017 state budget (on the basis of NATO’s methodology)
21 Target level Target Base Actual Indicator level level 2018 2019 2020 2021 2022 2017 2016 2017 Presence of allies in Estonia corresponds to the agreed target level YES YES YES YES YES YES YES YES Source: Ministry of Defence
Important activities to achieve the objectives of 2019–2022 Firearms and machine guns of the entire structure will be replaced, night vision devices and shard and bullet-proof vests will be purchased during 2019–2022. The CV90 combat vehicles programme will be completed and the first of self-propelled artillery will be procured. Transport vehicles will be purchased for the 2nd Infantry Brigade and military land defence units, and six additionally established land defence companies will be equipped. Moreover, laser hiking devices will be procured, awareness of the sea state will be further developed and modernisation of minelayers will be completed. Resources are planned for developing rear and pioneer capabilities of brigades, creating management and communication capabilities ready for cooperating with allies, improving the anti-aircraft capability of the 2nd Infantry Brigade and creating maritime communication capabilities that meet NATO’s requirements. Anti-tank warfare systems of anti-tank companies of brigades will be replaced. The focus is still on procurements for stocking up on large-calibre ammunition. Procurements for defence-related equipment for 2019–2022 exceed 950 million euros. National defence investments programme provides additional contributions for procurements of large-calibre ammunition and is arranged and funded until 2022. Along with the national defence investments programme, ammunition is supported to the extent of ca 330 million euros for the period of 2018–2022. This is supplemented by the ammunition acquired under the defence aid of the US. By 2022, the collective complex of the Disaster Medicine Centre of the Defence Forces Battle School and the Estonian National Defence College will be built, a barrack for active servicemen will be constructed in Tapa Army Base, additional ammunition warehouses will be built and modern conditions will be provided for the activities of the military police and NATO Cooperative Cyber Defence Centre, and the development of Defence Forces training grounds will continue. The infrastructure development will also include NATO funding. The Air Operations Control Centre will be built. In order to achieve the objectives of the National Defence Development Plan 2017–2026, an average of additional 50 active servicemen must begin service annually. Recruitment capacities are increased and the wage position of active servicemen is improved for increasing the amount of active servicemen. There are resources planned for the increase of the wage fund of active servicemen, which enable the average wage of active servicemen to increase 30% over the Estonian average already by 2019. In addition to this, increasing the size of personnel is also planned with regard to the creation of the Cyber Force Management. 3,500 persons shall be annually called up for compulsory military training as of 2020 and 4,000 persons as of 2022.
22 Attention will continue to be given to the areas of intelligence and early warning – large investments will be made to intelligence capabilities of the Defence Forces and the Estonian Foreign Intelligence Service. Funding of the activities of the Defence League will increase, resources will be granted for recruitment of additional personnel in relation to the increase of Defence League activities and the funding of the infrastructure of the Defence League will improve as well. Implementation of the patriotic education programme shall continue. Research and development is promoted in support of the Estonian defence industry sector and education in national defence. More information about the development plan of the Ministry of Defence is available here: http://www.kmin.ee/et/eesmargid-tegevused/alusdokumendid-ja-oigusaktid.
2.2. Economic policy, public investments and taxation
2.2.1. Public finance
Objective and indicators: Public finance is sustainable and balances the economic cycle. Important activities to fulfil the target levels for 2017 and 2018 An income tax reform was carried out, as a result of which the coping of low-paid people will improve. As a result of the change, starting with 2018, the basic exemption is 500 euros for a person receiving an income of up to 1,200 euros. The increase in the value added tax of establishments providing accommodation in 2017 and the increase in excise duty on diesel in 2018 was cancelled by the decision of the Government. The value added tax rate of establishments providing accommodation was maintained at 9% in order to promote the competitiveness of the tourism sector. An enterprise account has been established as an unbureaucratic business form that simplifies the rules of taxation and reporting of small scale business. Corporate income tax on regularly paid dividends decreased to 14% in order to promote the distribution of profit from enterprises and thereby activate economy. The energy costs of large consumers decreased through reducing excise duty on electricity. In order to update employment relationships, opportunities have been established for employers to bear expenses exempt from tax on transport and accommodation of employees under certain circumstances. Amendments were made to the rules of taxing share options, which enables entrepreneurs to use the options to motivate employees and bind them to the company more flexibly. In order to increase the transparency of the state budget, the Government will gradually transition to activity-based budget by 2020. As the first such area of government, the state budget for 2016 includes the budget of the area of government of the Ministry of Education and Research as an activity-based budget, i.e. a budget structured on the basis of the Government's targets in the fields of education, research and language together with the cost of activities. The budget of the area of government of the Ministry of Social Affairs has been planned as an activity-based budget since of 2018.
23 In order to increase the effectiveness and impact of using public resources and to support the implementation of the Government's priorities, a spending review concept has been developed. The purpose of preparing and implementing a spending review is to review specific expenditure from the state budget and to provide the Government with suggestions in the process of preparing the budget to decrease or increase the expenditure or to arrange the sector more effectively (incl. more effective provision of public services) in the process of preparing the budget. A spending review for enterprise and innovation was launched in co-operation of the ministers.
Target level
Target Actua Base Indicator level l 2018 2019 2020 2021 2022 level 2017 2017
The structural budgetary position of the general government, % of 0.3 GDP 0.2 -0.25 -0.3 0.0 0.0 0.0 (2016) Source: Ministry of Finance
Level of reserves of the general 11.6 government (proportion of GDP, %) (2014) >8.6 >7.7 >7.0 >6.7 >6.5 >6.4 Source: Ministry of Finance
Implicit tax rate on labour, % 35.3 % by Source: Ministry of Finance 35.3 the 34.4 34.0 end of (2013) the perio d
Important activities to achieve the objectives of 2019–2022 Project Aruandlus 3.0 will be carried out in order to reduce the administrative burden of submitting reports on enterprises and simplify communication with the state. In the first stage, communicating data on wages and labour will be realised (2019). The state budget for 2020 is activity-based in order to increase the transparency of the state budget. During the next budget process of 2020–2023, the objective is to prepare the annual state budget and the four-year state budget strategy together, i.e., the Government shall submit an overview of the budget for the next four years in the explanatory memorandum to the Riigikogu together with the activity-based budget for the following year. As a result, medium- term budgeting has increased even further in the fiscal policy, administrative burden of preparing the budget has decreased, and the strategic nature of the state budget has increased. Starting from 2021+, domestic and foreign funds will be planned in the state budget under uniform strategic principles. The principle that the funding sources and needs of the state must be approached comprehensibly shall be followed. Implementation system of the state budget (incl. external funds) using contemporary solutions that support the changes will be implemented (2019–2021).
2.2.2. Enterprise and innovation
24 Objective and indicators: Productivity per employee when compared with the European Union average has increased to 80%. Important activities to fulfil the target levels for 2017 and 2018 Enterprise Estonia shall continue implementing the activities supporting the export of enterprises. The entrepreneur development programme, the innovation and development unit measures and the startup aid measure will be implemented. The cluster programme and the support measure of technology development centres will be operational and there shall be enough interest in them. Startup Estonia programme will be operational – including the completion of a business accelerator procurement, under which one accelerator, which began operating in I semester of 2018, was selected. Start-up entrepreneurs will be able to receive consults, training and mentorship as well as other activities for their development via a business accelerator. Enterprise Estonia will continue to raise enterprise awareness by implementing the enterprise awareness programme and will order the enterprise counselling service from county development centres. The programme of procurements that support innovation, which was launched in 2016, shall be focused on areas in which the state as the purchaser of innovation has the most strategic role (e.g cyber security). A product and technology development programme for entrepreneurs will be launched in 2018. This is an innovative programme that utilises intervention logic, under which enterprises that have received support return the amount received upon successful completion of the project. The programme should focus on phases in the product development cycle of enterprises which have a high risk level and are in need of significant investments, with the aim of increasing the added value of enterprises. In 2018, actions regarding the awareness of the digitalisation of the industrial sector and the roadmap and diagnostics measure for digitalisation and automatisation shall be commenced under the ICT development programme. Primary processes and current level of digitalisation and automatisation of the enterprise will be reviewed together with an external expert. The enterprise that has been granted support will receive help in order to prepare a roadmap and a schedule of activities along with an assessment of profitability and financial indicators of the company on the basis of diagnostics. The roadmap enables to makes informed investment and management decisions which increase the added value of enterprises. Support to large investors was launched in order to encourage both enterprises already active in Estonia and potential foreign investors to make larger investments, thus creating new jobs with higher than average salary, increasing export and improving Estonia’s reputation as a country supporting innovation. The zero bureaucracy project, the aim of which is to reduce the administrative burden of enterprises regarding communication with the state, will continue in 2018. The green paper on Estonian industrial policy was completed, containing a long-term view to increase the competitiveness of the industry’s international competitiveness.
25 Target level Target Base level Actual Indicator level 2017 2018 2019 2020 2021 2015 2017 2017
Data of 2017 Labour productivity per will be employed person, % of 71.1 available in the EU average 75.4 75.4 77.1 79.1 80.0 80.0 (2015) summer Source: Eurostat 2018 (71.8% in 2016) Data of 2017 Proportion of Estonian will be export in world trade, % 0.088 available in 0.106 summer 0.106 0.108 0.109 0.11 0.11 Source: World Trade (2015) 2018 Organization (0.093% in 2016) Estonia’s ranking in the World Bank report Doing 17th Business 15th 12th 15th <15th <15th <15th <15th Source: The World Bank (2015) Group Increase in labour Increase In 2017, expenditu in labour labour Increase in labour re does expenditu expenditure expenditure compared not re 7.2%, increased Increase in labour expenditure does not with productivity exceed productivi 3.5% and exceed the growth rate of productivity. growth, % the ty growth productivity growth Source: Eurostat -1.4% increased rate of (2015) 2.1% productiv ity.
Important activities to achieve the objectives of 2019–2022 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). 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). Substantive preparations (preparation of an assessment report, training, notification activities and assignments for the crew, ) will commence with regard to Estonia joining CERN, i.e., the European Organisation for Nuclear Research (5.7 million euros). The activities contribute to increased investments into research and development by enterprises. A total of 40 million euros will be invested between 2020–2022 for the reconstruction of Tallinn City Hall into an international conference centre in order to develop Estonia as a conference tourism destination.
26 On the basis of pilot stage results, the following stage of the product and technology development programme for companies will commence with the objective to increase investments to research and development activities and innovation and thereby increase sales revenues from new products and services (20 million euros). Enterprise Estonia will implement the enterprise awareness programme and support export development activities, incl. funding export advisors in foreign markets (19.5 million euros, ERF). Enterprise Estonia will implement the development programme intended for entrepreneurs in order to improve the added value and the export capability of enterprises (42.7 million euros for entire programme, ERF). The programme supports well-considered development of enterprises, better planning of activities, the applying of innovation, and product development. In the course of the development programme, every enterprise participating in the programme will bring new and more profitable products or services to the market. The implementation of the Enterprise Estonia’s programme of procurements supporting innovation shall continue with the focus on areas in which the state as the purchaser of innovation has the most strategic role (1.8 million euros, ERF). The offering of startup aid to starting entrepreneurs will continue (4.3 million euros, ERF). Its purpose is to support the establishment of enterprises with good development potential, which will enliven regional business and expand the list of exporters. Enterprises will receive help with conducting marketing activities and acquiring fixed assets. Offering state guarantees, loans, export insurance and venture capital to enterprises through Kredex financial instruments (67.3 million euros, ERF) with the aim of alleviating market failures, boost export activities and facilitate the creation of ambitious business ideas. Enterprise Estonia will continue to support technology development centres and clusters (23.2 million euros, ERF). Supporting technology development centres and clusters contributes to the enhancement of international competitiveness of partners engaged in them via common marketing and development activities and improvement of cooperation between entrepreneurs and research institutions. Enterprise Estonia will continue to offer the innovation and development unit to entrepreneurs in order to support initial contacts between enterprises and innovation service providers (5.1 million euros, ERF). The counselling of enterprises in county development centres will continue (6.5 million euros, ERF and state co-funding) with the aim of boosting regional entrepreneurship. The Estonian Entrepreneurship Growth Strategy is available here: https://www.mkm.ee/et/eesmargid-tegevused/majanduse-arendamine.
2.2.3. Transport
Objective and indicators: Estonia’s transport system enables accessible, convenient, fast, safe and sustainable movement of people and goods. Important activities to fulfil the target levels for 2017 and 2018 In order to increase the share of people using public transport among all employed people:
27 Tapa-Tartu railways were reconstructed between 2015–2017 with the objective of increasing travel speed on the railway segment to at least 120 km/h. Tallinn-Rapla railways will be reconstructed between 2015–2018 with the objective of increasing travel speed on the railway segment to at least 120 km/h. At the end of 2018, trains will no longer be ordered to travel on the Lelle-Pärnu section. In spring 2017, a new ferry started operating on the Sõru-Triigi route. 23 projects were completed across Estonia by the end of 2017 in order to better connect railway stations with other types of transport. In autumn 2017, a new tram connection was opened between Tallinn Airport and the future Rail Baltic terminal. In 2016, the project for the reconstruction of Haabersti roundabout was launched, under which a public transport lane will be built. The project will end in 2018. The campaign “Building the Reputation of Public Transport” will be launched in 2018. In order to comply with the “Assessment of Estonian transport system (road, railway, air and water transport; average on a 7 point scale) by heads of companies”: Offer as many direct flights from Tallinn Airport to desired destinations as possible through the airline Nordica and develop a sustainable airline. The number of destinations for direct flights has increased over the years, Nordica is currently flying to more than 25 destinations via regular and seasonal lines. The project “Improving the Environmental Condition and Increasing Flight Safety of the Air Traffic Area of Tallinn Airport” will be continued. The Estonian Road Administration will continue implementing the Road Maintenance Plan 2014–2020 amended in 2016, which was supplemented with the construction of 2+2 lanes on the Kose-Mäe section (10 million euros in 2018). A stationary imaging device for imaging the goods passing through Narva border crossing point, which enables checking the goods several times faster than currently, will be purchased. Completed activities of the ELMO programme. New owner found for offering rental services regarding electric cars. The service will continue at the initiative of the private owner as of September 2017. The service shall be provided for 3 years.
Target level Target Base Actual Indicator level 2018 2019 2020 2021 2022 level 2017 2017 Number of traffic fatalities, three-year average Source: Road 75 60 Administration (2013– 65 (2015– <65 <60 <55 ≤ 50 ≤ 50 https://www.mnt.ee/et/ametist/stati 2015) 2017) stika/liiklusonnetuste-statistika Satisfaction index (road,
railway, air and water transport; average on a 7 point 4.6 4.6 4.9 4.6 4.7 4.7 4.8 4.8 scale). Source: World Economic
Forum
28 Share of public transport users
among employed persons, % 21.9 21.9 20 24.0 24.3 24.6 Source: Statistics Estonia ≥ 25.0 ≥ 25.0
Average increase in road traffic Increase Source: Estonian Road in road Administration, Statistics Estonia traffic Increas (2014– e in Less 2017) is road than more traffic half the than half Less than half the economic growth 3.8% / econo of growth mic economi of GDP growth c growth 1.1% at 14% / growth of GDP 17%
Important activities to achieve the objectives of 2019–2022 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 10.8 million euros in total. EU funding of the project is 10.4 million euros. Tallinn-Tartu railway will be renovated and travel speed increased (135 km/h) with 10 million euros. 17.3 million euros for the reconstruction Pärnu Airport. In 2019, 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 (7.8 million euros). A total of 394 million euros is planned in support of public transport, including a total of 168.8 million euros for highway transport (including 84 million euros for facilitating county public transport), 121.8 million euros for railway transport, 80.6 million euros for water transport and 22.7 million euros for air transport, which enables to acquire 2 separate aircrafts for Kärdla and Kuressaare route. The preparation of Tallinn-Harju County movement plan until 2035 is in progress, the primary objective of which is to achieve sustainable movement objectives, including enhancement of the use of public transport. The budget for the preparation of the movement plan is 0.35 million euros and it will be completed in September 2019 in cooperation with Tallinn, the Road Administration and MoEAC. 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 (Horison 2020 funding), as a result of the R&D of which, and together Finnish partners, funding is provided to the extent of 5.5 million euros for the development and testing of a self-operating bus park operating system.
29 24.9 million euros is planned for providing wintertime navigation. 0.8 million euros is planned for deepening the Rukki Channel. The activities and expenditure of Rail Baltic is discussed in more detail in the investments chapter. In order to reduce fatalities in traffic accidents: Implementation of the Traffic Safety Programme will continue. The objective of the programme is to reduce the number of fatalities and severely injured people in traffic accidents so that, as an average of years 2023–2025, no more than 40 people would die in traffic and the number of severely injured people would not exceed 330 people per year as an average of 2023–2025. The implementation of the Road Maintenance Plan will continue, its most important projects being the construction of Tallinn ring road to have 2+2 lanes in the section of Jüri-Väo; constructing 2+1 bypass lanes in the sections of Tallinn-Pärnu and Tallinn-Tartu; and constructing Sillamäe traffic node in order to increase the traffic safety of Tallinn-Narva highway. The construction of the Kose-Mäo section of the Tallinn-Tartu highway into 2+2 lanes will continue (160 million euros). The most important infrastructure investments will be: o construction of Aaspere-Haljala 2+2 section 15 million euros; o construction of Via Baltica on Tallinn-Pärnu highway 44 million euros; o case-based support of local roads (including the Transit Roads Programme) 6 million euros (2019). The reconstruction volume of gravel roads will be increased by 1.5 million each year between 2019–2022. The reconstruction of the transit road passing through Narva (Rahu-Kerese St.) will commence (8.9 million euros). The Transportation Development Plan and its Operational Programme are available here: https://www.mkm.ee/et/arengukavad#transport
2.2.4. Information society
Objective and indicators 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. Important activities to fulfil the target levels for 2017 and 2018 ● The cataloguing and quality measurement of public services will continue in parallel with the transition to an activity-based budget and the piloting of the so-called life event service. ● Development of broadband base networks (EstWin) continued in 2017, as 18 projects were approved (with a total length of ca 1,113 km) at the maximum funding amount of 10.1 million euros. Over 5,000 km worth of base network has been completed as of the beginning of 2018.
30 ● Base infrastructure: emphasis has been put on developments related to electronic identity and overcoming the security flaws of the ID-card (see eID points below); an important achievement in facilitating cross-border transfer of data and offering of e-services was the establishment of NGO NIIS (see NIIS point below). ● In 2016, EU regulation on electronic identification and trust services for electronic transactions in the internal market (eIDAS) became effective, regulating the requirements and standards of digital signature on the EU internal market. The regulation established the formats of digitally signed EU cross-border documents. In 2018, the Information System Authority is planning to launch application eIDAS-Node, through which Estonian e-service providers can identify users from other EU Member States and vice versa. ● The collective development unit of Estonia and Finland’s NGO Nordic Institute for Interoperability Solutions (NGO NIIS) was established in 2017 for the development of base software of the data exchange layer X-road, which enables to open a cross-border data exchange between Estonian and Finnish public and other e-service providers. ● Updating the state portal eesti.ee will continue. A technically and formally new eesti.ee portal was launched in June 2017. ● The first stage (module for describing and coordinating databases) of the new version of the administration system of the State Information System (hereinafter “RIHA”) was published in 2017. ● Developing state cloud instructions for the public sector regarding which cloud services can be used in which circumstances will commence. In 2017, negotiations were started with several institutions in regard to transitioning from private servers to the State Cloud service offered by the State Information Authority. The service selection is planned to be expanded in 2018. ● In 2016, capability was established for remote updating of ID-card certificates. In 2016, more than 80,000 card holders updated their ID-card software and/or certificates. The process continued in 2017 and in the autumn of 2017, in light of an extraordinary incident regarding the security flaw of the ID-card, a need arose to renew about 800,000 ID-cards. 494,000 ID- cards were renewed of said 800,000 cards, whereas 304,000 cards remained unrenewed and the certificates of those cards were rendered invalid on 1 April 2018. ● In 2017, the ID-card base software was expanded to support mobile operating systems (iOS, Android) and a new version of DigiDoc Client called DigiDoc4 was completed. DigiDoc4 was published for pilot usage in 1st quarter of 2018. The plan is to transition to DigiDoc4 entirely in the course of 2018. ● A new ID-card with a new partner will enter use in the end of 2018, in regard to which several changes will be made in the base software and concerning e-services. ● A programme for establishing interoperability between public services has been opened. Additionally, the development of public e-services and the development of the components of the base infrastructure are being supported. Those activities provide a direct contribution to improving the quality of the services and will also ensure the growth of satisfaction with the services in the longer term. ● The development of digital literacy in order to increase personal welfare is an ongoing priority, and the share of people not using the Internet among all Estonian residents aged 16–74 years is decreasing. Implementation of the programme “Improvement of Digital Literacy” continues. The scale of the programme is 8.5 million euros.
31 ● In 2017, two large-scale training projects were launched, directed at the acquisition of digital literacy and diversification of the use of technology. The aim of the digital literary training programme DigiABC for workers of the industrial sector is to reach 3,000 people foremost in the timber industry, forestry, engineering industry and metalworking. An important share of the target group of the project is made up of Russian-speaking population, and it will be implemented in 2017–2020. ● The E-Community project is used to improve the skills of local libraries in instructing them to use information society services as well as to train community members with low digital skills. Training courses will be carried out for a total of 6,000 persons. ● In 2016, a three-part package of activities was planned, which included updating the positions and career information of the ICT sector, training specialists of career information and raising awareness among important target groups. By 2017, two first stages of the package have been implemented and a procurement has been carried out for the implementation of the ICT career campaign in 2018 and 2019. ● Information Society Development Plan 2014–2020 prescribes increasing the number of people working in the Estonian ICT sector 50% by 2020 in comparison with 2013. In order to ensure a progeny of ICT specialists, it is important to contribute to the popularisation of technology programmes, one option of which is offering ICT hobby education. In 2015, the MoEAC carried out a pilot project for training 36 ICT hobby group instructors. The project proved to be very successful, and a decision was taken in 2016 to procure a new training course and increase the target group to 200 people. At the end of 2017, the funding of MoEAC had helped train over 236 hobby group instructors, which is a great prerequisite for the creation of hobby groups in the area of technology. ● The largest contribution to the increase of IT labour force comes from project Choose IT!, the aim of which is to retrain persons with prior university degrees and work experience to become software developers. The training programme, which was jointly developed by the state and the IT sector and launched in 2017, has already trained 65 persons, 49 of whom, i.e. 75% of participants, are working. The project will run until 2020. ● According to the coalition agreement and the action programme of the Government of the Republic, implementation of the development programme of the ICT sector commenced in 2018. The programme sets out project ideas with a large economic or social impact that are focused on three major directions: alleviating the lack of labour in the ICT sector via the inclusion of foreign labour and supporting the acquisition of higher education in the field of ICT; improving the productivity of Estonian economy through supporting the digitalisation of the industry and supporting the visibility of e-Estonia through the magnification of the e- residency programme. The total budget of the programme for 2018–2020 is 28 million euros.
Target level Target Base Actual Indicator level 2018 2019 2020 2021 2022 level 2017 2017 Satisfaction with the quality of
public services among residents (measured aged 16–74 years 71% 76% every 2 79% 83% 85% 85% 85% years) Source: Information System Authority
Satisfaction with the quality of (measured public services among 82% every 2 84% 86% 88% 90% 90% entrepreneurs 79% years)
32 Target level Source: Information System Authority
Proportion of non-users of internet among Estonia’s residents aged 16– 74 years 15.8% 12% 12.8% 10% 8% 6% 5% 5% Source: Statistics Estonia Proportion of using 100 Mbit/s or faster internet connection in the 15.5% total number broadband internet 4.36% 10% 14% 20% 40% 60% 60% connections (June 2017) Source: Digital Agenda Scoreboard
Important activities to achieve the objectives of 2019–2022 Implementation of the support measure for the construction of the passive infrastructure of access networks of broadband internet (10 million euros). Investments in new generation broadband networks will continue, improving the availability of internet connectivity in those regions where broadband connectivity has not been available to end users until now. The development of the base network creates the prerequisites for a growth of the proportion of households with fast broadband internet connection in the future (9 million euros). Base infrastructure: emphasis has been put on developments related to electronic identity and overcoming the security flaws of the ID-card (see eID points); an important achievement in facilitating cross-border transfer of data and offering of e-services is further development of the activities of NGO NIIS. As a result of smart development of the existing and new information systems, the satisfaction of both residents and entrepreneurs with public services is expected grow. The prerequisite for the development and implementation of good services is that the base infrastructure supporting the services is in good order, so infrastructure-related developments will be supported (57.4 million euros). Additional funds in the amount of 118.4 million euros will be directed to the ICT area of the public sector, the aim of which is to modernise and maintain existing and new developments as well as improve cyber security. The wages of the state’s ICT specialists working in ICT agencies in the public sector shall be increased by 20 percent. 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 uptake of the infrastructure for services. The activities together contribute to the development of higher-quality public e-services and to actively taking them into use (1.8 million euros). Support for the development of public services and the base infrastructure and support for the creation of interoperability between public services will continue. (19.9 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
33 example, training courses for various target groups as well as requalification programmes will be conducted, the availability of hobby education in the field of ICT will be improved, etc. (4.9 million euros). Investments in the ICT infrastructure of schools will continue, modernising the local area networks of the schools and making them comply with the requirements for the local area networks of general education schools. Additionally, modern presentation equipment can be purchased for schools (6.6 million euros). Implementation of the development programme of the ICT sector will continue. Documents concerning the Information Society Development Plan: https://www.mkm.ee/et/tegevused-eesmargid/infouhiskond. Link to the Development Plan: https://www.mkm.ee/sites/default/files/elfinder/article_files/eesti_infouhiskonna_arengukava.pdf
2.3. Demographics, public administration and civil society
2.3.1. Public administration
Objective and indicators: Unified and effective public administration, accounting for the population’s needs. Important activities to fulfil the target levels for 2017 and 2018 In the autumn of 2017, mergers of local governments initiated by councils of local governments as well as by the Government were carried out. Due to the reduction in the tasks of county governments, the activity of county governments was ceased as of 1 January 2018. Tasks of county governments were divided up between the authorities of the area of government of ministries and local governments or unions thereof. Basic principles of offering and developing direct public services, operating model of the state house and package of services offered at the state house were prepared, plus a service package with regard to all county centres. Proposals for moving positions at state authorities out of the capital city were approved. The transition to centralised services through the centralisation of the state’s support services, i.e. the gathering of the financial, personnel and salary accounting into the State Centre of Support Services continued.
Target level Target Actua Base Indicator level l 2018 2019 2020 2021 2022 level 2017 2017 Proportion of general government expenditure in 40.4% Does not Does not Does Does GDP shall not increase Growing Growing not not (2016) increase increase Source: Ministry of Finance increas increa e se The proportion of general 11.9% Up to Up to Up to Up to government employees in Up to Up to (2016) 12% 12% 12% 12% employment-age population 12% 12%
34 Target level Target Actua Base Indicator level l 2018 2019 2020 2021 2022 level 2017 2017 Source: Ministry of Finance Retain Retain Government effectiveness 33.69 Retained Retained Retained Retained ed the ed the points, the the the the Source: Institute for positio positio position position position position Management Development 4th place n in n in in the in the in the in the the top the top top five top five top five top five (2014) five five
Important activities to achieve the objectives of 2019–2022 The proposals for moving state authorities out of the capital will be implemented during the period of 2017–2019. 1,000 state funded jobs will have been moved out of the capital (2019). Continuation of the centralisation of state’s support services, i.e. increasing the number of support services provided centrally by the State Shared Services Centre (2019–2021). The State Shared Service Centre will be offering a total of 10 different support services (2019). In the second half of 2018, the area of government of the MoF with regard to the implementation of grants funded by external and domestic funds will be consolidated to the State Shared Services Centre. In the case of joint implementation services, efficiency shall be achieved through improvement of the work organisation between the management authority and implementation unit, the synergy reached in one implementation unit via the implementation of similar support measures and centric development of information systems. Establishment of sectoral state houses in county centres. As a result of the project, office spaces used by the state in county centre will decrease by ca 25% and ca 300 jobs can be moved out of the capital. Centralisation of ownership of built-up property and transition to sustainable rental model at the speed of 200 000 m² per year. A functional and user-friendly public procurement register along with new electronic tools, such as a dynamic procurement system, e-catalogue, will be developed (2019–2022). National management tables with thematically important statistical indicators will be developed by Statistics Estonia. An agricultural census will be carried out (2020).
2.3.2. Development of civil society
Objective and indicators Action-capable citizen associations and socially active residents Important activities to fulfil the target levels for 2017 and 2018 Under the sub-objective “The participation of citizen associations in policymaking is natural and valued in the society” of the performance area
35 The “Strategic partnership development project” will be carried out in order to improve informed and effective cooperative relations between ministries and custodial organs of non- governmental organisations. The sub-objective “Effect of citizen associations on the prevention and solution of social problems as well as on the improvement of the people’s welfare has grown due to social innovation, social entrepreneurship and the provision of public services” is aimed at increasing the amount of capable citizen associations in order for non-government organisations to be effective preventers and solvers of the society’s problems. Social innovation, social entrepreneurship and increasing the capability for providing public services will be used for that purpose. In more detail: the awareness of the wider public will be enhanced with regard to social entrepreneurship and resolving of social problems; the portal maailmamuutjad.ee, the aim of which is to evaluate the impact of non- government organisations, will be developed further; various social entrepreneurship and collective creating development programmes will be implemented; training and counselling of organisations that include volunteers will continue. The funding of non-government organisations will be regulated and diversified under the sub- objective “Capable citizen associations having sufficient resources for development and effective activity”, facilitating the growth of the capabilities of non-government organisations. In cooperation with the Network of Estonian Non-Profit Organisations and the University of Tartu, “Analysis on the assessment of the funding principles of non-government organisations” and a corresponding funding analysis environment were created.
A memorandum will be prepared for the uptake of social impact bonds (hereinafter “SIB”), the objective of the memorandum is to increase the contribution of the private sector in funding non-government organisations. The National Foundation of Civil Society supports the development leap of non- government organisations and innovative actions in order to increase the number of capable non-government organisations that contribute to society, including increase the role of innovation and social entrepreneurship in society. Target level Target Base Actual Indicator level 2018 2019 2020 2021 2022 level 2017 2017
Overall sustainability of Estonian Results civil society will be 2.0 2.0 published 2.0 1.9 1.9 1.9 1.9 Source: NGO Sustainability Index (2013) (USAID) (results published in autumn regarding the previous year) 2018 Proportion of citizen associations receiving aid from three or more Indicator 38% funding sources 40% was not 40% 41% 43% 45% 45% (2014) 1 Source: Survey Institutionalisation monitored of Citizen Initiatives in Estonia Rate of participation and average 31% / 32% / Indicator 33% 35% 36% 36% 36% 63 68 was not / 70 / 80 / 90 / 90 / 90
36 Target level Target Base Actual Indicator level 2018 2019 2020 2021 2022 level 2017 2017 volume of voluntary activities hours hours monitored2 hours hours hours hours hours (2013) Source: Survey “Participation in Voluntary Activities in Estonia”
1 Indicator will be monitored in the survey “Institutionalisation of Citizen Initiatives in Estonia”, which will be carried out in 2018. 2 Indicator will be monitored in the survey “Participation in Voluntary Activities in Estonia”, which will be carried out in 2018. Important activities to achieve the objectives of 2019–2022 More detailed statistical information will be collected about NGOs through the network of funders, facilitating cooperation between them and organising the funding processes. Work will continue to inform the target groups about social innovation and social entrepreneurship and collective creating and corresponding development programmes will be carried out. Work will continue to involve more volunteers in NGOs and to do so in a more informed way. Strategic partnership between the public sector and non-governmental organisations will be increased. The preparation of the Development Document Civil Society for 2020+ will involve analysis of the function and roles of the National Foundation of Civil Society (NFCS) with the aim of achieving stronger synergy between funding opportunities on the national and local level. Two surveys will be carried out: “Participation in Voluntary Activities in Estonia 2018” and “Impact analysis of the development plan of civil society 2018” More information about the fulfilment of the Civil Society Development Plan and its Operational Programme is available here: https://www.siseministeerium.ee/et/tegevusvaldkonnad/kodanikuuhiskond
2.4. Research and education policy
2.4.1. Research Objective and indicators: The overall objective of developing research and development activity and innovation is creating favourable conditions for an increase of productivity and quality of life, for good education and culture, and for Estonia’s sustainability and development. The objective shall be achieved by way of the Research, Development and Innovation Strategy. An analysis of the current situation of research is available in the annual analysis 2017 of the MoER. Important activities to fulfil the target levels for 2017 and 2018 The main instruments of research and development (R&D) are base funding and institutional and personal research grants for research and development institutions. In 2016, the main funding for research was agreed to be increased in the SBS in the amount of 8.0 million euros from the state budget as of 2017. In 2018, additional funding in the amount of 10.8 million euros was provided, enabling to increase the share of state funding in relation to GDP to 0.81% (0.78% of GDP in 2017) and the total budget for the main
37 instruments of research funding is 67.1 million euros in 2018. The ratio of base financing of research institutions to research grants is 40/60 this year: 40% comes from base financing and 60% from research grants, i.e. research projects. In 2016, base financing increased by 50% in comparison with 2015, increasing from the current 9.3 million euros to 13.9 million euros (increase 4.6 million euros), whereas in 2017, base financing grew to 16.9 million euros (increase 3.0 million) and to 26.9 million euros in 2018. Estonian research institutions have thus far been very dependent on competitive instruments and in order to alleviate said situation, the objective is to bring the ratio between base financing and research grants to 50%/50%, so that both funding mechanisms are equally represented. Institutional development programme for research and development institutions and higher education institutions (ASTRA), incl. establishing research and academic buildings; supporting doctoral schools; facilitating technology transfer; supporting the merger of institutions (22.7 million euros in 2018). Supporting the co-operation of research institutions and enterprises, and creating motivators to involve private capital in funding research and development activities, incl. supporting the applied research of smart specialisation growth areas (6.6 million euros). Supporting the internationalisation of research and higher education, incl. mobility and progeny (10.0 million euros in 2018). Supporting top-level research centres (7.1 million euros in 2018). Funding was provided for, inter alia, the Centre of Excellence in Estonian Studies, Centre of Excellence for Zero Energy and Resource Efficient Smart Buildings and Districts, EXCITE Centre of Excellence in IT, Centre of Excellence for Genomics and Translational Medicine. Developing research infrastructure on the basis of the roadmap of Estonian research infrastructure. The roadmap is a long-term planning tool, which includes a list of new or infrastructure units of national importance that are in need of updating. The infrastructures included in the composition of the roadmap may be physical objects and network structures as well as memberships in international research infrastructure organisations. Participation in the objects of the roadmap of the European Strategy Forum on Research Infrastructures (ESFRI) and other international research infrastructures is supported as well (6.6 million euros in 2018). Ensuring access for research libraries to electronic databases of research information and supporting research libraries in obtaining publications (5.0 million euros in 2018; continuous funding has been ensured since 2017); Supporting the research and education directions important for Estonia, incl. supporting the conducting of studies based on the state’s needs and increasing the R&D capability of state authorities (the budget for the RITA measure in 2018 is 4.9 million euros); Reviewing and consolidating the network of universities, research institutions and institutions of professional higher education. Tartu Observatory and the Estonian Biocentre are part of the University of Tartu as of 2018. Conducting a regular evaluation of research and development institutions in 2017. Target level Base Target Actual Indicator level level 2018 2019 2020 2021 2022 2017 2015 2017
38 Target level Investments into research and development activities (% of GDP), incl. the private 1.50 / to be 2.4 / 2.6 / 2.8 / 3.0 / 3.0 / 3.0 / sector’s R&D expenditure (% 0.72 clarified 1.4 1.6 1.8 2.0 2.0 2.0 of GDP). (2015) in 2018 Source: Eurostat, Statistics Estonia Ranking in the EU Innovation Union Scoreboard 13th 12th 15th 11th 11th 10th 10th 10th Source: Innovation Union (2015) Scoreboard
Important activities to achieve the objectives of 2019–2022 The aforementioned activities for 2017–2018 will be continued, furthermore: the share of base funding for research institutions and universities will be increased in order to reach the target level of 50% of the volume of main instruments. An additional 53.2 million euros will be allocated for this purpose in the next four years (13.3 million euros per year). One of the results of increasing base financing and changing the funding model shall be closer cooperation between enterprises and research institutions, it also enables R&D institutions, including in particular universities, shape the career in research (by establishing permanent posts for research employees) and to increase the efficiency of doctoral studies by committing doctoral students to research work during their studies to a greater extent than before; the research activity of the growth areas of economy and supporting higher education will increase in order to realise their potential for economic growth. In addition to the ICT research program that commenced in 2018 (3 million euros per year), a resource enhancement programme will be launched as well (3 million euros per year). 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; During the modernisation of the Higher Education Act, compliance of regulations concerning research and development is evaluated, unnecessary and duplicative parts are removed and parts that concern research and development will be added to the Higher Education Act, if possible. Main amendments to the Organisation of Research and Development Act have to do with the regulation of an academic employee in the Higher Education Act, changes in the funding of research and quality assessment of research. The amended Organisation of Research and Development Act will most likely enter into force in 2019, which is the transition period between the two systems, and become fully operational in 2020. Estonian Research, Development and Innovation Strategy 2014–2020: https://www.hm.ee/sites/default/files/59705_teadmistepohine_eesti_est.pdf
2.4.2. Education
Objective and indicators All people in Estonia are provided with learning opportunities corresponding to their needs and
39 abilities throughout their lifecycle to ensure that they have opportunities for dignified self- actualisation in the society, work life and family life. The objective will be implemented through eight programmes based on Estonian Lifelong Learning Strategy and a youth programme. The current situation of the education area is available in the annual analysis 2017 of the MoER. Important activities to fulfil the target levels for 2017 and 2018 Competent and motivated teachers and school leadership Ensuring dignified wages to teachers. Basic principles of the Government foresee a growth of the average wages of teachers to 120 percent of the Estonian average, i.e., to the same level as the average wages of a specialist with higher education, and motivating local governments in increasing the wages of kindergarten teachers to the minimum wages of school teachers. In 2017, the average gross wages of teachers in municipal general education schools was 5% higher than the Estonian average wages. The estimated average in 2018 is 6% and the estimated average in 2019 is 9% higher than the national average wage. Creating and carrying out programmes for improving the reputation of the teacher’s profession to different target groups: employed teachers, youths who could study to become a teacher, and employed people who are considering becoming a teacher. Scholarships for teacher training, beginner’s allowances for young teachers, and supporting the conduct of a vocational year for a beginning teacher are still provided (the budget for 2018 is 1.4 million euros). As of 2018, beginner’s allowances for young teachers are also paid to support specialists. Concordance of lifelong learning opportunities with the needs of the labour market The skills co-ordination system OSKA (the budget for 2018 is 0.8 million euros), which provides information about key professions and skills needed in the labour market in order to make evidence-based decisions in developing the curriculum, training orders and career counselling. An analysis of the demand for skills and the supply of studies in the labour market will be completed in five sectors in 2018. Increasing the awareness of lifelong learning and opportunities to learn as well as measures to return adults to formal education after they have dropped out of education (the budget for 2018 is 1.4 million euros). Adults returning to upper secondary schools for adults are offered training courses and additional or opportunity courses developing learning skills in different subjects. In order to popularise lifelong learning, co-operation is developed with libraries, regional co-operation networks are expanded, media campaigns are carried out, etc. In-service training and requalification courses for adults (the budget for 2018 is 8.25 million euros). In 2017, approx. 13,200 adults participated in courses, 21% of whom did not have secondary education. In 2018, offering in-service training and requalification courses and training to develop key competences will continue to target groups who are less active in lifelong learning: adults without secondary education, adults without vocational education and adults with expired skills. Extending work-based learning (the budget for 2018 is 4.3 million euros). 2,600 learners and 350 enterprises were involved in apprenticeship studies by the end of 2017. The objective for 2018 is to have approx. 4,200 participants in apprenticeship studies. As of 2017/18 academic year, work based apprenticeship studies are piloted in the area of higher education.
40 Inclusion of youths in risk of exclusion and improving the employment readiness of youths. The contact of youths with work life is intensified and a wholesome package of support services is developed for about 8,600 youths (by the end of the period) not studying or working anywhere. By the end of 2017, approx. 44,600 youths, incl. 4,360 youths not studying or working anywhere, participated in youth work services as part of the measure. Study and career counselling services for children and youths in Rajaleidja centres (the budget for 2018 is 4.0 million euros). About 30,000 children, pupils and youths per year will receive individual study counselling and career services. The target is to have all basic school graduates go through career counselling in order to help the youths make informed decisions of their choice of studies and profession and to support them in continuing their education. The work of Rajaleidja centres also supports the coping of students with special educational needs in mainstream schools and helps to decrease dropping out of school. Digital focus in lifelong learning Expanding e-learning opportunities in secondary education – ensuring the availability of digital study materials for carrying out all the courses of the national basic and upper secondary school curriculum (the budget for 2018 is 3.7 million euros). Developing the digital skills of students and teachers (the budget for 2018 is 0.5 million euros). Ensuring the opportunity to study information technology in at least 80% of general education schools (the budget for 2018 is 0.3 million euros). Change in the approach to learning and equal opportunities for lifelong learning Support system for youth hobby activities (2017 is 6 million euros; as of 2018 is 15 million euros). The objective of the support is to make hobby activity and hobby education better available to 7–19-year-old youths and offer more varied opportunities in at least three areas: culture, sports, and nature and exact science and technology. Expanding bullying prevention, in the context of which pre-school child care institutions, general education school and vocational schools can choose the most suitable bullying prevention programme for themselves. 0.4 million euros is planned for bullying prevention in 2017 and 2018. Student exchange programme within Estonia, developing digital learning resources for Estonian as a second language, expanding the language immersion programme, updating the syllabus of Estonian as a second language, etc. (the budget for 2017 was 3.4 million euros). Thanks to these activities, the proportion of basic school graduates with non- Estonian native language having at least a B1 level of command of Estonian will increase. Increasing support for school managers in order to increase the availability of first-line support services necessary for students and carry out activities for supporting students with special educational needs in the education system (as of 2018, an additional 6 million euros for improving the availability of support services and allowance for supporting the organisation of studies of students with special educational needs). Pilot programme, which allows for pedagogically justified flexibility in carrying out language and subject training in specified upper secondary schools together with in-depth learning of Estonian language, so that upper secondary school graduates would achieve a level of C1 in Estonian within six years (1 million euros).
41 Reorganisation of the school network to provide high-quality and accessible general secondary education with many diverse options (37 million euros in 2018). 0.5 million euros was allocated in support of rural upper secondary schools and 2.0 million euros in support of the establishment of state upper secondary schools in 2018. State upper secondary schools will begin operating in Viimsi, Rapla and Paide in 2018. Target level Base Target Actual Indicator level level 2018 2019 2020 2021 2022 2017 2015 2017 Average wage level of teachers in municipal 107 105 105 106* 120* 120 120 120 schools compared with the country’s average wages Proportion of 30-year-old and younger teachers (%) 10.6 12 10.6 12.5 12.5 12.5 12.5 12.5 Source: EHIS Proportion of 18−24-year- olds with low education level not in further 12.2 <10 10.8 <10 <9.5 <9 <9 <9 education or training (%). Source: Eurostat Proportion of adults (25– 64-year-olds) without professional and below 28.9 27 28.6 26 25 25 25 vocational education 26 Source: Statistics Estonia, calculations of MoER Participation of adults (25–64-year-olds) in 12.4 16.5 17.3 18 19 20 20 20 lifelong learning (%) Source: Eurostat Proportion of people with tertiary education in the 45.3 40 48.4 40 40 40 40 40 age group 30−34 years (%) Source: Eurostat Participation in early childhood education (from to be 4 years old to school age) 91.7 94 clarified 95 95 95 95 95 (%) in 2017 Source: Eurostat Proportion of basic school graduates with non- Estonian native language who have at least a B1 67.5 74 65.7 78 82 90 90 90 level of command of Estonian (%) Source: MoER Proportion of upper secondary school graduates with non- Estonian native language 17.5 20 16.5 22 25 30 30 30 who have mastered the (2016) Estonian language at a level of at least C1 (%) Source: MoER Average examination results of basic school final 67/73 70/73 67/75 71/74 73/74 75/75 75/75 75/75 examination and upper
42 Target level Base Target Actual Indicator level level 2018 2019 2020 2021 2022 2017 2015 2017 secondary school state examination in Estonian as a second language Source: MoER *estimated (spring economic forecast 2018 of the Ministry of Finance) achievement levels (renewed annually) established in accordance with the estimate of actual funds planned for in SBS are as follows: 2018 – 106; 2019 – 109. Important activities to achieve the objectives of 2019–2022 All aforementioned actions of 2017–2018 will be continued, including improving the reputation of the teachers, developing the skills co-ordination system OSKA, offering training and requalification courses, bringing adults back to formal education, youth work activities, study and career counselling, expanding e-learning opportunities and developing digital skills, learning Estonian as a second language, etc. Furthermore: increase in the average wages of teachers will be continued and nearly 319 million euros is planned for this purpose for 2019–2022 (incl. 77.5 million in 2019, 80.4 million in 2020, 80.4 million in 2021 and 80.4 million euros in 2022). The wage of teachers in general education schools will increase by 100 euros, reaching 1,250 euros by 2019. The estimated average wage of teachers will reach 1,500 euros. A total of 1 billion euros has been planned for the wages of teachers in general education schools for the next for years by the state; funding will be increased to the motivation programme for increasing the wages of kindergarten teachers – a total of 60 million euros (15.0 million euros per year) will be contributed during 2019–2022, enabling local governments to provide kindergarten teachers with a wage that is at least at the level of the minimum wage provided to teachers in general education schools; the funding of the organisation of the school network (46.3 million euros in 2019), supporting rural upper secondary schools (0.5 million euros per year) and establishment of state upper secondary schools (1.5 million euros in 2019) will continue. In 2019, a state upper secondary school will begin operation in Kohtla-Järve, schools are planned to open in Tabasalu in 2020, in Kuressaare in 2021 and in Rakvere, Narva and Tallinn (3 schools) in 2022. The establishment of the Fine Art School shall continue; payment of beginner’s allowances for support specialists, which commenced in 2018, will continue to be paid with the objective to ensure that the service of a support specialist is better available to schools and school managers. The allowance can be requested by support specialists who are beginning work at a school or Rajaleidja centre for the first time and who meet applicable requirements (additional funding of nearly 1 million euros is allocated for 2019–2022); learning opportunities for acquiring Estonian as a second language will be improved by bringing more Estonian-speaking teachers to kindergarten classes that are taught in Russian (the budget is 1 million euros per year); supporting the training of pupil-athletes of Audentes Sports Gymnasium will continue, the studies of former and current top athletes and coaches in higher education or vocational schools, sports training of pupil-athletes, allocation of study scholarships to top athletes for aligning sports and studies while acquiring higher or vocational education and offering professional level training for coaches will be supported;
43 updating the funding model in vocational education will continue with the objective of creating a performance funding component in addition to base funding in order to preventing dropping out, increase the efficiency of teaching, promote co-operation with enterprises and to implement support measures; institutional accreditation and quality assessment of curricula groups in higher education will be replaced by thematic evaluations that are carried out, if necessary. This amendment to the Higher Education Act will significantly reduce the evaluation burden of large higher education institutions. Management bodies of all universities governed by public law will bring in external members in order to increase coherence with the society; international survey PIAAC will be carried out, which evaluates the information processing skills, functional reading skills, mathematical literacy and problem-solving skills of youths and adults (aged 16+) in a technology-rich environment. Preparation will take place in 2018–2019, test survey will be conducted in 2020 and the data collection of the main survey carried out in 2021–2022. Estonian Lifelong Learning Strategy 2020: https://www.hm.ee/et/elukestva-oppe-strateegia-2020.
2.4.3. Estonian language and identity
Objective and indicators Ensure the preservation and development of Estonian language in all aspects of life. The objective will be implemented through the language programme. The current situation of the area is available in the annual analysis 2017 of the MoER. Important activities to fulfil the target levels for 2017 and 2018 Estonian is being studied, language databases are being developed and reputation building is being conducted. Comprehensive approaches of the Estonian language repository series will be completed and published: word formation, pronunciation of Estonian, Estonian syntax, word derivation, oral Estonian, history of Estonian, history of written Estonian and grammar of Estonian dialects. Language planning system and e-language counselling will be developed. The Compatriots Programme 2014–2020, which supports the studies of over 3,000 children learning Estonian abroad and the activities of the Global School (where over 200 children from nearly 20 countries study) (the budget for 2018 is 1.5 million euros) will be continued. Conditions will also be 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, e.g. national competitions, e-dictation test, summary competition Tuum, competitions Kirjandusraal, Ulakass, etc. (the budget for 2018 is 0.4 million euros). 30 higher education textbooks reinforcing the knowledge of special terminology are to be published by 2019. 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. 2,662 people passed the Estonian language proficiency examination in 2017. Language learning costs will be repaid from the state budget to those who have successfully passed the Estonian language proficiency exam. Learning costs were compensated for 452 people who had passed the examination in 2017. Developing the Keeletee (Language Road) e-learning course of B1 level of Estonian will continue, enabling people with non-Estonian native language living in Estonia, compatriots abroad and everyone interested all over the world to learn Estonian. Three first chapters will be opened for users in May 2018.
44 Development of a digital Estonian-Russian-Estonian dictionary environment will continue with the objective of improving the language proficiency of students with access to the specified dictionaries as digital learning resources as well as the digital competence of both students and teachers. The dictionary environment will be opened for use by the end of 2018. The language training of kindergarten, basic school and upper secondary school teachers in Ida-Viru County will be supported. It is recommended that 200 employees in the education field participate in language learning courses in 2017, 75% of whom should successfully complete the course. 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). Preparing a follow-up plan for the culminating “Programme of Academic Studies of Estonian Language and Culture Abroad”. 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 (0.9 million euros in 2018). Target level Target Base Actual Indicator level 2018 2019 2020 2021 2022 level 2017 2017 Average result of the final examination of Estonian as native language of youths who have completed upper secondary 63.2 >58 64.9 >64 >64 >64 >64 >64 education, in points (maximum 100) Source: MoER Number of foreign Estonians participating in learning Estonian and in Estonian days 3,670 4,300 3,700 4,500 5,250 5,250 5,250 5,250 held in Estonia and abroad Source: MoER Proportion of examinees who have passed the Estonian language proficiency examination 52.5 54 54.5 54 55 55 55 55 (levels A2–C1), % Source: MoER Self-assessment of active skills of Estonian among residents with non-Estonian native language 37 38 - - - 40 - - (%) (2015) Source: Estonian Integration Monitoring (EIM)* * Integration monitoring is carried out every three years.
Important activities to achieve the objectives of 2019–2022 All aforementioned activities for 2017–2018 will be continued, supporting the teaching, research, development and protection of the Estonian language in Estonia as well as abroad. Furthermore: MoER will declares 2019 the Year of the Estonian Language and the Century of the National Language shall be celebrated (0.1 million euros); the system of language organisation and care, dictionaries and databases including Estonian terminology will be developed and improved, the creation of higher education textbooks in
45 Estonian shall be supported, plain language movement and good practice of language use will be promoted (2.2 million euros per year); language learning opportunities (incl. e-learning opportunities) of adults with non-Estonian native or home language will be expanded, the system of language proficiency examinations and the language skills evaluation system shall be improved, the budget for activities is 0.3 million euros per year; opportunities for learning Estonian in foreign universities and Estonian communities abroad (incl. activities of the Global School) will be expanded, the budget is 0.8 million euros per year; activities of the Estonian Language Technology Programme 2018–2027 will commence (budget 0.8 million euros per year).
2.5. Culture and sports
2.5.1. Culture Objective and indicators 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. Important activities to fulfil the target levels for 2017 and 2018 The number of people who earn their wage as writers or artists increased from the current ten to eighteen creative persons in 2017. The activities of a total of 24 creative persons will be supported together with artistic associations in 2018. The basis of a writer’s and artist’s wage for the current year is the average gross wage in Estonia in the year before the last. In 2017, the increase in the wage fund of cultural workers enabled increasing the minimum wage of cultural workers 13.5%, i.e., to 942 euros a month. In December 2017, an agreement of joint intent was entered into with the Estonian Employees’ Unions’ Confederation (TALO), pursuant to which the minimum rate of a cultural worker’s5 gross wages will increase to at least 1,150 euros per month starting with the year 2018. The goal of the Ministry of Culture is to achieve the objective set according to the vision document “Culture 2020” approved by the Riigikogu in order to ensure that the minimum wages of cultural workers with higher education receiving wages from the state are equal to the Estonian average wages by 2020. In 2018, the wage fund of even those employees in the area of culture receiving wages from the state, who are support personnel or cultural workers with a higher education whose income exceeds the gross wage minimum rate, increased by 7.5%. For the purpose of internationalisation, the volume of the support mechanism Film Estonia for films produced with foreign funding increased from one million to two million euros in 2018. The financial incentive is intended to support the production of audiovisual works based on
5 In this context, a cultural worker is a worker who is working at a state authority in the governing area of the Ministry of Culture (incl. the National Heritage Board), foundation with state participation governed by private law or a public law agency at a position that requires higher education or higher professional qualification or specific knowledge of one’s speciality, where knowledge of one’s speciality and experiential competence could be equalised with higher education or higher professional qualification.
46 foreign capital in the Estonian territory. Each euro paid via the Film Estonia fund will bring a minimum of 3.33 euros of outside capital to Estonia. By January 2018, payments have been made to three projects via Film Estonia, thereby bringing ca 10 million euros of foreign investments into Estonia. A support measure was launched in 2018 for supporting international cultural and sporting events that have significant economic effects. The objective of the support is to bring international major events that enrich the cultural as well as the sports landscape and boost Estonian economy to Estonia. The support measure will have a positive impact on economy through foreign investments and accrual of taxes, regional impact through various locations of events as well as cultural impact. The volume of the call for applications is up to 2 million euros per year. In 2018, Estonia along with Latvia and Lithuania was the main guest at London Book Fair, which is one of the most important book fairs in the world. Participating at the event enabled to bring Estonian literature to the international arena and improve the reputation of Estonian literature. In international cooperation, Estonia participated at the 57th Venice Art Biennale in 2017 with a national pavilion and Estonia will participate in Venice Architecture Biennale in 2018. A ministries-wide spatial creativity expert group was established in 2017 in order to consolidate spatial policy competence and plan interventions necessary for improving spatial development as well as to submit proposals. The final report of the expert group will be submitted to the Government of the Republic in 2018 along with the proposals on improving spatial development. In the end of 2017, Estonian Artists’ Association and MoC established the Art Hall Foundation, which continues to organise the exhibition activities of Tallinn Art Hall Foundation as of 2018. Establishment of a foundation with state participation was the most important thematic restructuring in 2017 – a clear commitment was made to the development of a central exhibition institution, increasing stability in funding the activities of the Art Hall and making strategic management more efficient. The reorganising of museums in the area of administration of the MoC and moving state authorities out of the capital will continue under the National Reform Plan. The objective is to organise the museum network in the area of administration of the MoC by the end of 2019 and the Folk Culture Centre is planned to be moved to Viljandi in the context of moving state funded jobs out of the capital under the reform plan. Supporting the tradition of the song and dance festival will continue. The XII Youth Song and Dance Festival “Mina jään” took place in 2017. The new Heritage Protection Act was developed and preparations are made for implementing the heritage protection reform. The main objective is more strategic management of the cultural heritage area by facilitating the preservation and promotion of cultural heritage, incl. the sector’s strategic planning and more flexible and effective use of common resources. Among new investments in the area of culture, most notable is the completion of the Research and Visitation Centre of Arvo Pärt in 2018. The development of the theatre complex of Tallinn City Theatre will commence in 2018, the design works of which are supported with 0.7 million euros. The construction of the Vaba Lava Theatre Centre began in the end of 2017 in Narva, supported by 2.4 million euros in 2018. The theatre building that is being built in a former factory building is planned to be opened in November 2018. The ministry has planned 0.33 million euros for renovation of the stage of the Song Festival Grounds in 2018, which will be
47 organised in cooperation with the city of Tallinn. Supporting of sectoral organisations and events related to arts and cultural heritage continues. Implementing provisions were developed on the basis of the concept of the support system for youth hobby activities and an additional support system by the state was fully launched as of 2018 to the extent of 15 million euros. Revising the Audiovisual Media Services Directive at the level of the European Union.
Target level
Target Actua Base Indicator level l 2018 2019 2020 2021 2022 level 2017 2017 1.2 1 1 1 1 1 Number of theatre visits in Estonia millio 1 millio millio millio millio millio n million Source: Estonian Theatre Agency n n n n n (2016) Number of productions 540 465 465 465 465 465 465 Source: Estonian Theatre Agency (2016) Number of new productions 196 180 180 180 180 180 180 Source: Estonian Theatre Agency (2016) Market share of the audience of 8.03 Estonian films in cinemas (%)* 7 8.03 12 10 9 9 9 (2017) Source: Estonian Film Institute
Number of cinema-goers (million)* 3.51 - - 3.0 3.0 3.0 3.0 3.0 Source: Estonian Film Institute (2017)
Translations from Estonian to 67 other languages (fiction/titles) 74 67 77 70 70 70 70 (2017) Source: Estonian Literature Centre Number of museum visits 3.5 (million)* 3.6 3.3 3.3 3.3 3.3 3.3 (2016) Source: Statistics Estonia Number of borrowings from 10 public libraries (million) 10 10 10 10 10 10 (2016) Source: Statistics Estonia
Number of people practicing folk culture 88,342 Source: Source: database of the Folk 85,000 88,342 85,000 85,000 85,000 85,000 85,000 (2017) Culture Centre Proportion of architectural monuments that are currently 75.5 75.5 74.5 75.5 75.5 75.5 75.5 used (%)* (2017) Source: National Heritage Board
48 Target level
Target Actua Base Indicator level l 2018 2019 2020 2021 2022 level 2017 2017 Participation of residents in cultural life, %* 84.4 84.4 84.4 84.4 84.4 84.4 84.4 Source: Statistics Estonia, study on (2015) participation in culture * According to the Development Plan 2019–2022 of the area of government of the Ministry of Culture, the target levels of indicators for 2018 were updated and new indicators were added.
Important activities to achieve the objectives of 2019–2022 Increasing the minimum wages of cultural workers with higher education to the average wages pursuant to the “Basics of Cultural Policy Until 2020”. 7.57 million euros will be allocated for an increase in the wages of employees working in institutions under the area of government of the MoC in 2019. The volume of films produced in accordance with the standard procedure increased by 0.35 million euros, reaching 3.8 million euros in 2018, in order to maintain and increase the market share of Estonian film. The volume of the support fund will increase by another 1 million euros in 2019, reaching 4.8 million euros per year. The additional one million euros enables the Estonian Film Institute (EFI) to increase the funding rate of grants paid to films and up to six films can receive funding per year. The ability of the Estonian National Broadcasting to improve the availability of high-quality television programme of ETV+ throughout Estonia will be supported by 0.3 million euros per year as of 2019. The construction of television studios of the Estonian National Broadcasting and the design work on the reconstruction of the Estonian National Library will commence with 1.5 million euros and 1.3 million euros (without VAT) respectively. Repair resources for foundations under the MoC and legal persons governed by public law are planned in the amount of 2.0 million euros per year as of 2019. Developing the concept for the shared repository of the conservation and digitisation centre and museums, and preparations for implementing the actions. Coordinated mass digitisation of cultural heritage and making it available in digital form shall continue. Developing the creative economy in order to connect the potential in the cultural and creative sectors to entrepreneurship. As of 2019, implementation of the cultural heritage reform is additionally supported with 1.4 million euros per year with the aim to transform the National Heritage Board into a competence centre and to ensure the long-term preservation of objects of cultural heritage in public interest. Completing the reorganisation of the network of museums and continuing the development of information systems in the area of administration of the MoC. Supporting the tradition of the song and dance festival will continue. XXVII Anniversary Song Festival and XX Anniversary Dance Festival ”Minu arm” will take place in 2019 and will be funded by an additional 1.8 million euros. In cooperation with Tallinn City Government and
49 MTÜ Spordiselts Kalev, a good faith cooperation agreement has been entered into in the hopes of updating Kalevi Stadium by the time of the dance festival of 2019. The reconstruction of the Kalevi Stadium is funded with a total of 6 million euros over the years 2017 to 2019 by the state. The e-book lending system is being developed under the leadership of the Estonian National Library, it will continue in accordance with the results of the business analysis carried out in 2018. Private owners will be provided grants for the restoration of vernacular architecture and maintaining their use or uptake. The grant is 0.1 million euros per year. Important investments include supporting the development of the theatre complex of Tallinn City Theatre with a total of 9.7 million euros per year from 2018 to 2020. The development of the Narva Castle is supported with foreign grants in the amount of 7.4 million euros during 2018–2021. Narva Castle is planned to be restored by the end of 2019, bastion Kristervall and the Western yard by the end of 2021. The development of the Haapsalu Episcopal Castle is supported with foreign grants in the amount of 4.4 million euros between 2018–2019. Haapsalu Castle will be restored by autumn 2019. Estonia shall participate at the Venice Art Biennale in 2019 and at the Architectural Biennale in 2020. 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. Harmonisation and consolidation of base and standard IT service in the area of government of the MoC, reconstruction of the production systems and monitoring of the Estonian National Broadcasting due to amendments to the law, and ensuring ICT administration costs arising form investments. By involving the area, the Basics of Cultural Policy Until 2030 are developed to become the main strategic basis for planning state activities in the area of culture. Documents pertaining to the development plan of the area of government are available here: http://www.kul.ee/et/organisatsioon/arengukava-ja-tooplaan.
2.5.2. Sports Objective and indicators: 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. Important activities to fulfil the target levels for 2017 and 2018 Increase of the wage support fund of youth coaches who have a higher professional level by 1.6 million euros to 6 million euros per year. This increases the current minimum wage of coaches in the amount of 637 euros to 850 euros per month in 2018. New basic principles are implemented in state funding of sports. In addition to increased labour cost support for coaches, the funding of activities in the area of sports was increased by a total of 1.0 million euros. As of 2018, the support model of sports referees is implemented to the extent of 0.5 million euros, the programme for regional sports centre is supported in the amount of 0.1 million euros, calls for applications in the area of sports was increased 0.4 million euros. Supporting the activity of the most important sports organisations (Estonian Olympic
50 Committee, Sports Medicine Foundation, Estonian Anti-Doping Agency, etc.). Moreover, supporting sports federations, incl. supporting youth sports clubs oriented towards achievement sports and supporting international elite sports competitions. The volume of the support is approx. 7 million euros in 2018. On 1 January 2018, a discount became applicable to employers, under which the sporting costs of employees are no longer considered a special discount to the extent of up to 400 euros per employee in a year. Implementation of the programme of basic swimming classes for children in order to increase swimming abilities is ongoing; the state has contributed 1.2 million euros per year for this purpose as of 2018 and it covers the expenses for using pools, transport of students and wages of instructors. Regional sports associations, regional hobby exercise events and implementation of campaigns aimed at facilitating national hobby exercise is supported to the extent of ca 1 million euros. Developing SA Tehvandi Spordikeskus (Tehvandi Sports Centre Foundation) (incl. Kääriku Sports Centre). Construction of the Kääriku Sports Centre commences in 2018, as it is granted 3.8 million euros for construction and development works in 2018. The renovation of the slipway building and workshop of Rääma Rowing Base commenced in 2018 as well to the total extent of 1 million euros (0.7 million euros in 2018). Target level Target Actua Base Indicator level l 2018 2019 2020 2021 2022 level 2017 2017
The proportion of people regularly engaged in hobby
exercise in the 16–64 age Data is Data is Data is group, % not not not 42 46 53 Source: National Institute for disclose disclose disclos 55 Health Development (survey (2016) d d ed of health behaviour among Estonia’s adult population)
The proportion of youths (up to 19 years of age)
doing sports in sports clubs 37.7 and schools in the entire age 30.5 32.5 37.8 37.9 40.0 40.0 group, %* (2017)
Source: Estonian Sports Register * Pursuant to the Development Plan 2019–2022 of the area of government of the Ministry of Culture, the target levels of the indicator for 2018 were updated. Important activities to achieve the objectives of 2019–2022 By systematic supporting of athletes and teams who are at the national team level, participation and preparation of promising national youth and adult teams for competitions is supported to the extent of 1 million euros in 2019 and 2020 and 3 million euros as of 2021. In addition to Olympic sports, the systematic support model will also include team sports and non-Olympic sports, as this has not been the case thus far. Regional sports centres are supported to the extent of 0.6 million euros per year, through which the availability and quality of health sports services improves.
51 New basic principles of state funding for sports will be implemented, and the tasks of funding will be transferred to the EOC. The Sports Act will be updated with the aim to clarify the granting and payment of scholarships and create an athlete grant for funding athletes. Ensuring the consistency of the support system for the labour expenditure of coaches working with children and young people, primarily at professional level 5–7. Developing SA Tehvandi Spordikeskus (Tehvandi Sports Centre Foundation) (incl. Kääriku Sports Centre) as a development centre for elite sports, thereby contributing to promoting both achievement sports and hobby sports. The total cost of the investment for 2018–2020 is 12 million euros.
52 2.5. Integration
2.5.1. Integration
Objective and indicators The Estonian society is integrated and socially coherent; people from different language and cultural backgrounds participate actively in the society and share democratic values. Important activities to fulfil the target levels for 2017 and 2018 Media activities supporting greater social coherence are carried out, supporting the fastening of values and attitude aimed at openness and mutual understanding in the society: activities aimed at the public in print, television, radio and interactive media, incl. ETV+ and Radio 4. Common information space and awareness of cultural diversity is supported with approx. 7.7 million euros annually from the budget of the MoC, 7.6 million euros of which will be annually allocated to the Estonian National Broadcasting. ESF helped create an opportunity for poorly integrated permanent residents to participate in Estonian cultural life. Technical equipment was provided for show institutions and museums for this purpose. Some partners are already using the technical equipment purchased, others are undergoing a trial period. As part of language training integration courses, the Integration Foundation shall be carrying out free language training to the extent of 0.4 million euros in 2018, activities of language and culture clubs are supported by 0.5 million euros. A total of ca 2.3 million euros shall be spent on these activities between 2018–2020. Furthermore, Estonian Language Houses will be established in Tallinn and Narva, which will organise free Estonian language courses and offer support measures to facilitate learning Estonian. The volume of activities is 2 million euros per year. In 2017, activities were launched for informing people with non-Estonian native language about career opportunities in the public sector. An international project was submitted for requesting EU funds for developing activities that foster diverse work places. Another Integration Monitoring that provided a detailed overview of developments associated with integration was completed in 2017. A national language survey, which was ordered in cooperation with the MoC and MoSA, will be completed in spring 2018. In 2018, a programme for culture and sports will be developed and launched, which will facilitate the cultural adaptation of foreigners, who are under international protection in Estonia, and their family members to Estonian society via cultural and sporting activities. Increasing the capability of Estonian cultural institutions in offering cultural services to new immigrants and citizens of third countries is also planned. The cost of the programme in 2018 is 0.1 million euros. Preparations for Integrated Estonia 2030 shall commence in 2018. Meetings will be held with target groups, ministries, researchers and other parties. An interim evaluation of IE2020 will be carried out in autumn 2018 as well. In cooperation with MoEAC, Enterprise Estonia and Ülemiste City, an International House will be developed and established to support better adaptation of new immigrants.
53 Target level
Targ Base et Actual Indicator level 2018 2019 2020 2021 2022 level 2017 2017
The proportion of people with a strong or rather strong citizen 39% identity among all people of non- 37% 38% - - Estonian nationalities 47% - 49% 51% Source: Estonian Integration (2017) Monitoring (EIM)
Important activities to achieve the objectives of 2019–2022 Implementation of activities supporting integration, incl. the integration programme’s cooperation and communication activities, will continue. Media activities supporting greater social coherence will be carried out, supporting the fastening of values and attitude aimed at openness and mutual understanding in the society: activities aimed at the public in print, television, radio and interactive media, incl. ETV+ and Radio 4. Common information space and awareness of cultural diversity is supported with approx. 7.7 million euros annually from the budget of the MoC. Various cooperation activities will be offered, incl. cooperation activities, student exchange and contacts between youths with Estonian native language and other native languages, for the purpose of involving them in active social life. Organising language training will continue. As part of the ESF language training integration courses, the Integration Foundation will be carrying out free language training to the extent of 0.9 million euros in 2018 and to the extent of 2.3 million euros in 2019–2021. A total of 8 million euros will be allocated to Estonian Language Houses between 2019–2022. General reorganisation and transfer of the Integration Foundation to Narva will be taking place in the context of the national reform plan in order to increase the role of the foundation as a competence centre of integration, integrate the activity of Estonian language houses with the organisation, improve the efficiency and quality of activities to be carried out, diversify current measures and improve the communication both in the public domain and with the partners. Multiculturalism of the Estonian society will be ensured and the activities of organisations representing different national cultures will be supported. The preservation and fostering of the heritage of national cultures and languages in Estonia will be supported, the sustainability and administrative capacity of umbrella organisations and cultural associations of national minorities will be increased and their development supported. The activity is supported with 0.7 million euros from the budget of the MoC. Counselling and information system services to better inform poorly integrated people, incl. new immigrants, will be developed and provided Considering the increase in the number of asylum seekers and beneficiaries of international protection in the EU and according to the European Action Plan on Migration that requires Member States to have urgent and long-term measures for supporting the adaptation and integration of beneficiaries of international protection, the MoC will be developing measures for beneficiaries of international protection in co-operation with partner ministries and organisations.
54 The documents pertaining to the sectoral development programme Integrated Estonia 2020 are available here: http://www.kul.ee/et/eesmargid-tegevused/kultuuriline-mitmekesisus/valdkondlik- arengukava-loimuv-eesti-2020
2.5.2. Citizenship policy
Objective and indicators Estonian Citizenship and Migration Policy facilitates the development of Estonia and ensures internal security, building on the knowledge-based and comprehensive concept of the area of citizenship and migration as well as on the open social and economic environment. Important activities to fulfil the target levels for 2017 and 2018 Programme “Balanced Citizenship and Migration Policy” In 2017, the proposals for amendments to the Citizenship Act made by the MoI, MoER, MoC, Integration Foundation, Foundation Innove, Estonian Unemployment Insurance Fund and the PBGB were approved by the GoR. On the basis of these proposals, persons aged 18–65, who wish to apply for Estonian citizenship in the future and who have lawfully lived in Estonia for at least 5 years, can request free Estonian language courses in order to bring their language proficiency to the level necessary for acquiring citizenship. Relevant amendments to the Citizenship Act shall be made in 2018 in order to implement the change.
Target level
Targ Base et Actual Indicator 2018 2019 2020 2021 2022 level level 2017 2017
Number of residents with undefined citizenship. 86,00 <82,00 <82,000 82,594 80,316 - - <82,000 Source: Police and Border Guard 0 0 Board (PBGB) (2016)
Important activities to achieve the objectives of 2019–2022 One-off voluntary language learning agreement will be developed and implemented for acquiring Estonian citizenship. A person who has lawfully lived in Estonia for at least 5 years can apply for Estonian citizenship under the agreement as well as receive free language courses and paid study leave.
2.6. Environment and energy
2.6.1. Environment
Objective and indicators Shaping a responsible attitude towards nature and preserving a clean and biodiverse living environment for the people of Estonia. Important activities to fulfil the target levels for 2017 and 2018
55 Supporting the preservation and recovery of protected species and habitats to the extent of 8 million euros. Payments have been made to the extent of 5 million euros in 2017, 499 hectares was added to the total surface area of habitats that received support and the number of objects purchased, established and reconstructed in connection with the protected species and habitats increased by 52 objects. The preparation of the 2020–2030 national programme for reducing emissions of specific air pollutants for improving air quality. Supporting owners of strictly protected forests outside the areas of Natura 2000 to the extent of 0.3 million euros per year. Conducting the project of the assessment of external impact of the exploitation of environment, converting the damages caused to the environment into money and making proposals for amending the regulation on environmental charges. Projects of preparing the reuse and recycling of waste are supported to the extent of 12 million euros and projects concerning resource efficient solutions are supported to the extent of 72 million euros in order to increase resource productivity. The call for applications of projects of resource audits continues, under which 0.2 million euros were given as grants in 2017. Resource auditors have been trained (24 trained persons, II training cycle is ongoing) and 479 people have participated in information events. 6 enterprises have received support from the resource efficiency measures in support of an investment and 37 in support of an audit. Supporting investments to the development of the tract of forested land to the extent of ca 4 million euros, incl. supporting improvement cutting in private forests in 2,115 cadastres in 2017. Providing grants to private forest lands located in the area of Natura 2000 to the extent of 8 million euros. In 2017, grants were paid to 47,928 hectares of private forest lands located in the limited management zone, special conservation area and projected area, and to 10,535 hectares of private forest lands located in the special management zone in the area of Natura 2000 in the amount of ca 4 million euros. Supporting the provision of high-quality drinking water and appropriate collection wastewater for residents with 79 million euros, incl. funding of projects to the extent of 3 million euros in 2017. 10,000 persons were provided the opportunity to join the public water supply and sewage network thanks to the funded projects. Supporting the management of the risk of flooding to the extent of 0.5 million euros. As a result of the project, surveys shall be completed and projects prepared in up to ten areas with high risk of flooding. Target level Base Target Actual Indicator level level 2018 2019 2020 2021 2022 2017 2017 Response capacity to a marine pollution incident within 24 hours, km² 2.4 2.4 2.4 2.4 2.4 2.4 2.4 2.4 Source: MoI Protection of biodiversity and 18.5 At least 18.8 At least 18.86
6 The target level has changed due to amending the Development Plan of the area of government of the MoE.
56 Target level Base Target Actual Indicator level level 2018 2019 2020 2021 2022 2017 2017 natural resources (proportion of 18.7 protected areas in total land area), % Source: MoE Proportion of wastewater collection areas with a pollution load of more than 2000 human equivalents compliant with 87 91 91 926 936 956 986 100 wastewater collection and treatment requirements6, % Source: MoE
Total greenhouse gas emissions in sectors outside the trading system, 7 7 7 7 8 8 million tonnes of CO2 equivalent7. 6.14 5.93 6.02 5.96 5.99 6.02 - - Source: MoE Proportion of consumers who receive potable water complying with the requirements from the 98 99 99 99 100 100 100 100 public water supply network, % Source: MoE Proportion of recycling municipal waste in total municipal waste6, % 33 40 32 356 416 456 50 50 Source: MoE
Resource productivity: ratio of GDP to domestic raw material 6 6 6 6 use6, (eur/kg) 0.42 0.44 0.48 0.48 0.50 0.51 0.52 0.55 Source: Eurostat
Important activities to achieve the objectives of 2019–2022 Increasing compensation for nature conservation restrictions, incl. acquiring private lands for the state and entering into protection contracts for key biotopes 0.6 million euros. Continuing to pay support from the funds to the owners of strictly protected forests outside the areas of Natura 2000 to the extent of 0.6 million euros. Implementing the Development Plan of Adapting to the Effect of Climate Changes 2030 and the “Basics of Climate Policy”.
7 Target level has changed in regard to the renewal of the development plan of the area of government of the MoE and correction of target levels determined by the European Commission for 2017–2020. The actual level of 2017 (currently a prognosis) will become clear on the basis of the data of the greenhouse gases inventory 2019. 8 Target levels of indicator “Total greenhouse gas emissions in sectors outside the trading system” for 2021–2030 are determined by the European Commission with the implementing act of 2020 after the inventory data of 2018 has been established.
57 Eliminating the two reactor sections of the former nuclear site in Paldiski and conducting evaluations of environmental impacts of establishing a landfill for radioactive waste and carrying out necessary surveys thereof. Implementation of the programme for reducing emissions of air pollutants for improving air quality. Implementing the measure programme of the water management plan of Viru sub-basin to the extent of 25 million euros, incl. tidying the Kroodi Stream and the bodies of water in the Purtse River basin. 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. Supporting the principles of circular economy to the extent of 18 million euros: developing a circular economy strategy, 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 81 million euros. Organisation of abandoned and disorderly excavated lands and subsoil. Incl. the organisation of 2,000 hectares of abandoned peat production areas by State Forest Management Centre (RMK) to the extent of 5 million euros. Developing a national Base Mapping Plan and the Applied Research on Earth’s Crust and Research and Development Plan in cooperation with the MoEAC and the State Geology Service in order to ensure high-quality information on the earth’s crust complying with the state needs. 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. Implementation of the Maritime Strategy to achieve good environmental conditions in marine areas. Supporting projects for ensuring clean potable water and compliant treatment of wastewater being led back to the environment to the extent of 96 million euros. Supporting the management of the risk of flooding to the extent of 4 million euros. Ensuring availability of appropriate land cadastre data to the public. Conducting a 10 million euro investment project in order to make Kukruse coal-mining stock safe for the environment and the health of people. Making amendment proposals to the system of environmental charges on the basis of the results of the project of the assessment of external impact of the exploitation of environment. Documents pertaining to the development plan of the area of government of the MoE are available here: http://www.envir.ee/et/arengukava.
2.6.2. Energy
58 Objective and indicators Energy supply with a reasonable price and availability as well as low environmental impact Important activities to fulfil the target levels for 2017 and 2018 In 2017, the share of renewable energy in end consumption of energy increased to the extent of more than 29%. Amendments to the Liquid Fuel Act were approved, under which motor fuels with liquid biofuel mixed into it will be sold at filling stations in Estonia as of 1 May 2018. In 2017, funding of energy measures, incl. modernising district heating networks and street lighting and promoting the commission of gaseous fuels in transport, continued from EU’s Cohesion Policy Funds. A total of 95 projects were funded from these measures to the extent of 27.3 million euros. The first statistical commerce agreement on renewable energy was concluded between Estonia and Luxembourg in 2017. In October 2017, the Government of the Republic approved the „Estonian Development Plan for Energy Economy 2030“9. The constructor of the gas pipeline Balticconnector between Estonia and Finland was determined in 2018, the construction of the pipeline will commence in 2019. Target level Target Base Actual Indicator level 2018 2019 2020 2021 2022 level 2017 2017
Proportion of renewable energy in end consumption of energy, incl. transport fuels, % 28.8/0.4 29/0.4 - 29/2 29/5 29/10 29/10 29/10 Source: Eurostat
End consumption of energy, PJ 121.7 119 - 119 119 120 119 119 Source: Statistics Estonia
Proportion of imported energy, % 6.8 20 - 20 20 20 20 20 Source: Eurostat
Energy intensity MWh/€ 1,000 of 3.6 GDP 3.7 - 3.5 3.3 3.2 3.1 3
Source: Statistics Estonia, KE36
Important activities to achieve the objectives of 2019–2022 Supporting the supply and refuelling of biomethane in filling stations and use of regular service buses using biomethane (29 million euros, incl. 7.2 million euros of CF money and 21.8 million euros of auction revenue of the EU CO2 trading system). The renovation and/or construction of district heating boilers and transitioning to alternative fuel will be supported (15,9 million euros, CF).
9 https://www.mkm.ee/sites/default/files/enmak_2030.pdf
59 The renovation of a depreciated and ineffective heat pipeline and/or the construction of a new heat pipeline will be supported (19.9 million euros, CF). Replacement of district heating systems with local heating solutions (4 million solutions, CF). The renovation of the infrastructure of street lighting for the purpose of energy savings will be supported (36,3 million euros, CF). The reconstruction of apartment buildings for the purpose of energy savings will be supported (122 million euros, CF). New measure will be created for supporting investments in the housing stock of local governments (47.5 million euros). Financial support for the housing sector in order to save energy (incl. support for the modernisation of electrical installations of dwellings, support for raising awareness about energy savings and for the conduct of studies, support for increasing energy efficiency of small dwellings, as a total of 9.3 million euros). Energy-related research and development activities are funded (1.6 million euros). Supporting the uptake of solar panels will continue (4 million euros).
2.7. Local governments and regional policy
2.7.1. Regional development and rural life
Objective and indicators Better use of prerequisites for development of active areas for economic growth and availability of benefits necessary for increasing the quality of life. Important activities to fulfil the target levels for 2017 and 2018 County action plans for strengthening their competitiveness and sustainable development action plans of the five largest urban regions were completed and are the basis for applying for support funds for the region’s development. The relevant methodology has been developed and published for the preparation of marine area plans; the marine area plan of Pärnu has been adopted. 2,533 projects were given grants with a total cost of 114.5 million euros for implementing regional programmes, incl. 21.1 million euros for improving regional competitiveness for investments (18 projects) and 16.8 million euros for the sustainable development of urban areas (26 projects). The largest number of projects, i.e. 1,428 projects, were implemented under the low density area programme (1.8 million euros). The funding allocated for Estonian partners under the European territorial cooperation programmes was 59.6 million euros. The development programmes of Setomaa and Peipsiveere will continue to boost regional entrepreneurship by promoting local cultural heritage (volume of grants is 0.5 million euros per year). Activity grants of the Mulgi Cultural Institute and Võrumaa Institute help ensure the development of handicraft entrepreneurship and introduction of local cultural heritage (0.05 million euros per year). Implementation of the LEADER measure of Rural Development Plan for 2014–2020 and the measure for diversifying economic activities in rural areas continue.
60 For improving the fishing economy,10 grants have been appointed to projects chosen by local communities to the total extent of 7.73 million euros as at the end of 2017. Renewal of fishing ports and implementation of the measure of trawler ports will commence.
Target level Targe Base t Actual Indicator level 2018 2019 2020 2021 2022 level 2017 2017 Entrepreneurial activity in rural areas 55 (companies per 1,000 55 65 6511 65 65 65 65 (2015) residents) Source: Statistics Estonia has increase d in 11 counties GDP growth of all counties in growi growin growin growin growin growin (in current prices) compari ng g g g g g Source: Statistics Estonia son with the base level of 2012 (2016)
Important activities to achieve the objectives of 2019–2022 In order to increase entrepreneurial activity and employment in all Estonian regions, the activities of the regional competitiveness measure (156 million euros, ERF) and measure for the sustainable development of urban areas (95 million euros, ERF) will be implemented12 . Implementation of the European Territorial Cooperation (Estonia-Latvia, central Baltic Sea region, Baltic Sea region, a total of 903.5 million euros) and Estonia-Russia, 16.8 million euros, programmes with Estonian participation. The aforementioned programmes contribute to the improvement of the living quality of people who live in border areas through the provision of better public services. Completing the spatial plan of the entire marine area (2020). The Ida-Viru county programme with the cost of 15.8 million euros is implemented in order to halt the rapid decline of the region’s population, increasing the proportion of youths in the population and boosting the growth of regional GDP through increasing business activity. Implementing the projects chosen by the local community on the basis of the approved LEADER development strategies of 2015–2016 in a total amount of 90 million euros will continue.
10 Measure “Implementation of the regional development strategy guided by the community” of the implementation plan of EMFF 2014–2020 11 Indicator was adjusted as of 2018 on the basis of the actual achievement level of 2017 12 http://www.fin.ee/struktuuritoetuse-meetmed
61 For regional promotion of fishery, projects chosen by local communities will continue to be supported from the European Maritime and Fisheries Fund with a total budget of 27.3 million euros. Regional programmes and grants (incl. the programmes for Setomaa, Peipsiveere, Vana- Võromaa and Mulgimaa) are implemented, taking into account the regional development potential and specifics and diversifying the creation of new jobs in rural regions. The Estonian Regional Development Strategy 2014–2020 is available here: http://www.fin.ee/regionaalareng-ja-poliitika Estonia Rural Development Plan (RDP) 2014–2020: http://www.agri.ee/et/eesmargid-tegevused/eesti-maaelu-arengukava-mak-2014-2020
2.8. Rural life
2.8.1. Agriculture and fishing
Objective and indicators Estonia has viable and competitive rural regions with agricultural and fishing economy, ensuring safe food and consumer satisfaction. Important activities to fulfil the target levels for 2017 and 2018 In 2017, direct support and transition support was granted to the total extent of 143.2 million euros and exceptional market organisation support (including exceptional adaptation support to the livestock farming sector) was granted to the extent of 16.5 million euros. In order to increase preparedness for the risk of epidemics and animal diseases, disease eradication programmes and preparedness plans have been developed, under which trainings have been conducted in order to ensure the readiness of state systems as well as the agricultural sector for emergency and exceptional situations. Under the curation of the Veterinary and Food Board, 7 tableside exercises on the topic of African swine fever were carried out in different local regions across Estonia in 2017. Most of the measures of the operational programme of the European Maritime and Fisheries Fund 2014–2020 (hereinafter “EMFF”) were launched in 2017. The focus of the given period is on the enhancement of local fishing and aquacultural products and facilitating their direct marketing, various cooperation forms in implementing innovation measures, achievement of higher quality of local products and greater market force. In 2017, the Estonian Food Sector Promotion Action Plan 2018–2020 was developed, its objective is to increase the proportion of the export of enhanced goods in the export of the Estonian food sector, which would improve the competitiveness of the Estonian agricultural sector and facilitate economic growth. In 2017, activities of agricultural operational surveys, maintenance of the genetic resources of agricultural crops and plant breeding continued for the implementation of research-based agricultural and fishing policies, and the support measures of the Estonia Rural Development Plan 2014–2020 (RDP) and the European Maritime and Fisheries Fund 2014–2020 (EMFF) were implemented. The volume of breeding programmes for more disease-resistant plant varieties suitable for the changing environmental conditions of Estonia, also taking into consideration global challenges (climate change) and needs of the society, were increased in order to ensure food security.
62 Laboratory equipment and sampling technology will be updated and modernised in stages which ensures appropriate conditions for national supervisory activities and high-quality conduct of laboratory analyses. In 2018, MoRA began, in cooperation with the MoE and other partners, the preparation of the development plan for the area of agriculture and fishery for up to 2030, which will become the programming input for the development and support measures of the next period (2021+) of the RDP and EMFF connected with European funds.
Target level
Targe Base Actual Indicator t level 2018 2019 2020 2021 2022 level 2017 2017
Average annual increase in net added value per unit of labour force (compared with the -24.4 2.5 previous year) in 3.0 (2016) 3.0 3.0 3.0 3.0 3.0 agriculture, % (2015)
Source: FADN (FADN 2017 actual data December 2018)
Added value per employee 21,694. in fishery (EUR) 22,242 21,10 21,10 5 21,150 21,200 21,200 21,200 0 0 Source: ESA (2017 data (2015) (2016) received in Q4 2018)
Important activities to achieve the objectives of 2019–2022 Food safety monitoring and supervision shall be extended with additional funding of 0.4 million euros per year. Enhancement of control mechanisms will ensure that the food available in the market is safe, consumable and equipped with relevant information, the knowledge of the food processor regarding food safety and its importance and impact on people’s health will improve, export increases and the consumers’ trust towards the Estonian food control system shall increase thanks to a functional supervisory system. Enhancement of supervisory activities in the area of plant health and organic agriculture and ensuring the certification of seeds (8 million euros) will help create conditions for utilising the competitive advantage of Estonia’s clean environment and facilitating export of organic products. The volume of laboratory services necessary for identifying the quality of propagating material of plants and for making supervisory decisions in regard to plant health and organic agriculture will be increased, research and development activities for breeding plant varieties that are adapted to the Estonian climate and for developing appropriate agrotechnologies shall be expanded, the conduct of registration tests, testing of economic value for cultivation and use and follow-up tests on plant varieties as well as supervision over organic production and marketing will be ensured. The support measure for bee colonies shall be launched (0.5 million euros per year), which will facilitate preservation of biodiversity and higher yields from agricultural crops. Registering bee colonies will help to improve the surveillance and prevention of bee diseases,
63 the location information of bee colonies is important for organising plant protection operations as well. Additional supporting of internationally recognised, efficient and practical veterinary training shall ensure the existence of qualified lecturers and graduates in the veterinary field, which is a prerequisite for the protection of the health and wellness of animals, actions regarding the protection of food safety and human health in the state as well as for achieving the development objectives of public health, agriculture and the food industry. Support granted to the Estonian University of Life Sciences for organising the veterinary studies is 0.3 million euros per year. The construction and interior decorating of the Estonian Crop Research Institute will commence (1.9 and 1.2 million euros respectively) and small-scale property restoration works will be carried out to the extent of ca 1.2 million euros (incl. Estonian Agricultural Museums Foundation in Ülenurme, Agricultural Research Centre in Kuusiku and Viljandi, Estonian Veterinary and Food Laboratory in Tallinn). Development plans of the area of government of the MoRA: http://agri.ee/et/eesmargid-tegevused/valdkondlikud- arengukavad-ja-strateegiad
EMFF 2014–2020: http://www.agri.ee/et/eesmargid-tegevused/euroopa-merendus-ja-kalanusfond-emkf-2014-2020 Development plan of the area of government of the MoRA: http://www.agri.ee/et/ministeerium-kontakt/arengukava
RDP 2014–2020: http://www.agri.ee/et/eesmargid-tegevused/eesti-maaelu-arengukava-mak-2014-2020
64 2.9. Internal security and legal space
2.9.1. Internal security Objective and indicators Ensure that 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. Smart, optimal and effective solutions shall improve the living environment, reduce risks to life, health, property and the constitutional order, and ensure quick and professional help. Important activities to fulfil the target levels for 2017 and 2018 Securer Communities In order to better serve communities, the number of district police officers was increased in 2017 and their districts were brought into compliance with the new borders of local governments, so that each rural municipality - city has at least one district police officer who is focused on empowering their community and helps to resolve security issues. Funding of volunteers has increased 0.5 million euros. The additional funding supports the purchasing of equipment to voluntary rescuers, maintenance of the equipment and conduct of trainings and prevention work. The focus of the development of prevention work was on safety training. A swimming course was included to the curriculum of the first stage of basic education in general education schools in order to improve the water safety skills of youths. Handbooks for teachers on the study results, updated topics and a set of exercises on the topic of “Health and Safety” ordered from the University of Tartu were completed in 2017. An interactive tool13 that helps to teach safety-related topics in kindergarten and schools in a practical manner and by way of integrating it into other subjects was created. In 2017, a curriculum was prepared for introducing safety topics to future teachers as either a voluntary course or as part of an advanced training course in the Tallinn or Tartu university. The preparation of the curriculum in cooperation with higher education institutions continues in 2018. The results of the pilot project carried out by the Pärnu precinct are published in spring 2018, its objective was to ensure immediate safety of a victim of domestic violence by removing them from the home of the abuser and taking of other appropriate aid measures in regard to the parties. Resolving of practical, legal, and resource-related issues will begin after the pilot project. Ensuring Efficient Rescue Capability The funding of European Union Funds 2010–2016 has contributed to the sustainability of the RB to the extent of 40.2 million euros, the largest investment was made in 2016 in support of rescue equipment (46 basic cars, 26 tank trucks, 8 container trucks and 14 tank containers; the equipment was delivered to the RB in 2016 and 2017) in the total extent of 23.6 million euros. Assurance of rescue capability is still related to large investments. Therefore, 3 million euros was allocated for 2018–2021 for updating the personal protective equipment of rescue workers and explosives removal experts.
13 The material is in continuous development. The current version is available in the e-koolikott at https://e- koolikott.ee/portfolio?id=9443
65 A new multifunctional vessel and a monitoring aircraft will be delivered in 2018 with the help of the PBGB CF. More Certain and Faster Organisation of Assistance As of autumn 2017, the Alarm Centre is equipped with the eCall processing software and the Alarm Centre is prepared to process eCalls on the same principles as other emergency calls. ECall, i.e. system of automatically transmitting emergency calls from vehicles, enables to arrive to the scene quicker in the event that the driver or passengers who have got into an accident are unconscious or unable to call for help for some other reason. A survey will be carried out in 2018 among the population on which channels they prefer to use when contacting the state for receiving non-emergency assistance. The aim of the survey is to find out whether the uptake of a national short code meets the expectations of the population. Preventing Crises and Increasing Preparedness for Emergencies The civil defence task force continued operation and completed the civil defence concept and communication strategy. In 2017, three sustainability risk analyses and trainings for drafting plans have been organised for entrepreneurs, in which 90 representatives of vital service providers participated. Estonian Academy of Security Sciences prepared a package of advanced trainings for enterprises and legal persons in order to better implement the Emergency Act. Increasing Internal Security Necessary equipment was purchased from the funds of EU’s Internal Security Fund and the state budget for improving capability in the area of explosives removal and CBRN (chemical, biological, radiological and nuclear defence). The construction of a new Northern region complex (bomb force - CBRN), central explosive substances store, and the preparation works for the construction of the Northern region’s detonation site are currently ongoing under the ISF (Internal Security Fund) project. The new database DEMIS (demining information system) was completed and implemented in 2017. In 2018, the booking information system of air passengers (PNR) will be adopted into the Estonian legal space. Balanced Citizenship and Migration Policy An overview aimed at new immigrants was prepared in 2017 in regard to services for supporting adaptation, which are in most need of development in 2017–2018 (concept of a support network). In this context, the MoI and the PBGB developed a counselling service on foreign migration. Offering of adaptation trainings was continued and new developments were prepared via the information platform of the adaptation programme for new immigrants. Reliable and Secure Identity Management Last year’s biggest challenge in relation to the issuing of identity documents was the handling of the ID-card crisis that occurred in autumn 2017. On 30 August 2017, the public became aware that a security risk has been discovered in regard to ID-cards, residence permit cards and digi-IDs that have been issued since autumn 2014. A work force was brought together in order to resolve the crisis and they developed a new m-ID application scheme. A pilot project launched by South Korea for issuing e-resident digi-IDs via external service providers. In the case it proves successful, the opportunity will be expanded to other countries and external service providers can then be used to issue documents to Estonian citizens as well.
66 More Efficient Border Administration Preparatory work for the construction of the eastern border continued in 2017. Land border infrastructure and technical monitoring and surveillance system projects were completed. Two test sections were built with all necessary monitoring and surveillance equipment with a total length of 3.5 km during design works. A new intergovernmental agreement will be prepared between Estonia and Latvia for the maintenance of the national border in 2018. Target level Target Base Actual Indicator level 2018 2019 2020 2021 2022 level 2017 2017 The assessment 92% of residents of Estonia’s 89 internal growing 94% Growing 92% 92% 92% security, % (2014) Source: Eurobarometer The sense of danger among Estonia’s Not - Decreasing Decreasing Decreasing 30% 30% 30% residents, % measured Source: Ministry of the Interior The trust of residents in the Police and Border Guard PBGB: Board (PBGB), 84%; PBGB: PBGB: PBGB: PBGB: the Alarm Centre PBGB: 86% PBGB: PBGB: ≥85% ≥85% ≥85% RB: (AC) and the ≥85% ≥85% ≥85% 95% RB: RB: RB: RB: Rescue Board RB: ≥95% 96% RB: ≥95% RB: ≥95% ≥95% ≥95% ≥95% (RB) AC: 89% AC: ≥90% AC: AC: ≥90% AC: ≥90% AC: AC: AC: Source: Police and 93% ≥90% ≥90% ≥90% Border Guard (2014) Board, Rescue Board, Alarm Centre
Fatalities from Indicator accidents, for 2017 74 poisonings and will be 71 (indicator traumas per published 70 65 61 61 61 for 2016 100,000 residents (2014) in was 65) Source: Statistics summer Estonia 2018 Coverage of Estonia’s eastern border with 60% improving 54% improving 100% 100% 100% 100% electronic and (2014) technical surveillance, %
67 Target level Target Base Actual Indicator level 2018 2019 2020 2021 2022 level 2017 2017 Source: Police and Border Guard Board
Important activities to achieve the objectives of 2019–2022 The systematic nature, clear roles and liability and sufficient means are ensured for the activities of universal prevention. In 2019, foreign funding will be granted for the aforementioned prevention programmes that have verified effects. The availability of new and necessary prevention programmes has to be initiated and ensured in order to influence, first and foremost, children, youths and adults who have committed offences. By 2021, the risk assessment instrument for victims of domestic violence has been adopted in all police stations. The objective is to ensure immediate safety of a victim of domestic violence by removing them from the home of the abuser and taking of other appropriate aid measures in regard to the parties. The new monitoring aircraft has been delivered with the help of the European Union’s Cohesion Fund and has been successfully implemented. The new multifunctional pollution response vessel has been delivered with the help of the European Union’s CF and has been successfully implemented Conduct the survey “Analysis of Services Provided by the State by Use of Civil Aircrafts and the Tasks of Public Authorities” with the aim to develop an optimal solution for Estonia with a 20-year-long perspective in regard to nationwide services provided by civil aircrafts. The necessary information technology environment is prepared in order to launch a crisis information line. The activities of the civil defence concept resulting from the work of the civil defence task force that have been approved by the GoR in February 2018 are implemented wherever possible. New plans for resolving emergencies must be completed by 1 July 2019 at the latest. From July 2018 until July 2019, all institutions responsible for handling emergencies will prepare a plan or plans for resolving emergencies in regard to the emergencies that are in their area of government. Employees of local governments are trained in cooperation with the RB, Estonian Academy of Security Sciences, MoI and the Government Office in order to achieve appropriate readiness of local governments in preparing for and resolving emergencies. The task for 2019–2022 in the area of supporting the adaptation of new immigrants is to continue offering the adaptation programme, implement the concept of support network in order to increase the capacity of institutions that offer services to new immigrants and develop services. Communication on the topic of new immigrants and the development of the information platform for new immigrants are important as well. Moreover, attention must be paid to institutions and organisations engaged in the public, private or third sector, which are aimed at new immigrants or come into contact with new immigrants, in order to increase their awareness of the existence of the adaptation programme and its usefulness. It is important to
68 continue and enhance the cooperation between institutions and organisations engaged in the area of adaptation and integration. High-quality and available Estonian language courses can also be considered one of the most important factors to facilitate adaptation and long-term integration. There is a constantly growing need and demand for this, however, the market is currently unable to meet the demand. The development of an Automatic Biometric Identification System (ABIS) is planned to make the application and receipt of identity documents as easy and convenient as possible for people. New implementing provisions must be prepared and large-scale developments must be carried out in regard to the population register for the enforcement of the new Population Register Act which enters into force in 2019. In the second half of 2019, a new project will be launched to make people’s lives easier, during which the registration of death will be carried out automatically and data will be automatically transferred from the medical register to the population register. One of the most important development activities is still the construction of the eastern border to the planned extent. Preparations for the adoption of the Entry/Exit System (EES) and the European Travel Information and Authorisation System (ETIAS). Narva College of the Estonian Academy of Security Sciences will be built and the new study building of the study complex on Kase street in Tallinn will begin operation. Information about the Internal Security Development Plan is available here: https://www.siseministeerium.ee/et/stak.
2.9.2. Legal order Objective and indicators: A country with legal certainty, functioning well institutionally, having low crime levels and a high- quality criminal justice system Important activities to fulfil the target levels for 2017 and 2018 Prevention of offences committed by youths: implementation of the reform of the system of minor offenders – it is possible to replace the taking into custody of minors with placement into a closed childcare institution and ensure implementation of special treatment principles for minors according to their age at the time of committing the offence. Minor Committees will seize to exist as of the beginning of 2018. Ensuring the modernisation of prisoners and provision of conditions complying with the requirements (new Tallinn Prison, general requirement for chamber space not less than 4m² per person) – Tallinn Prison will be completed in 2018. The cost of the investment is 95 million euros. Continuing the implementation of the MDFT (Multi-Dimensional Family Therapy: family- based intervention system which is intended for youths that consume psychoactive substances for addressing abnormal behaviour and related behavioural and emotional problems) programme intended for young offenders to prevent violence. The cost is 0.24 million euros (in the budget of MoSA). Increasing the flexibility and effectiveness of the system of penalties through wider implementation of electronic surveillance.
69 Developing a suitable system for offenders in need of treatment (sexual offenders, addicts, alcoholics) as a measure decreasing repeat offending. Conducting the supervision of the project for more effective administration of justice over the fulfilment of agreed objectives in all courts of the first and the second instance. The capability of adjudicating cases was positive in all courts and types of proceeding. Transition to paperless judicial proceedings – entered into force in the Tallinn administrative court and Tallinn Circuit Court as of 13 March 2017 and in Harju County Court in regard to the area of placement into a closed institution as of 1 September 2017. Construction of a new building in order to increase the safety of the courthouse of Harju County Court (Harju County Court will begin judicial proceedings in the new courthouse in the 3rd quarter of 2018). The cost of the investment is 35 million euros. Construction of the memorial to the victims of communism in Maarjamäe, the memorial will be completed in autumn 2018. The cost of the investment is 7.5 million euros. Improving the quality of legal assistance provided by the state and ensuring the availability of legal counselling to the extent of 4.1 million euros per year – the restrictions of payment provisions that resulted in the most injustice brought out by the Estonian Bar Association were alleviated by means of state legal aid with the aim to provide more equal payment to advocates and enhance their interest towards the field. Conducting a revision of insolvency law and corporate law – analyses have been completed by experts under the conduct of the revision of insolvency for the amendment of the Bankruptcy Act. The revision of corporate law has continued, corporations can be managed in a foreign country as of 2018. Target level
Base level Target level Actual 201 201 202 202 Indicator 2022 (last known) 2017 2017 8 9 0 1
Corruption Perceptions Index of Transparency 70 69 71 >69 >69 >69 >69 ≥71 International (2015) Source: Ministry of Justice
Proportion of victims of a crime among residents (in the 8% <10 <10 <10 <8 past 12 <10% 5% <7% (2015) % % % % months), % Source: Ministry of Justice The productivity of More effective The The solving matters was The productivity of solving administration productivity productivity positive in all courts of matters is positive in all courts of justice in of solving of solving the first and the second and all types of proceedings; judicial matters is matters is instance in 2017, except appeal procedures in any county proceedings positive in all positive in in civil cases: court, administrative court or a (productivity courts and all all courts Harju County Court court of second instance are
70 Target level
Base level Target level Actual 201 201 202 202 Indicator 2022 (last known) 2017 2017 8 9 0 1 and duration of types of and all types (98.2%), Pärnu County generally no longer than 365 proceedings); proceedings; of Court (98.8%) and days. the indicator appeal proceedings; Tallinn Circuit Court has changed as procedures in appeal (93.3%); in criminal of 2015 any county procedures procedure matters: court, in any Harju County Court Source: Ministry administrative county (99.1%) Pärnu County of Justice court or a court, Court (99.3%) and court of administrati Tallinn and Tartu Circuit second ve court or a Court (98.0%); instance are court of in administrative generally no second matters: longer than instance are Tartu Administrative 365 days. generally no Court (95.0%). longer than Proportion of long- (2015) 365 days. term procedures in civil matters: 13.8% in Harju County Court, 9.3% in Pärnu County Court, 8.7% in Tartu County Court, 10.9% in Viru County Court, 0.8% in Civil Chamber of Tallinn Circuit Court and 1.4% in Tartu Circuit Court. Proportion of long-term procedures in general procedure matters was 12.9% in Harju County Court, 1.7% in Pärnu County Court, 10.9% in Tartu County Court, 15.8% in Viru County Court and no matters in the Criminal Chamber of circuit courts had been pending for over 365 days. Proportion of long-term procedures in administrative matters was 0.5% in Tallinn Administrative Court and 5.8% in Tartu Administrative Court and 5.5% and 8.4% in the Administrative Chambers of Tallinn and Tartu circuit courts respectively. Number of people who died 40 37 35 <30 <30 <25 <25 <25 from violent (2015) attacks
71 Target level
Base level Target level Actual 201 201 202 202 Indicator 2022 (last known) 2017 2017 8 9 0 1 Source: Ministry of Justice
Confiscated criminal proceeds in high-priority offences have Above the 2 million increased level of 3.5 million Above the level of 2017 (2014) compared with 2014 the level of 2014 Source: Prosecutor's Office
Duration of pre- trial Victim: 4.6 Victim: less Victim: proceedings of a months; Victim: than 4 Victim: less than 4 criminal matter (2014) less than 3.5 months 6.4 months months with a minor months Suspect: 3 victim and a Suspect: Suspect: 3.4 months Suspect: minor suspect months less than 2.5 less than Suspect: (2015) months 2.5 months less than 2 months Source: Ministry of Justice
Important activities to achieve the objectives of 2019–2022 Reducing the recidivism of minors who have committed offences (minors out of the prison: sending to a specialised school, continuing the implementation of the Multi-Dimensional Family Therapy (MDFT) system). Prevention of offences committed by youths – continuing the implementation of the reform on the system of juvenile offenders (removal of minors from prisons, increasing the processing speed of criminal cases that involve juvenile suspects or victims, ensuring age-appropriate treatment of minors). Ensuring special treatment of minors during and after proceedings (probation supervision, victim support, specialisation, cooperation between agencies, improving the competence of specialists). Enhancing the competence of the Prosecutor’s Office in processing prioritised crimes (topics regarding economy and cyber area) with 0.3 million euros per year. Implementing a suitable system for offenders in need of treatment (sexual offenders, addicts, alcoholics) as a measure decreasing repeat offending. Implementing the system on the basis of the results arising from the analysis carried out on the creation of a system for electronic imprisonment. Provision of treatment for hepatitis C, HIV and AIDS in prisons.
72 Prevention of repeat offences by offenders who have committed serious crimes, incl. implementing spatial specific prevention (efficient removal from the country of persons with foreign citizenship who have committed crimes) and changing the treatment system. Supporting the return of the prisoner to the society through as smooth a process of release from prison as possible, incl. through an increase of the number of prisoners released through open prison and probation supervision as well as the implementation of the support service for persons released from prison (housing, counselling and support person services) across Estonia (the project of ESF) Total amount of 2.3 million euros for 2019–2022. Ensuring speedier pre-trial proceedings: transitioning to a fully digitalised criminal procedure, enabling the use of digital evidence, preventing duplication upon collecting evidence in judicial and pre-trial proceedings, organising the institution of a preliminary investigation judge. Continuing the transition to paperless judicial proceedings with the objective to remove paper files that hold judicial meaning in civil and administrative court proceedings by the end of 2019 at the latest and to enable judges, court officials and parties to a proceeding work with digital court files. Carrying out supervision in the project for more effective administration of justice over the agreed objectives in all courts of the first and the second instance – the capability of adjudicating cases is positive in all courts and types of proceeding. Improving the quality of state legal aid, involving young advocates in the system and improving the availability of legal counselling. Developing an organised, clear and systematic corporate law that ensures a stable legal framework for entrepreneurs and keeps up with the development and internationalisation of economy. The development plan for the area of government of the Ministry of Justice is available here: https://www.just.ee/et/ministeerium-kontaktid/arengukavad-ja-tooplaanid
2.10. Social policy and health
2.10.1. Family policy Objective and indicators: Estonian people are a growing nation, and the welfare and living quality of children and families have improved. Important activities to fulfil the target levels for 2017 and 2018 A regulation entered into force to the extent of 1.03 million euros per year in 2018, which reorganised the handling of children who have committed offences and established the service of closed childcare institutions (Minor Committees were disbanded). The service is intended for children whose behaviour seriously affects their own life, health and development as well as the life or health of other persons, and who cannot be helped without restricting the child’s freedom of movement. Substitute home services and family-based care services organised by the state were reshaped into substitute care and aftercare services organised by local governments. Nationwide register for care families was created as of the beginning of 2018. 0.8 million euros have been allocated from the 2018 budget of the MoSA for improving the quality of substitute care and facilitating
73 family-based substitute care, whereas 17.8 million euros has been allocated from the support fund of local governments for organising substitute and aftercare services. A nationwide children’s house service was launched in 2018 to the extent of 0.2 million euros, which offers diverse assistance, in cooperation with the areas of social affairs, legal protection and healthcare, to children who are either suspected or confirmed victims of sexual abuse. The amendment to the State Family Benefits Act prescribed an increase in the child allowance as follows: 55 euros (additional funds 28.7 million euros) starting with 1 January 2018 and 60 euros (additional funds 42.9 million euros) starting with 1 January 2019. In 2017, allowance to families with many children entered into force, providing an extra 300 euros per month in addition to the existing child allowance to families with 3–6 children. Families with 7 or more children will receive an additional 400 euros a month. 73.2 million euros have been planned for allowances to large families in 2018. Maintenance allowance scheme to the extent of 5.3 million euros launched in January 2017. The state ensures the accrual of a 100-euro maintenance allowance for the child per month, which is collected from the debtor of maintenance allowance. The availability of childcare services for children with a severe or profound disability was increased in 2017. In 2017, the state supported the childcare and support services of more than 7,000 children with a severe or profound disability with 2.65 million euros. Furthermore, offering childcare, support and transport services for children with a severe or profound disability with a great need for care is supported during SBS 2018–2021 from ESF funds 2018– 2020 to the extent of 29.4 million euros. In 2017–2020, the state is supporting local governments and the private sector with 2.5 million euros from ESF funds in order to establish new childcare and kindergarten places. In total, 6.5 million euros from the ESF funds is intended for creating an additional 1,200 childcare or kindergarten places in 2014–2020. Additional 34 million euros from ERF is intended for the establishment of 2,200 new kindergarten places. Changing the system of parental leave and benefit was approved in the beginning of 2017 with the aim to make the system more flexible than it is today. As of March 2018, a higher income rate of 1,544.78 euros is applicable for earning an income while also receiving parental benefit as well as an additional allowance for triplets or multiples higher than that. The right to receive additional allowance for multiples applies until the day that the children reach the age of 18 months and the size of the allowance is 1,000 euros per month. Target level Targe Base Actual Indicator14 t level 2018 2019 2020 2021 2022 level 2017 2017 Natural population growth - 1,339 Positiv Positi - Positive Positive Positive Positive (2016) e ve Source: Statistics Estonia
14 Indicator “Proportion of 0–2-year-old and 3–6-year-old children covered with formal childcare of all children in the respective age group” has been left out, because in the context of the activity-based budget of the Ministry of Social Affairs, it is an indicator for the level of the measure of the programme for children and families.
74 Target level Targe Base Actual Indicator14 t level 2018 2019 2020 2021 2022 level 2017 2017
Total fertility rate 1.60 1.63 1.65 1.67 - 1.67 1.67 1.67 Source: Statistics (2016) Estonia Rate of absolute poverty among children aged 0– 3.5 7.1 3.8 3.6 - 3.5 3.4 3.2 1715, % (2016) Source: Statistics Estonia
Important activities to achieve the objectives of 2019–2022 Amendments to parental leave and benefits include the changing of the period that forms the basis for calculating parental benefits, thus establishing a right for fathers to get one month of extra paternal leave and paternal benefit as well as an option for parents to pause and resume payment of parental benefit on a calendar month basis in the course of three years. The budget for parental benefit 2019–2022 does indeed increase by a total of 40 million euros as a result of this amendment, however, paternal leave benefit and child care allowance will seize to exist, which means that the state will not bear any extra costs overall. The following amendments are planned to be implemented in 2022 under the II draft of parental leave and benefits submitted to the Riigikogu in June 2018: o current pregnancy leave and pregnancy benefit will be replaced by maternal leave and maternal benefit, o administration of the system of parental leave and benefits will be taken over from the Estonian Health Insurance Fund by the Social Insurance Board, o parents will have the opportunity to receive parental benefit on the basis of a calendar day and be on paid leave simultaneously to the extent of 60 days, o conditions of child care leave and adoption leave will be changed. In 2018–2019, amendments to the law will be developed in regard to payment of maintenance allowance during the course of a bankruptcy procedure, which enables to provide maintenance allowance for children, against whose parent there is an ongoing bankruptcy procedure. The availability of multidimensional family therapy (MDFT) will be improved as of 2019 in order to ensure that children with complicated and varied problems receive evidence-based help that helps to prevent the problems from intensifying and commitment of further offences. MDFT has been implemented by the therapy teams of the Social Insurance Board across Estonia since 2015. The budget of the activity for 2019–2022 is 2.6 million euros. The availability of the parenting programme “The Incredible Years” will be increased as of 2019 – more parents of children between the ages of 2 and 8 and more local governments will be included and the funding of the programme will be increased in Ida-Viru county. The
15 The target level for absolute poverty rate of children has been amended as of 2018. The indicator has been taken into compliance with the target level for absolute poverty of the population approved in the action programme of the Government of the Republic in December 2016 and it takes into consideration the actual poverty indicators published recently.
75 objective of the programme is to develop useful techniques in order to prevent and handle behavioural problems of children and create a safe environment between the parent and the child that facilitates the child’s development. The budget of the activity for 2019–2022 is 3.4 million euros, including funds added via the SBS in the amount of 1.8 million euros. The children and families’ Development Plan 2012–2020 and Operational Plan and programme for 2018–2021 is available here: http://sm.ee/et/laste-ja-perede-arengukava-2012- 2020
2.10.2. Labour market Objective and indicators: High level of employment and long and high-quality working life Important activities to fulfil the target levels for 2017 and 2018 The minimum rate of wages increased to 500 euros as of 2018 (collective agreement signed by the Estonian Trade Union Confederation and the Estonian Employers’ Confederation in 2017). 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. As of 2018, the minimum rate of wages is entirely tax-free for the first time. The Estonian Unemployment Insurance Fund offers various preventive measures to persons who lack qualifications, have expired skills or are in risk of exclusion from the labour market. The estimated cost of preventive measures in 2018 is 8.2 million euros, including 6.7 million euros in support of labour market trainings and qualification, 1.1 million euros in support of participation in formal studies and 0.4 million euros to employers for training aid. Changes in working conditions applicable since 2017 make it easier for minors to gain work experience and improve access to the labour market. Employers who have offered work experience to minors receive a subsidy from the state in order to promote the short-time employment of youths. Support is paid from the ESF funds and its size is 30% of the gross wage of the minor hired. The Youth Guarantee support system helps LGs offer necessary support to non-active youths aged 16–26 in their area for participating in the labour market, the volume of the service is 0.16 million euros from ESF funds. In 2018, ESF funds in the amount of 3 million euros are used to facilitate the employment and remaining in employment of target groups with lower competitiveness. Target level Target Base Actual Indicator16 level 2018 2019 2020 2021 2022 level 2017 2017
Employment rate in the 76.3% 20–64 age group, % (2016) 75.1 78.5 75.4 75.7 76 76.1 76.4 Source: Statistics Estonia,
16 The average gross monthly wage (in euros) has been omitted from the indicators. The activities of the Welfare Development Plan 2016–2023 are not directly related to the growth of the average wage. The indicators “Unemployment rate among youths” and “Long-term unemployment rate” have been left out, because in the context of the activity-based budget of the Ministry of Social Affairs, these are indicators for the level of the measure of the labour programme.
76 Target level Target Base Actual Indicator16 level 2018 2019 2020 2021 2022 level 2017 2017 Estonian Labour Force Survey Duration of working life, in 17 years 37.8 37.1 - 37.2 37.4 37.5 37.7 38.0 Source: Eurostat, Estonian (2016) Labour Force Survey
Important activities to achieve the objectives of 2019–2022 o The MoSA will submit a proposal to the Government of the Republic to develop a system of insurance against accidents at work and insurance against occupational diseases in order to preserve the employee’s work ability by early intervention to prevent health damage caused by work, to compensate for health damage and to retain the employee. o The Ministry of Social Affairs will submit proposals to the Government of the Republic for amending the regulation of employment relationships in order to increase the use of flexible working opportunities. o In order to increase work motivation and coverage of unemployment benefits and on the basis of the changing nature of work, the MoSA is analysing the need to change the conditions regarding the payment and organisation of unemployment benefits and will submit proposals for amending the Unemployment Insurance Act. The Welfare Development Plan 2016–2023 and its Operational Programme and programmes for 2018–2021 are available here: http://sm.ee/et/heaolu-arengukava-2016-2023
2.10.3. Social protection Objective and indicators: Reducing social inequality and poverty, ensuring gender equality and increasing social inclusion Important activities to fulfil the target levels for 2017 and 2018 The subsistence level increased to 140 euros and the subsistence level of children under the age of 18 increased to 168 euros in 2018. The budget of subsistence benefit is 24.7 million euros per year. Child benefits (full sum) are considered part of the income during the calculation of subsistence benefit. The rules of the subsistence benefit were changed with the aim to increase the motivation of receivers of subsistence benefit to participate in the labour market. Primary measures for reducing the care burden are funded to the extent of 16.4 million euros for 2018–2021. The implementation of the following activities will commence in 2018:
17 The indicator was added from the new Welfare Development Plan 2016–2023 and it indicates the years of being active on the labour market, starting with age 15, based on the demographic and labour market data. It is an important indicator in the context of increasing life expectancy and aging population, reduced labour force and sustainability of the social protection system. The EU28 average duration of working life in 2014 was 35.3 years; the relevant Estonian average was 36.4.
77 o provision of daily and weekly care and expanding the provision of services to people with great need for care, o expanding the provision of services (incl. adaptation of service places and provision of high-quality services) to elderly who have been diagnosed with dementia, o piloting the coordination of primary care and development of necessary competence which forms the basis for creating a collective framework of the healthcare and social sphere regarding the evaluation of the need for care; during piloting, family physicians and social workers are able to transfer those in need to a care coordinator who considers the person’s need for social and healthcare services and organises the provision of appropriate services, o enabling carer’s leave. A new regulation entered into force in 2018 with an annual extent of 3.8 million euros, used to direct funds to LGs for appointing death grants. In 2018, new prices were established for social rehabilitation services (excl. creative therapy), enabling to provide more services and shorten queues. The budget for rehabilitation is 11.4 million euros in 2018, incl. services for children 6.9 million euros and services for adults 4.5 million euros (incl. 1.5 million euros from structural instruments). In the beginning of 2018, the Government fixed the 2018 index of state pensions at 1.076. Pensions increased by an average of 7.6% as of 1 April 2018. Exemption from income tax of the average pension is ensured since the personal tax-free rate was increased to 500 euros per month. The cost of indexing state pensions in 2018 is ca 97.6 million euros and the budget for state pension insurance is 1.73 billion euros. In 2018, the Government approved the draft pension reform, which is intended to make pensions more flexible as of 2021 by changing the calculation formula of pensions and linking the pension age with the estimated average life expectancy as of 2027. Changes in the pension formula do not affect superannuated pensions or earned insurance components, all interested persons can use the flexible pension. Amendments to the law concerning the export of pensions entered into force in 2018. Both old-age pension and survivor’s pension regulated with the State Pension Insurance Act and pensions with benefits regulated with specific laws will be exported according to the amendments. Pensions with benefits to be exported include old-age pensions under favourable conditions starting with retirement age, superannuated pensions and special pensions. A person is enabled to receive pension in all countries. The social insurance agreement with Australia entered into force in 2018. Persons who have worked in both countries can add up their insurance period under the agreement, whereas each country will provide pension to the extent of the period worked in said country. The agreement also prevents double insurance of posted employees. As of 2017, pensioners who live alone and whose monthly net pension (492 euros in 2018) is smaller than 1.2-times the average pension are paid an allowance of 115 euros once every year. In 2017, allowance for a pensioner living alone was paid to 85,267 persons in the amount of 9.8 million euros. As of 2018, the right of deletion of a state funded student loan will, in addition to parents of children with a profound disability or persons who are incapable of working, also be granted to parents of children with a severe disability and the procedure for deleting a student loan will be made easier and quicker than currently. The budget for 2018 is 0.7 million euros.
78 In 2018, 7 million euros from ESF shall be directed towards increasing the volume of welfare services for elderly, people with special needs and those with coping difficulties and their family members to support their employment, whereas the development of new social services and products will be supported with 5 million euros. Offering of social transport services and aligned (with the services themselves as well as public transport) travel opportunities in counties shall be piloted to the extent of 7.5 million euros (ESF funds). With the support of EU funding (ERF), over 1,265 current service places will be modernised and over 500 community-based service places will be established for those who do not need round-the-clock care (incl. living placed and supported living spaces for persons with a lower care burden and daytime support services) will be created by 2021. A total of nearly 60 million euros, 47.6 million euros of which are EU funds, have been planned for funding these activities over 4 years. Offering of new flexible services created on the initiative of the community is supported and services provided by a court ruling as well as services provided to persons with unstable remission are updated. In 2018, the state supports LGs with the help of EU funding (ERF) in adapting the living spaces of 1,955 persons with special needs in the amount of 9.9 million euros. The updated Victim Support Act which organises the area of victim support entered into force in 2017. For the first time, the Act describes the women’s support centre service to the victims of violence against women. The pilot project for providing services to victims of domestic abuse continues in the Pärnu area. Funds have been planned to the extent of 1.6 million euros per year for offering services intended for victims and abusers and providing compensation to victims. In 2018, the Ministry of Social Affairs submitted to the coordination round amendments to the Gender Equality Act for reducing the pay gap between men and women, authorising the Labour Inspectorate to carry out supervision over gender-based pay gaps in the public sector in order to ensure that the principle of equal pay for women and men for equal work provided by the Act is followed. Target level Indicator Targe Base Actual t level 2018 2019 2020 2021 2022 level 2017 2017 Rate of relative poverty, % 21.1 Source: Statistics Estonia; Estonian 16.2 - 15.9 15.5 15th 15th 15th Social Survey (2016) Absolute poverty rate, % 3.3 3.5 - 3.3 3.1 3.0 3.0 2.9 Source: Statistics Estonia (2016) Difference between average hourly 23.43 wages of women and men, i.e. gender 20.9 - 20.5 20.1 19.7 19.3 18.9 pay gap, % (2014) Source: STAT, gender pay gap database18 Important activities to achieve the objectives of 2019–2022 In 2019, the MoSA will support construction of innovative homes for the elderly with 1.5 million euros (in relation to the measure of reducing the care burden). Service places shall be created for elders with more complex care needs, who are presently under the care of
18 The calculation of the gender-based pay gap is based on the collective database STAT, which is in turn based on the added data of the Estonian labour force survey and the data of the Estonian social survey. Wage information linked in the collective database originates from the Tax and Customs Board’s Register of Taxable Persons.
79 relatives due to their specific care needs. The home to be created shall have a maximum of 50 service places. Pilot project for facilitating voluntary work in the welfare system is implemented in 2018– 2019 to the extent of 0.3 million euros. As a result of the pilot project, a nationwide cooperation model will be implemented to utilise volunteers in the welfare system, resulting in the improvement of independent coping of elderly and adults with special needs and their participation in society. The pension reform shall be continued in 2019 with the aim to provide better flexibility for retirement. The development of a reform on pensions under favourable conditions and superannuated pensions will commence with the aim to ensure equal treatment of people in pension schemes, reduce deferred financial obligations in regard to payment of pensions and increase employment. The system will be made more efficient in order to improve the availability of social services provided by the state, resulting in improved availability of technical aids and rehabilitation services. As of 2019, a fundamental change will be made in the budget for technical aids, for two years at first, enabling to provide technical aid to all who need it under the terms agreed upon in the Regulation on Technical Aids. With the support of the state, people living in special care institutions will also receive technical aids intended for personal use to a greater extent. More service places for special welfare will be created (ca 2,000 places). Costs will increase nearly 13 million euros for improving the availability of relevant services. In order to alleviate the lack of qualified employees due to low wages, which hinders the availability and quality of services, over 4.0 million euros have been allocated to the base budget for increasing the wages of employees in the area of social rehabilitation, special welfare and substitute care. Wages are estimated to increase in these areas by at least 7% and by 12% on average. The exact wage increase is determined by the service provider, as the money intended for increasing wages is contained in the price of the service funded by the state or, in the case of substitute care, directed to the revenue base of local governments. The development and provision of welfare services for elderly, people with special needs and those with coping difficulties and their family members to support their employment will be supported with 5 million euros from EU funding (ESF) in 2019. The state will increase the capacity of the Social Insurance Board to carry out necessary supervision over the social services provided by the state as well as local governments in order to improve the quality of services and ensure optimal funding. Additional funding in the amount of 1.0 million euros per year has been planned for conducting necessary supervision, strengthening cooperation with other supervisory authorities, increasing analytical capabilities and funding preliminary evaluations. The Welfare Development Plan 2016–2023 and its Operational Programme and programmes for 2018–2021 are available here: http://sm.ee/et/heaolu-arengukava-2016-2023
2.10.4. Health Objective and indicators: The healthy life expectancy of Estonian people has increased. Important activities to fulfil the target levels for 2017 and 2018 The revenue base of the Estonian Health Insurance Fund is gradually extended in order to
80 ensure better availability of medical care and sustainability of the health care system. Health care expenses shall be transferred to the budget of the Estonian Health Insurance Fund in order to reduce fragmentation of health care funding. 36.78 million euros of additional funding was directed towards healthcare in 2018, incl. 34.06 million euros for use and 2.72 million euros for strengthening the financial position of the Estonian Health Insurance Fund. Additional funds will offer an opportunity to reduce health care waiting times, improve the availability of health care services and the consistency and quality of treatment. In 2018, MoSA will also submit proposals to the Government of the Republic on how to expand the opportunities of Estonian people for getting health insurance coverage. In order to strengthen primary contact health care, the investment plan for first-contactprimary health centres, which was approved in 2016 and is funded to the extent of 114.02 million euros, will be implemented. 55 first projects were approved in 2017. The first 14 new primary health centres should be completed by the end of 2018 and the first three began operating in the first quarter of 2018. The second call for applications on modernising primary health centres was opened in April 2018 in order to establish health centres in attraction centres that have not yet been covered and establish a county health centre in Viljandi. Healthcare services offered in new health centres and in the county health centre are in compliance with the treatment needs of the ageing society and enable to focus on the prevention and treatment of chronic diseases. As of 1 July 2017, the Health Insurance Fund compensates half of the bill costs for critical essential dental care services to the extent of a specific limit, which is annually reviewed (40 euros in 2018). Dental care benefit is also increased for persons receiving pension for incapacity for work, old-age pensioners and over 63-year-old persons covered by health insurance and for pregnant women, mothers of younger than 1-year-old children and people with increased need for treatment. The Health Insurance Fund compensates incured costs for medicinal products incurred by to people with increased need for treatment to a greater extent than before (as of 2018, 50% of total costs of prescribed medicinal products with a favourable price falling between 100–300 euros and 90% of those that costs over 300 euros). Compensation is paid automatically and it is no longer necessary to apply for it. A uniform minimal contribution rate was established for prescriptions in order to harmonise the contribution burden. In order to facilitate the correct use of medicinal products, information sheets of non- prescription drugs marketed in Estonia are now also available in the Register of Medicinal Products in Russian and English. 0.1 million euros per year has been planned for their translation. The Government approved the National Action Plan on HIV and AIDS 2017–2025 in order to reduce the number of new infections and improve the quality of life of those infected. In the context of implementing the action plan, an additional 5 million euros was allocated from the State Budget Strategy 2018–2021 for HIV/AIDS medication and 0.5 million euros for services. The cost for prevention activities for HIV and AIDS is 19.84 million euros in 2018. In 2018, a new immunisation schedule entered into force which now also includes the vaccination against human papillomavirus (HPV). 3.85 million euros have been planned for the provision of immunisation preparations included in the national immunisation schedule to target groups in 2018. Restrictions on advertising alcohol and exhibition of alcohol in public spaces became stricter. A legal basis was also established for control purchases in order to prevent selling alcohol to minors and combat illicit trade. Amendments will enter into force in three stages in 2018– 2019. Advertising restrictions will enter into force on 1 July 2018 and restrictions on
81 displaying alcoholic beverages in stores will enter into force in summer 2019. The health care decision support project, incl. the personal medicine project, will launch in 2018–2021. New tools shall form a basis for more patient-based centered diagnosing and treatment. Collection of genetic data commenced in 2018 under the project “100,000 New Gene Donors” managed by the National Institute for Health Development. The cost of the project in 2018 is 5 million euros. The development and implementation of e-services continued in the area of healthcare: o All operators of ambulance crew use the e-ambulance service as of 1 April 2018. o The first stage of the nationwide system of the digital registry to reserve physicians’ appointments and digital referrals will be implemented in 2016–2019 in order to, first and foremost, improve the access of patients to out-patient appointments with medical specialists. The digital registry will begin operation in full in 2019. o The selection of e-consultation fields of family physicians and medical specialists will be expanded (e-consultations are available for 17 fields in 2018). o The patient can view their medical bills in the patient portal. Target level Target Base Actual Indicator level 2018 2019 2020 2021 2022 level 2017 2017
Life expectancy Men Men Men Men Men Men Men (separately for men and 73.2 73.5 74.0 74.5 75 75 75 women), in years Wome - Wome Wome Wome Wome Wome Wome n 81.9 Source: Statistics n 82.9 n 83.2 n 83.6 n 84 n 84 n 84 Estonia (2016) Healthy (without limitations) life Men Men Men Men Men Men Men expectancy at birth 54.2 58.1 58.6 59.2 60 60 60 (separately for men and Wome - Wome Wome Wome Wome Wome Wome women), in years n 58.7 n 63.1 n 63.7 n 64.4 n 65 n 65 n 65 Source: Statistics (2016) Estonia
Important activities to achieve the objectives of 2019–2022 Expansion of the revenue base of the Health Insurance Fund and the transfer of healthcare services funded by the state to the Health Insurance Fund will be completed by 2022. As of 2022, an amount that corresponds to 13% of state pensions paid to non-working pensioners will be allocated to the Health Insurance Fund from the state budget on an annual basis (221.9 million euros ca 12% of the total volume of health insurance resources). 139.7 million euros, i.e. 10% of state pensions paid to non-working pensioners, is allocated to the Health Insurance Fund from the state budget in 2019. Investments continue for the construction of health centres and modernisation of specialist care competence centres in 2019–2021. In addition to family physicians, health centres also have mental health nurses or psychologists working in the facility as part of an extended team, thus improving the availability of mental health services and integrity of treatment. The availability of anti-retroviral drugs is ensured, HIV prevention activities and research is made more efficient and the data collection of HIV-positive patients is supported in order to
82 prevent and avoid the spread of HIV and AIDS. Prevention activities are made more efficient and the availability of treatment and counselling services is improved in order to reduce the use of narcotics. A treatment and rehabilitation service for youths will be developed in Ida-Viru county. Drug users are also supported by being guided towards treatment, counselling and rehabilitation services instead of issuing punishments. Funding allocated for 2019–2022 in regard to preventing and reducing HIV, AIDS and drug addiction will increase by 7 million euros. In order to prevent and combat the spread of infectious diseases and to increase the vaccination of the population, availability of necessary information to citizens is ensured in order to make informed decisions in regard to vaccination. Health care specialists are provided with necessary information and skills to inform and counsel people. Necessary legislations and guidance materials will be updated as well. Promoting public health, reducing risk factors and prevention activities are still high on the agenda: o policies that support healthy eating and exercise are implemented and the relevant green paper will be submitted to the Government of the Republic for approval; o alcohol and tobacco policies are implemented in accordance with the green papers approved by the Government of the Republic; o coordination of the prevention of injuries is continued and the action plan approved by the Government is implemented; o citizens, communities and organisations engaged in various sectors will be notified of opportunities to prevent health risks arising from their living environment. Operating costs of personal medicine are financed with additional 20 million euros in 2019– 2022. Information support for genetic data regarding personal medicine will be created and linked to the health information system. The collection of ca 75,000 gene samples per year is planned for 2019–2020. In 2022, a pilot project on the treatment consistency of persons who have suffered a stroke will be implemented, resulting in the creation of instructions and digital tools facilitating a holistic approach towards treatment of stroke. The development of the system for digital referrals (3rd stage) will continue in 2018–2019 with the aim to make data management in the health care system more efficient (inter alia, patient summaries created by nurses shall be digitalised by 2021 in order to fill an important health information gap in the information exchange between different parties in the health care system). The new Public Health Development Plan 2020–2030 will be submitted to the Government of the Republic for approval. The growing age of the Estonian population and ageing society present new requirements to the health care systems in order to reduce health risks, prevent diseases and adopt new treatment methods. The new Public Health Act is estimated to enter into force on 1 January 2019 as well. The Act updates the requirements for the protection of public health and determines the liability of parties more clearly than before on the basis of the principle of “health in all policies”. The Public Health Development Plan 2009–2020 and its Operational Programme and programmes for 2018–2021 are available here: http://sm.ee/et/rahvastiku-tervise-arengukava- 2009-2020
83 3. FISCAL FRAMEWORK The budget strategy and its fiscal framework are based on the economic forecast prepared by the Ministry of Finance in spring 2018; the forecast is accessible on the website of the Ministry of Finance19. The State Budget Act that entered into force in March 2014 establishes budgetary position rules, pursuant to which the state budget must be prepared so as to ensure that the general government’s structural budgetary position is at least in balance. According to the amendment of the balance rule, which came into force in 2017, at the expense of the budget surplus of previous years, the budget of the coming year may also be planned in deficit up to 0.5% of GDP. The objective of the structural budgetary balance remains, but the balance is monitored rather as an average of a longer period. The amendment increases the flexibility of the fiscal policy, allowing for smoothening of (exceptional) surpluses. At the same time, the obligation to adjust emerged deficits will also remain.
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 fiscal policy objective of the Government is at least the structural balance of the general government in the medium-term period that meets the requirements of the State Budget Act. 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. In terms of the TSCG, the Government has set a medium-term objective of not to plan the structural budget deficit of the general government over 0.5% of GDP. This ensures compliance with the MTO and the flexibility of the balance rule stipulated in the State Budget Act, which allows to plan the budget with a budget deficit in the extent of up to 0.5 percent on account of previous surpluses. Additionally, having a domestic budgetary objective that is stricter than the MTO provides a safety margin to ensure that the structural position objective is achieved according to evaluations from the European Commission as well, as their evaluation of the economic cycle and one-off budgetary measures differs from that of the Ministry of Finance. The MTO has not be altered when compared to last year’s 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
19http://www.fin.ee/majandusprognoosid
84 services in education, social welfare and health care to people. The income of people is increased also by the increase in basic exemption, in addition to the wage growth, which means up to a 64 euro higher income per month for the majority of employed people as of January 2018. During the budget strategy period, the pensions will also increase, on average, 5.9% per year. 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 and public health. Over the coming years, the tax burden shall stabilize near a 34% level. The challenge before the Estonian Government is to adopt better decisions when directing limited resources to solve difficult challenges. Currently used in Estonia is performance management, in which performance targets and indicators are set separately from the budget. The objective is to move towards budgeting using more information on results. In order to link together resources and results 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, all areas of government shall have transitioned to an activity-based state budget.
3.1.1. Objective of the budgetary position of the general government and comparison with the previous State Budget Strategy Taking into account the actual structural deficit of 2017, which was 0.3% of GDP, and this year’s estimated deficit of 0.4% of GDP, it would be possible, pursuant to the cumulative balance rule stipulated in the State Budget Act, to plan the structural budgetary position of 2019 with a 0.4% deficit. However, the Government has decided, in favourable economic climate, to set structural budget balance as an objective for 2019–2021 and a 0.1% surplus for 2022. Upon achievement of objectives, the nominal budgetary position of the general government remains in surplus during all years, which creates prerequisites for increasing reserves. 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 has been improved. The previous State Budget Strategy set out a deficit of up to 0.5% for this and the following year and a 0.3% deficit for 2020, which could be planned based on the surplus cumulated from the previous years. Therefore, in this State Budget Strategy, the Government has improved the budgetary position to 0.5% of GDP in 2019 and 0.3% of GDP in 2020, which is an even greater improvement nominally – reaching 1.2% of GDP, i.e. about 300 million euros, the following year. In addition to the central government, the budgetary position has also improved in terms of local governments, as well as the Estonian Health Insurance Fund and the Estonian Unemployment Insurance Fund in the sector of social security funds.
3.1.2. Tax policy objectives The Government’s goal is to stabilise the tax burden at about the level of 34% of GDP by reducing taxes related to labour. The tax burden in 2018 will be 34.3% of GDP. In the period 2019–2022, the basic exemption reform, the fringe benefit of expenses related to health, and abandoning the increase in excise duty on alcohol in 2019, will have an effect on reducing the tax burden. Tax burden is increased foremost by increasing excise duty on alcohol, tobacco and fuel, corporate income tax rate 14% in
85 case of regularly distributed profit, advance income tax applicable to banks and restricting the removal of profit as a loan exempt from tax. All in all, the tax burden will increase to 34.6% of GDP in 2019 and will decrease to 34.2% by 2022. The future developments are discussed in detail in the following chapter and in the chapter on tax policy. The Government’s objective is to maintain the implicit tax rate on labour near 35%. The basic exemption reform (2018) reduces the implicit tax rate on labour; at the same time, technically, the expiry of the higher contributions to funded pension has the opposite effect and this indicator shall decrease to 34.0% in 2018. Lack of subsequent tax reductions related to labour, wage increase agreed upon in the SBS and several measures that increase the accrual of labour taxes take the indicator to 35.4% by 2022.
3.2. Revenue and expenditure measures According to the economic forecast prepared by the Ministry of Finance in spring 2018, the structural deficit of the general government will be 0.7% of GDP in 2019 and 2020, which is in contradiction with the balance rule of the State Budget Act. In order to meet the requirements arising from legislation, the Government decided to enforce measures of both revenue and expenditure policy in order to balance the structural budgetary position. Table 1. Revenue and expenditure measures of SBS for 2018–2022
2018 2019 2020 2021 2022
Measure % of % of % of % of % of GDP GDP GDP GDP GDP
Abandoning the increase in excise duty on alcohol -0.14 0.02 -0.11 -0.11 -0.11
Tax revenue accompanying the measure of reconstruction - 0.04 0.07 0.12 0.11 of apartment buildings
3.5 GHZ licence sales revenue for operators - 0.06 - - -
Tax revenue accompanying the limiting of illegal labour - 0.02 0.02 0.02 0.02
Fines dependent on income - 0.02 0.02 0.02 0.02
Tax revenue accompanying the amendment of the - 0.01 0.01 0.02 0.03 Weapons Act
Tax revenue accompanying the amendment of the Aliens - 0.09 0.09 0.09 0.09 Act
Additional dividends with income tax -0.08 0.37 0.31 0.13 0.19
Other revenue - 0.04 0.03 0.04 0.03
Total revenue measures -0.22 0.65 0.45 0.32 0.37
Increase in labour expenditure - 0.14 0.14 0.13 0.12
86 2018 2019 2020 2021 2022
Measure % of % of % of % of % of GDP GDP GDP GDP GDP
Changes in investments - -0.25 -0.34 -0,24 -0,03
ICT expenses - 0.04 0.04 0.09 0.10
Accepted additional applications - 0.24 0.24 0.33 0.31
Redirection of resources of Structural Funds - 0.15 -0.18 -0.20 -0.19
Changes related to real estate 0.02 -0.06 -0.13 -0.13 -0.13
Total expenditure measures 0.02 -0,03 -0,24 -0,03 0.20
TOTAL -0.2 0.7 0.7 0.4 0.2
The revenue policy measures adopted include instances of both increasing and decreasing revenue; however, in total over the four years, the revenue measures will have a positive effect of over 500 million euros. One of the biggest revenue-generating measures is the acquisition of additional dividends from state companies. According to the economic forecast prepared in the spring, the sum of dividends in the next couple of years will remain below that of the current year; this allowed for increasing the dividend forecast in the framework of discussions of the budget strategy. Dividend capability is also positively influenced by the fast growth of the economic environment, which brings increased profits to state companies. The enforcement of several measures also brings about increased tax revenue. In terms of the measure of renovating apartment buildings, it has been taken into account that directing 1 million euros into reconstruction of apartment buildings will create, on average, 17 jobs – 10 positions in construction, 6 positions in the field of manufacturing materials and 1 position in providing consultation services. The average tax refund of reconstruction of apartment buildings is 31% (incl. VAT and labour taxes). The amendment of the Weapons Act shall extend the right of enterprises to handle weapons of war, ammunition and munition, which will, according to the Estonian Defence Industry Association, increase the turnover volume up to 60 million euros per year by 2023 and will create about 150 new jobs. As it is estimated that the new jobs are accompanied with wages that exceed the average wage in Estonia, this means that tax revenue accrued in the state budget shall increase as well. The amendment of the Aliens Act is estimated to bring about the addition of 2,500 employees registered for short-term work; these employees will work for a year and receive average gross monthly wages. It is estimated that 124 high-level specialists with a residence permit for work will be hired in Estonia and they will receive 2-fold Estonian average gross monthly wages. Their residence permit for working purposes will be valid for up to 5 years. Illegal work will also be limited by organising the work of foreigners in Estonia. An estimated 1,000 official jobs will be added with average gross wages. With major investor support, it is hoped to facilitate investments and the creation of new jobs, which will increase the accrual of tax revenue in the state budget. The Government decided to forgo increases planned for excise duty on alcohol in 2019, primarily due to the purposes of risk management concerning future border trade and to stabilise the situation. The years 2016 and 2017 brought about significant Latvian border trade, which by this year accounts for 22.5% of the legally sold alcohol quantities, which were previously sold in Estonia. A risk associated with border trade of alcohol is that Finns will reduce their purchases from Estonia,
87 as price differences with Finland decrease, those who purchase in large quantities may take their purchasing preferences to Latvia and people who purchase alcohol in smaller quantities may forgo cross-border purchases. Expenditure measures improve the budgetary position as well; however, there is also a significant increase in expenditure. Expenditure is elevated, for example, by the increase in labour costs, which was decided in the framework of the State Budget Strategy. The Government decided to increase the wage fund of state authorities by 2.5% and even more for certain target groups, i.e. the wage fund of the Police and Border Guard will increase by more than 10%, for IT institutions the increase will be 20%, 6–8% for cultural workers, 3% for teachers and 12% for social welfare. The table of revenue and expenditure measures above includes the net impact of increase in labour costs; however, the tax revenue accompanying the increase in wages, nor the labour costs in the same sum are not displayed in this table. The expenditure is also increased by additional applications of areas of government approved during budget negotiations. Additional funds were allocated for research and development, strengthening national defence, improving air services with larger islands and for various social services. Additional funding was also allocated to the state’s ICT sector. At the same time, the Government also found several options for making investments in instalments (e.g., in the case of the Tallinn City Hall and Pärnu Airport). Opportunities were also found for conducting some of the planned activities already this year. Most significant of these are, for example, road construction ahead of schedule and investments in the area of culture from subsidies. Options were also found for redirecting resources from Structural Funds and forecasts concerning the subsistence benefit and maintenance allowance were specified. Taking into account the economic forecast prepared by the Ministry of Finance in spring 2018 and the added revenue and expenditure measures, the general government revenue in 2019 will amount to 10.86 billion euros and the general government expenditure is estimated to be 10.73 billion euros. Table 2. Volume of revenue and expenditure of the general government taking into account fiscal policy decisions
2017 2017 2018 2019 2020 2021 2022
million % of GDP % of GDP % of GDP % of GDP % of GDP % of GDP euros
Revenue forecast of 9,181.6 39.9 40.9 41.3 40.6 39.7 38.6 the general government Expenditure forecast 9,247.7 40.2 40.7 40.8 40.2 39.5 38.5 of the general government Source: Ministry of Finance, Statistics Estonia 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 2017, 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
88 agreement, next year's expenditure benchmark will be lowered (0.9% for Estonia), 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 2018, the expenditure of the Estonian general government will increase20 by 2.0%; therefore, Estonia shall achieve its expenditure benchmark with a margin. Estonia will fail to meet the expenditure benchmark in 2019, expenditure shall increase by 5.4%, which exceeds growth potential by 2.7% points. This is mainly due to smaller adjustments in 2018 concerning EU resources and investments. Many different revenue measures will be applied in 2018 and 2019. 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. Table 3. Amounts excluded from the expenditure benchmark 2017 2017 2018 2019 level (million % of GDP % of GDP % of GDP euros) 1. External funds expenditure that is covered by revenue 700.1 3.04 4.23 3.99 1a. Investments that are covered by revenue 187.6 0.82 0.97 1.01 2. Unemployment insurance expenditure arising from the 0 0 0 0 economic cycle21 3. Discretionary measures that change the revenue of the 71.6 23 0.31 0.60 0.52 general government22 4. Changes, arising from legislation, in general government 0 0 0 0 revenue, which are related to increased expenditure needs
Source: Ministry of Finance
3.3. Budgetary position of the general government In 2017, the general government budget was in deficit, which, according to initial data from Statistics Estonia, amounted to 66 million euros, i.e., 0.3% of GDP. The deficit of the central government was 0.3% of GDP and that of local governments was 0.3% as well; that deficit was partly offset by a surplus of social security funds (0.3% of GDP). Both the central government’s and the local governments’ deficit were mainly caused by a sharp increase in investment activity. 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
20 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 for interest expenditure and capital formation adjustment). 21 According to expert assessment, unemployment is expected to be at a natural level. 22 The measures taken into account are the following: increased basic exemption for general and supplementary pensions; new basic exemption scheme; other changes in basic exemption (limiting the deduction of training expenses, separating increased basic exemption for a child from the general basic exemption for a child, lowering the limit of general tax exemptions, health benefits, restricting benefits of interest payments of housing loans, forgoing the benefits of interests on deposit); changes in the fringe benefit concerning company cars; income tax on dividends; wage increase in the state budget; tax credit to low-income persons; decreasing the income tax rate of legal persons (for mature companies); restricting the removal of profits; fair taxation measure of revenue from work; enterprise account for small enterprises; increasing excise duties, reverse charge of construction metal; raising the threshold for persons liable to value added tax; real-time control measure of fuel; deduction of excise duty on electricity for major consumers; changes in taxation of self-employed persons; income from the sale of CO2 quota; changes in fines; changes in resource fees, extension of tax incentives for local governments; amendments to the Aliens Act; amendments to the Weapons Act. 23 The impact of all taxation changes enforced as of 1 January 2017 when compared to a contrafactual. In the following years, that impact is change.
89 unemployment insurance premium. In 2018, the budget surplus reaches 0.2% of GDP, when taking into account budget strategy decisions, which is 0.4% of GDP greater than the value estimated in the state budget. This improvement arises from almost all government levels – the increased forecast for labour taxes improves the combined position of social security funds and local governments. The central government's position is improved by reduced state budget expenditure in the social sector and an increased tax forecast, where improved accrual of labour taxes exceeds the decreased excise forecast. Next year's budget surplus will increase to 0.5% of GDP as a result of the measures adopted in the budget strategy. In the coming years, the surplus will begin to decrease as a result of the objective set for the structural budgetary balance and the result of the economy being directed towards its potential level.
Table 4. Objective of the budgetary position of the general government for 2018–2022 2017 2018 2019 2020 2021 2022 Structurally adjusted budgetary position of the -0.3 -0.4 0.0 0.0 0.0 0.1 general government (% of GDP) Nominal budgetary position of the general -0.3 0.2 0.5 0.4 0.2 0.1 government (% of GDP) Central government -0.3 -0.1 0.4 0.4 0.4 0.1 Social security funds 0.3 0.2 0.2 0.2 0.1 0.1 Local governments -0.3 0.1 0.0 -0.2 -0.3 -0.1 Nominal budgetary position of the general -66 53 133 105 50 20 government (million euros) Central government -67 -35 100 102 113 35 Social security funds 59 57 40 46 34 17 Local governments -58 31 -8 -42 -97 -32 Source: Statistics Estonia, Ministry of Finance Figure 1. Budgetary position of the general government
90 million euros % of GDP 600 4
3 400 2 200 1
0 0
-1 -200 -2 -400 -3
-600 -4 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Central government Social security funds Local governments General government (right scale)
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 possible gross domestic product (or the potential GDP)24 is the production function method25. According to the Ministry of Finance, the growth potential of the Estonian economy in the coming years is in the range of 3.2– 3.5%. If in 2017 various components contributed to the growth of more or less equally; whereas looking into the future, labour contribution is estimated to decrease, while the total factor productivity is estimated to increase. The positive labour contribution results from an increase in people's activity, which is supported both by raising retirement age and the work ability reform; however, in the long run, the decrease of working age population, which is already underway, will have a limiting effect. The capital contribution to potential growth is expected to remain at 1.1–1.2 percentage points during the forecast period, but shall, due to the general low investment activity, be significantly lower than during the pre-crisis period. Although the contribution of total factor productivity to potential growth is projected to exceed the historical average, it should be kept in mind that the methodology does not take into account the increased share of production equipment in post-crisis investment structure. Therefore, the contribution of capital may be underestimated and the contribution of productivity, on its account, might be overestimated. Secondly, increasing productivity plays and important role in converging with developed countries, as we already have a high level of employment. As economic growth accelerated in 2017, our economy surpassed the potential level and output gap26 turned positive. With growth continuing rapidly in 2018, the positive output gap will expand even further, reaching 1.6% of GDP. The positive output gap is evident mostly in labour market tensions, i.e., labour shortage, low unemployment rate and wage pressures. The current state of the economy is not comparable to the pre-crisis situation, as there is no excessive credit growth at the present moment and the risks of economic downturn are significantly lower. At the same time, it must be taken into account that
24 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. 25 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. 26 Output gap – the difference between actual and potential GDP
91 errors are likely in the assessment of growth potential and estimates may change significantly over time. The current growth potential estimates will be affected significantly by the low economic growth of post-crisis years 2013–2016. The estimate27 of the cyclically adjusted position of the budget of Estonia’s general government found on the basis of output gap indicates that the fiscal policy of Estonia will be countercyclical in 2018–2021. The budgetary policy for 2022 is neutral, because the level of GDP is in compliance with the potential and the change of the cyclically adjusted primary budgetary position is marginal. It should be kept in mind that the impact of a change in the use of external funds must also be assessed in addition to the change in the budgetary position when a final assessment is given to the fiscal policy. Since external funds are neutral with regard to the budgetary position – revenue always equals expenditure –, an 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. However, in the current economic situation, the impact of external funds is procyclical. Table 5. Cyclically adjusted budgetary position (% of GDP) 2003– 2017 2018 2019 2020 2021 2022 2016 1. Real GDP growth (%) 3.1 4.9 4.0 3.2 3.0 2.9 2.9 2. Budgetary position of the general - -0.3 0.2 0.5 0.4 0.2 0.1 government 3. Interest payments - 0.0 0.0 0.0 0.0 0.0 0.0 4. Real potential GDP growth (%) 3.1 3.5 3.3 3.4 3.5 3.3 3.2 4.a Contribution of capital to potential growth (%) 2.0 1.1 1.1 1.2 1.2 1.2 1.2 4.b Contribution of labour to potential growth (%) -0.1 1.1 0.6 0.4 0.3 -0.1 -0.3 4.c Contribution of productivity to potential growth (%) 1.2 1.3 1.5 1.8 2.0 2.2 2.3 5. Output gap 2.1 0.9 1.6 1.3 0.9 0.4 0.0 6. Cyclical budget component - 0.4 0.7 0.6 0.4 0.2 0.0 7. Cyclically adjusted budgetary position - -0.7 -0.5 -0.1 0.0 0.0 0.1 (7)=(2)-(6) 8. Cyclically adjusted primary position - -0.6 -0.4 0.0 0.0 0.0 0.1 (8)=(7)+(3) 9. Budgetary policy position - Procyc. Counter Counter Counter Counter Neutr. cyc. cyc. cyc. cyc. Source: Ministry of Finance, Statistics Estonia
27 The semi-elasticity used to find the cyclical budget component is, according to methodology updated by the European Commission in 2014, 0.44 in the case of Estonia (see also http://ec.europa.eu/economy_finance/publications/economic_paper/2014/ecp536_en.htm).
92 Figure 2 Development of potential GDP and output gap (%)
15 12 9 6 3 0 -3 -6 -9 -12 -15 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019* 2021*
Output gap (% of potential GDP) Real growth of Estonian economy Potential GDP growth
* - forecast Source: Ministry of Finance, Statistics Estonia Structural budgetary position of the general government The structural budgetary position of the general government is calculated by removing not only the impact of the economic cycle but also one-off and temporary factors, which may “distort” the budgetary position, from the nominal 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 approx. 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. Suspension of funded pension contributions in 2009–2011 and a higher contribution rate in 2014–2017 From 1 June 2009 to 31 December 2010, the state contributions to funded pension were suspended. Those who wished could file a petition to continue with their own contributions in 2010. As an exception, people born in 1954 and earlier retained the possibility to continue the contributions from 2010 pursuant to the 2%+4% system in force until then. Starting with 1 January 2012, the contributions to funded pension were restored in full. Those who continued with voluntary contributions in 2010 are automatically subject to the contribution rates of 2%+6% in 2014–2017, where the person pays 2% and the state adds 6%. Such persons are also entitled to file a petition to increase their own contribution from 2% to 3% (in that case the scheme used will be 3%+6%). Those who did not continue with voluntary contributions in 2010 also had the opportunity to file a petition to make contributions according to the 3%+6% system in 2014–2017. The expenditure related to restoration of funded pension contributions and a higher contribution rate in comparison with the previous year are provided in Table 6.
93
Table 6 Percentages of funded pension contributions, 2010–2018 1942–1954 1942–1954 1955–... 1955–...
do not continue do not continue continue continue 2010 2+4 0 2+0 0 2011 2+4 1+2 2+2 1+2
2012–2013 2+4 2+4 2+4 2+4 2014–2017 2+4 2+4 2+6 2+4 2014–2017 if so wished - 3+6 3+6 3+6 2018 2+4 2+4 2+4 2+4 Source: www.pensionikeskus.ee Merger grants for local governments The merging of local governments will be supported with a forecast 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 7 One-off measures and their impact in 2017–2022 (million euros)
2017 2018 2019 2020 2021 2022 Second pension pillar contributions, 2+6 and -66 3+6 Merger grants for local governments -14 -30 -21 Total, million euros -80 -30 -21 0 0 0 Total, % of GDP -0.3% -0.1% -0.1% 0.0% 0.0% 0.0% Source: Ministry of Finance Table 8 Structurally adjusted budgetary position in 2017–2022 (% of GDP)
2017 2018 2019 2020 2021 2022 1. Cyclically adjusted budgetary position -0.7 -0.5 -0.1 0.0 0.0 0.1 2. One-off measures -0.3 -0.1 -0.1 0.0 0.0 0.0 3. Structurally adjusted budgetary position -0.3 -0.4 0.0 0.0 0.0 0.1 (3)=(1)-(2) Source: Ministry of Finance, Statistics Estonia
3.3.1. Revenue and expenditure of the budget of the general government Table 9. Revenue and expenditure of the budget of the general government in 2017–2022 2017 2017 2018 2019 2020 2021 2022 million % of % of % of % of % of % of euros GDP GDP GDP GDP GDP GDP Budgetary position by levels of the general government2017 2017 2018 2019 2020 2021 2022 1. General government -66.1 -0.3 0.2 0.5 0.4 0.2 0.1 2. Central government -67.4 -0.3 -0.1 0.4 0.4 0.4 0.1 4. Local governments -57.6 -0.3 0.1 0.0 -0.2 -0.3 -0.1 5. Social security funds 58.9 0.3 0.2 0.2 0.2 0.1 0.1 General government 6. Total revenue 9,181.6 39.9 40.9 41.3 40.6 39.7 38.6 7. Total expenditure 9,247.7 40.2 40.7 40.8 40.2 39.5 38.5
94 2017 2017 2018 2019 2020 2021 2022 million % of % of % of % of % of % of euros GDP GDP GDP GDP GDP GDP 8. Budgetary position -66.1 -0.3 0.2 0.5 0.4 0.2 0.1 9. Interest expenditure 9.1 0.0 0.0 0.0 0.0 0.0 0.0 10. Primary balance -57.0 -0.2 0.3 0.5 0.4 0.2 0.1 11. One-off and temporary measures -80.4 -0.3 -0.1 -0.1 0.0 0.0 0.0 Revenue by components 12. 12 Tax revenue (12=12a+12b+12c) 5,058.9 22.0 22.2 22.3 22.0 22.2 22.0 12a. Production and import taxes 3,348.9 14.6 14.5 14.8 14.5 14.4 14.1 12b. Income and wealth taxes 1,710.0 7.4 7.7 7.5 7.5 7.7 7.8 12c. Capital taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 13 Social security contributions 2,698.0 11.7 12.1 12.3 12.3 12.3 12.3 14. Property income 228.9 1.0 0.8 0.9 0.8 1.0 0.9 15. Other revenue 1,195.8 5.2 5.8 5.7 5.4 4.2 3.4 16.=6. Total revenue 9,181.6 39.9 40.9 41.3 40.6 39.7 38.6 p.m.: Tax burden (D.2 (incl. paid to the 7,736.3 33.6 34.3 34.6 34.3 34.4 34.2 EU)+D.5+D.611+D.91-D.995) Expenditure by components 17. Compensation of employees + 4,212.0 intermediate consumption 18.3 18.0 18.0 17.7 17.7 17.6 17a. Compensation of employees 2,661.3 11.6 11.4 11.4 11.3 11.2 11.1 17b. Intermediate consumption 1,550.7 6.7 6.6 6.6 6.4 6.5 6.5 18. Social transfers (18=18a+18b) 3,136.9 13.6 13.8 14.0 14.1 14.2 ‘14.3 of which unemployment benefits 77.3 0.3 0.4 0.3 0.3 0.3 0.3 18a. Social transfers in kind 440.1 1.9 1.9 1.9 1.9 1.9 1.9 18b. Financial social transfers 2,696.8 11.7 11.9 12.1 12.2 12.3 12.4 19.=9. Interest expenditure 9.1 0.0 0.0 0.0 0.0 0.0 0.0 20. Subsidies 101.0 0.4 0.5 0.5 0.5 0.5 0.5 21. Total capital investment 1,299.3 5.6 5.7 5.5 5.4 5.4 5.2 22. Capital movement 116.8 0.5 0.7 0.7 0.7 0.5 0.3 23. Other expenses 372.6 1.6 2.0 2.1 1.7 1.1 0.6 24.=7. Total expenditure 9,247.7 40.2 40.7 40.8 40.2 39.5 38.5 p.m. General government’s consumption 4,670.2 20.3 19.9 19.6 19.5 19.4 19.3 Source: Ministry of Finance, Statistics Estonia Table 10. Impact of fiscal policy decisions on the revenue and expenditure of the general government 2017 2017 2018 2019 2020 2021 2022 million % of % of % of % of % of % of euros GDP GDP GDP GDP GDP GDP Revenue forecast of the 9,181.6 39.9 40.9 41.3 40.6 39.7 38.6 general government Measures of revenue -0.2 0.8 0.6 0.4 0.5 policy Expenditure forecast of 9,247.7 40.2 40.7 40.8 40.2 39.5 38.5 the general government Source: Ministry of Finance, Statistics Estonia 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. Table 11. Revenue and expenditure according to the forecast compiled by the Ministry of Finance in the spring of 2018, excluding budgetary policy decisions 2017 2017 2018 2019 2020 2021 2022 million % of % of % of % of % of % of euros GDP GDP GDP GDP GDP GDP
95 Revenue forecast of the 9,181.6 39.9 41.1 40.5 40.0 39.2 38.2 general government Expenditure forecast of 9,247.7 40.2 40.6 40.7 40.3 39.4 38.3 the general government Source: Ministry of Finance, Statistics Estonia
Table 12. General government expenditure by government functions (COFOG) (% of GDP) COFOG 2014 2015 2016 2018 2021 code
1. General public services 1 4.1 4.3 4.2 3.9 4.3 2. National defence 2 1.8 1.9 2.0 2.1 2.1 3. Public order and security 3 1.9 1.8 2.0 1.6 1.5 4. Economy 4 4.8 4.7 4.3 4.7 4.0 5. Environment protection 5 0.6 0.7 0.6 0.5 0.4 6. Housing and utilities 6 0.4 0.4 0.4 0.3 0.2 7. Healthcare 7 5.2 5.5 5.3 5.6 5.9 8. Recreation, culture and religion 8 2.0 2.0 2.1 1.9 1.6 9. Education 9 5.7 6.1 5.9 6.5 5.5 10. Social protection 10 11.9 12.9 13.5 13.5 14.0 11. Total expenditure of the general 38.4 40.2 40.6 39.5 TE government 40.7 Sources: Ministry of Finance, Statistics Estonia In 2018, general government expenditure will be on a level similar to that of 2016. During 2019 – 2021, expenditure will grow by an average of 4.8% per year, i.e., slower than GDP, which is why the general government expenditure will decrease to 39.5% of GDP by 2021. As a percentage of GDP, expenditure on education and economy will show the sharpest decrease.
3.3.2. Budgetary position of the central government The biggest part of the central government, which comprises about three-fourths of the general government, are agencies financed from the state budget (constitutional agencies and ministries with their areas of government). The central government also includes foundations established by the state (hospitals and the Environmental Investment Centre have the biggest impact), companies that mainly provide services to the state (e.g. AS Riigi Kinnisvara) and agencies governed by public law (e.g. universities, Estonian Public Broadcasting). Figure 3 Revenue, expenditure and budgetary position of the central government
million euros % of GDP 10000 3 8000 6000 2 4000 1 2000 0 0 -2000 -4000 -1 -6000 -2 -8000 -10000 -3 2000 2002 2004 2006 2008 2010 2012 2014 2016 Revenues Expenditures Budgetary position (right scale)
Source: Statistics Estonia The tax revenue of the state budget, which is the most sensitive to economic development, comprises the biggest part of the central government’s revenue. This is why the biggest part of the
96 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-third28 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 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 0.3% of GDP in deficit to 0.4% of GDP in surplus. Table 13 Position of the central government 2018 2019 2020 2021 2022 Central government revenue (million euros) 8,540 9,194 9,601 10,218 10,695 Central government expenditure (million euros) 8,575 9,094 9,499 10,105 10,660 Position (million euros) -35 100 102 113 35 Position (% of GDP) -0.1% 0.4% 0.4% 0.4% 0.1% Source: Ministry of Finance
3.3.2.1. State budget revenue During 2019–2022, the growth of state budget revenue will accelerate compared to the economic forecast compiled in the spring, the volume of revenue with transferable income shall increase on average by 4.2% per year, which exceeds the economic forecast by 0.5%. Compared to the forecast compiled in the spring, revenue will decrease by 54 million euros, i.e., 0.5% this year; next year, the volume of state budget revenue will increase by 204.7 million euros, i.e., 1.9%. When compared to the current year, by 2022, revenue will increase by 1.8 billion euros to 12.2 billion.
28 Based on the state budget for 2017.
97 Figure 4 Volume and growth of state budget revenue (million euros, %) 13 000 12 000 11 000 10% 10 000 9 000 8% 8 000 7 000 5% 6 000 5 000 4 000 3% 3 000 2 000 1% 1 000 0 -1% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Tax revenues Transferrable revenues Non-tax revenues Growth yoy
Source: Ministry of Finance During the budget strategy period (2019–2022), the tax revenue (without transferrable taxes) will show an average annual growth of 5.8% per year, i.e. 0.3% 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 2019–2022, social tax revenue will annually increase by 6.4% on average; the forecast revenue in 2022 is 3890.1 million euros. These revenues are increased by growing average wages as well as increase in employment. For the aforementioned period, the reciepts of value added tax will increase on average by 6.1% a year and the forecast accrual in 2022 is 2,941 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 reform29. The growth of VAT revenue is hampered by correcting (decreasing) the forecast of revenues from excise duties. In 2019–2022, the reciepts of excise duties will increase, on average, by 3.0% annually; the estimated revenue in 2021 will be 1,180.4 million euros. The reciepts of excise duties shall fall behind the spring forecast as the increase of excise duties planned for 2019 is not carried out and deductions of excise duties on electricity and gas have been added for major consumers. During the budget strategy period, non-tax revenues decrease by 6.8% per year on average and the decrease has slowed down by 1.5% when compared to the forecast compiled in the spring. The main change is caused by financial revenue and other revenue. Financial revenue depends primarily on proprietary income, which has been increased, in comparison with the forecast, foremost as a result of increased forecast of dividends of state enterprises. The volume of non-tax revenue is most dependent on external funds, which will be the largest in 2018 (1.09 billion euros) and will decrease by 12.4% on average during 2019–2022. Compared to the previous State Budget Strategy, the forecast state budget revenue shall increase, on average, by 2.4% a year during 2018–2021 and the revenue of 2021 will increase by almost 1 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
29 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 revenue of indirect taxes (value added tax, excise duty), bringing about the so-called “second-round” positive effect on the budget.
98 tax policy. Figure 5. Comparison of revenue planned in the State Budget Strategy 2018–2022 and in the previous State Budget Strategy (million euros)
12000
10000
8000
6000
4000
2000
0 2018 2019 2020 2021 2022
SBS 2018-2021 SBS 2019-2022 Source: Ministry of Finance
3.3.2.2. State budget expenditure Expenses Compared to 2018, the state budget expenditure shall increase 14.9%, i.e., 1.6 billion euros in 2022, of which calculated costs, i.e., costs related to statutory limits, are 1.4 billion euros. Figure 6. Revenue and expenditure of state budget in 2017-2022 (million euros)
The largest increases (1.2 billion euros) of the above are social sector expenditure, including national health insurance (378 million euros), national pension insurance (373 million euros), work ability allowance (155 million euros), and state budget allocation to the health insurance fund (131 million euros). A more detailed overview of the calculated costs is reflected in Appendix 4 to this document.
99 In the defence sector, the costs will increase by 111 million euros to ensure a defence expenditure ratio of at least 2% of GDP, plus investments concerning allies and the national defence investments programme. Additional funds in the amount of 118.4 million euros will be directed to the ICT area of the public sector, the aim of which is to modernise and maintain existing and new developments as well as improve cyber security. The wages of the state’s ICT specialists working in ICT agencies in the public sector shall be increased by 20%. Funding for research and development in the public sector shall be 0.81% of GDP. During the period of 2019–2022, expenditure in this sector will increase by about 115 million euros, including an increase of basic instruments research by 53.2 million euros (13.3 million euros per year). 822.5 million euros is allocated to road management, its most important projects being the construction of Kose-Mäo highway section into a 2+2-lane highway; construction of Tallinn ring road to have 2+1 lanes in the section of Jüri-Väo; constructing 2+1 bypass lanes in the sections of Tallinn-Pärnu and Tallinn-Tartu; and constructing Sillamäe traffic node in order to increase the traffic safety of Tallinn-Narva highway. In 2019, 42 million euros shall be allocated to supporting county public transport. Until 2022, the Government is planning to invest 288.3 million euros in the construction of important infrastructure objects and developing Estonian living environment. Broadband distribution network is constructed and the Tallinn City Hall (Linnahall) is renovated into a contemporary fair and exhibition centre in cooperation of the state, local governments and the private sector. During the period of 2019–2022, external grants amount to 3.7 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 2014–2020, an increase in the volume of external grants is also expected. During the period of 2019–2022, the Ministry of Rural Affairs and the Ministry of Economic Affairs and Communications will implement the most external grants, using 1.2 billion and 1.1 billion euros respectively. Table 14. Expenditure by COFOG
Percenta Percenta Percenta Percenta 2019 2020 2021 2022 ge from ge from ge from ge from SB SB SB SB GDP GDP GDP GDP TOTAL 11,25 42.8% 11,73 42.2% 11,92 40.7% 12,13 39.3% 7 8 8 7 01 General public services 1,986 7.6% 2,003 7.2% 2,083 7.1% 2,138 6.9% 02 National defence 575 2.2% 580 2.1% 603 2.1% 628 2.0% 03 Public order and security 501 1.9% 504 1.8% 504 1.7% 505 1.6% 04 Economy 1,509 5.7% 1,639 5.9% 1,488 5.1% 1,414 4.6% 05 Environment protection 157 0.6% 175 0.6% 180 0.6% 151 0.5% 07 Health care 1,551 5.9% 1,654 5.9% 1,742 5.9% 1,843 6.0% 08 Recreation, culture and 285 1.1% 275 1.0% 269 0.9% 268 0.9% religion 09 Education 1,025 3.9% 1,054 3.8% 1,020 3.5% 968 3.1% 10 Social protection 3,552 13.5% 3,712 13.3% 3,862 13.2% 4,008 13.0% 11 Unallocated nationwide 116 0.4% 140 0.5% 176 0.6% 213 0.7% expenditure* * Unallocated nationwide budget (ICT, Riigi Kinnisvara AS rent payments, co-funding of external funds), the detailed distribution of which will be revealed during the state budget process in the fall of 2018. Investments
100 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 2019–2022 amount to a total of 3.7 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 for 2019–2022 is 920.0 million euros, about 440.0 million euros of which is allocated for investments of public expenditure bodies. Additionally, on average, 480.1 million euros from the state budget is allocated to the other general government for investment subsidies. Figure 7. Investments and investment subsidies in the state budget and the budget of the Riigi Kinnisvara AS
700 605 600 517 480 500 453 450 464 391 400 319
300 Million euros Million 200
100
0 2019 SBS 2020 SBS 2021 SBS 2022 SBS
Investments of public expenditure bodies and investments of Riigi Kinnisvara AS Investment subsidies Investment subsidies
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 2018–2022, investments that improve the competitiveness and defence capability of Estonia in the total extent of 355 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; 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,
101 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 (34.1%) and to real estate (32.9%). Figure 8. Distribution of investments and investment subsidies by acquiring groups
1 500,0
1 000,0
million million euros 500,0
0,0 2019 SBS 2020 SBS 2021 SBS 2022 SBS
Roads and facilities Other investments* Machinery and equipment Real estate Defence related special equipment (investments) IT investments Inventory
* Other investments include investments, the detailed distribution between acquiring groups is not clear during the stage of drafting the State Budget Strategy. Build-up real estate investments from public revenues and the budget of Riigi Kinnisvara AS About 32.9% 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 55% (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 45% (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 2019–2022 discussions concerning the State Budget Strategy, decisions were made in relation to the continuation of the following projects: Repeated design works of the building for the School of Fine Arts due to a change in needs and preparations for construction in 2018–2021 in a total sum on 1.70 million euros (without VAT 30 ), decreasing the reservation of the construction stage by that sum. During the management of the project, measures have to be adopted to prevent the forecast appreciation. The funding of construction stage and fitting-out shall be decided upon completion of the project plan and determining of the detailed cost.
30 In the case of financing though the Riigi Kinnisvara AS, the sums are displayed without VAT; in the case of financing from the state budget, the sums are displayed with VAT.
102 The construction stage of the breeding centre for grain and grass plants of the Estonian Crop Research Institute, in 2019 and in the sum of 1.90 million euros (without VAT). Acquisition sum of movable property in relation to the investment is 1.2 million euros (with VAT). Construction stage of the Sillamäe joint building of the Police and Border Guard Board and the Rescue Board in2019–2020, in a total sum of 3.08 million euros (without VAT). Appreciation of the cost of the construction stage of the Kihnu rescue squad in 2019 in the amount of 0.61 million euros (without VAT). Appreciation of the cost of the construction stage of the joint building of Police and Border Guard Board and the Rescue Board, during 2019–2020 and in the total sum of 5.45 million euros (without VAT). Continuation of design works and cancellation of the construction stage reservation of the security agency building of the Ministry of the Interior (2019–2020 in the total sum of 20 million euros). Construction will be discussed when the project plan is completed during the SBS process. The construction stage of Supreme Court buildings with fitting-out during 2018–2019, in the total sum of 6.32 million euros (with VAT). Construction stage of the Estonian Embassy in Washington during 2019–2020, in the total sum of 7.30 million euros (with VAT). In addition, the following new decisions were made during discussions of the State Budget Strategy for 2019–2022: The design works of the Environmental House in 2019 in the sum of EUR 1.64 million (with VAT), provided that the resources are from the revenue from EU greenhouse gas emission allowance trading. Options for cooperation with the private sector will be considered in order to finance the construction stage and the fitting–out. The project will lead to a significant reduction in surface use (6,289 m2) and improve energy efficiency. Planning and design works of television studios of the Estonian National Broadcasting in 2019–2023, in the total sum of 1.50 million euros (without VAT), using the proceeds from the transfer of real estate for financing. During the project (7,800 m2), a significant reduction in surface use and improvement of rooms that are in a critical condition concerning construction engineering shall be achieved. The design works of the National Library of Estonia and the National Archives in 2019 in the total sum of 1.30 million euros (without VAT), using the proceeds from the transfer of real estate for financing. During the project (12,738 m2), a significant reduction in surface use and improvement of rooms that are in a critical condition concerning construction engineering shall be achieved. Works conducted for the relocation of the certification department of the Maritime Administration in 2019 and in the sum of 0.40 million euros (with VAT). The objective is to free up registered immovables that the state does not need on the Süsta street and to transfer those. In order to implement the state’s real estate reform and maintain the condition of existing buildings, it was decided, in 2014, in the State Budget Strategy, to double the amount of repair resources in lease contracts with Riigi Kinnisvara AS (from the previous average level of 1.5% of the construction cost to the level of 3% of construction cost). To this end, resources were planned and decisions made in this SBS to channel resources into the growth of repair resources: - Repair resources for foundations under the Ministry of Culture and legal persons governed by public law are planned in the amount of 2.0 million euros per year as of 2019. - Set up an optimization reserve of Riigi Kinnisvara AS and direct 13.45 million euros into it in 2019, and 13.77 million euros per year during 2020–2022.
103 The Riigi Kinnisvara AS optimization reserve will also include the construction sums of state houses already decided upon (1.80 million euros per year) and volumes of small repairs, asset valuation and reserve planned in the Riigi Kinnisvara AS position (3.50 million euros per year, all sums without VAT). This creates a “fund”, the principles of use of which are confirmed by the sole shareholder of the Riigi Kinnisvara AS (Minister of Public Administration). The most important activities that can be financed from the Riigi Kinnisvara AS optimization reserve are the optimization proposals arising from the real estate management plans, minor adjustments to the needs of the government authorities, and the own financing part of the C02 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. The Riigi Kinnisvara AS optimization reserve creates an opportunity for more flexible financing of investment projects that help decrease real estate costs, and is a first step in transitioning to new financing principles and the so-called pool-specific financing based on real estate management plans. On 16 March 2018, 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. Ministries should be able to manage their real estate costs more and use their savings, thereby increasing their responsibility for real estate decisions and their motivation to save costs. In the future, the Government will decide on the volumes of real estate costs and investment by area of government (similar to the EU Structural Funds, for example), and the responsible ministry shall decide on the more detailed use of resources, i.e., the distribution of the total amount by individual objects on the basis of a real estate management plan (with the exception of new strategic investments, which shall be decided by the Government). The transition to a new process requires implementational activities, including legislative changes and developments in information systems. The decision taken in this SBS is the first step towards increasing flexibility, transitioning to increasing the volume of pool-specific decisions and making decisions based on a real estate management plan. By now, management plans have been completed for county centre bureaus, i.e. state houses, and in the areas of government of the Ministry of the Interior; by the end of 2018, management plans shall be competed for all areas of government. Rail Baltic The following activities will be carried out during 2019–2022 for the implementation of the Rail Baltic (RB) project: Design works of RB will continue on all sections (Rapla-Pärnu, Tallinn-Rapla and Pärnu-Ikla) until 2022: the basic project and technical project will be compiled with a total cost of about 27 million euros. During 2019–2021, environmental studies will be conducted 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 1 million euros. The construction of RB will start in 2019, in compliance with the completed and approved technical project and construction licences acquired. A detailed construction programme shall be agreed upon based on results of the construction logistics study (the study shall be initiated in 2018). The budget for 2019–2022 is about 115 million euros.
104 The design works of the RB Ülemiste terminal and Pärnu terminal, which started in 2018, will be continued until 2022; with a cost of about 0.6 million euros. The 3rd stage of the archaeological studies, started on the RB route (about 50 locations) in 2018, will be conducted until 2019; with a cost of about 0.3 million euros. Studies concerning the security of supply of mineral materials shall be continued (2. stage: crushed stone made of mine-waste of oil shale industry, etc.); with a cost of about 0.2 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 established in 2018 (estimated time of enforcement: second half of 2018). The preliminary draft of the tram connection of Tallinn Old Harbour will be completed in 2019. The cost, with expenditure of 2018, amounts to about 0.4 million euros. Construction of the Ülemiste passenger terminal will commence in 2020; the first part to be carried out is the relocation of the existing 1520 mm tracks (with the construction of the trestle) and works at the Ülemiste freight terminal. The cost is about 20 million euros. Overview of the planned investments and investment subsidies, as well as that of investments of Riigi Kinnisvara AS by areas of government, types and objects has been included in Appendix 7.
3.3.3. Budgetary position of local governments Local governments (a total of 79) have an important role in the performance of public sector functions. They all perform the same functions irrespective of their size. General governance 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 2017, the total unconsolidated accrual-based volume of those expenses was 1,968 million euros (incl. 87 million euros of liabilities). Personnel and management expenditure comprised 64% of this.
105 Figure 9. Breakdown of expenses of local governments in 2017 (million euros)
Other, 186
Social …
General governance, 158 Education , 870
Recreation, culture and religion, 202
Management expenses (including housing and …
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 2017 (million euros)
Sales of goods and Other revenues, 49 services, 158
Support for acquiring fixed assets, 76
Support for running Income tax, 985 costs, 480
Other tax revenues, 74 Source: Ministry of Finance
106 The accrual-based deficit of local governments and their dependent entities reached 58 million euros in 2017. The development of that deficit was influenced by their increased investment activities. 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. According to a forecast compiled by the Ministry of Finance, local governments will have a surplus in 2018 due to significant growth of revenue (incl. merger grants) and a slightly lower investment activity (when compared to the previous year). For the next few years, we anticipate a deficit during the entire budget strategy period, mainly due to the continued increase in investment activity. Mainly obligations will be increased to cover this. Table 15. Tax revenues transferred to local governments and the planned equalisation and support fund
(million euros) 2019 2020 2021 2022
Income tax 1,149 1,219 1,283 1,350
Land tax 58 58 58 58
Equalisation fund 100.2 105.2 105.2 105.2
Support fund 421.3 421.3 420.8 419.3
The budgets of local governments and their fulfilment of those budgets can be viewed in the public funds application31.
3.3.4. Budgetary position of social security funds Estonian Health Insurance Fund providing health insurance and the Estonian Unemployment Insurance Fund providing unemployment insurance belong to the sector of social security funds. In Estonia, the national pension insurance system belongs to the central government. In 2017, the budgetary position of the Estonian Health Insurance Fund was better than expected due the accrual of social tax in a surplus of 7 million. This year’s estimated surplus will be about 40 million euros, as the expectation of social tax payments has improved significantly. As economic growth is expected to exceed the potential of this year, the growth of reserves is justified. During 2019–2021, the objective of the budgetary position of the Health Insurance Fund for the aforementioned years, approved by the Riigikogu, has been taken into account. A balance is expected in 2022. From the current year, a state budget allocation is paid to the Health Insurance Fund for non-working pensioners. Additional funds significantly increase the revenue of the Estonian Health Insurance Fund and are allocated foremost for reducing the treatment needs not covered by health insurance. Along with the changes, nearly all the state budgetary expenses of the area of health care have been transferred or will soon be transferred to the Estonian Health Insurance Fund. The objective of the largescale objective is to improve the sustainability of Estonia’s health insurance system. The surplus of the Unemployment Insurance Fund amounted to nearly 54 million euros in 2017, which exceeds that of the previous two years and exceeded expectations by a considerable extent. This year’s budgetary position of the Unemployment Insurance Fund is affected by increase in costs, which is mainly due to additional personnel and management costs related to the target group of the work ability reform; however, there are other additional costs linked to the employment programme, such as those related to measures preventing unemployment. The expected surplus in
31 http://riigiraha.fin.ee
107 2018 is 18 million euros. As in the previous year, the expenditure on active labour market measures is also expected to be covered from unemployment insurance premiums in this year and the coming years. The budgetary position of the Unemployment Insurance Fund will improve in the coming years, remaining in the range of 32–41 million euros during 2019–2021 and deteriorating slightly in 2022, as the volume of external funds used by the Unemployment Insurance Fund is not known for that year, therefore, some expenses are expected to be covered by the accrual of unemployment insurance premiums. Table 16. Debt burden of the general government in 2017–2022 (% of GDP) 201 201 201 201 2018 2019 2020 2021 2022 4 5 6 7 * * * * *
Budgetary position of the Estonian Health Insurance - - - 6.8 39.5 4.2 5.0 2.3 0.0 Fund 16. 17. 29. 5 3 6 % of GDP -0.1 -0.1 -0.1 0.0 0.2 0.0 0.0 0.0 0.0 Budgetary position of the Estonian Unemployment 81. 43. 42. 53. 17.7 36.2 40.6 31.5 17.1 Insurance Fund 2 9 0 7 % of GDP 0.4 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 Social security funds in total 64. 26. 12. 60. 57.1 40.3 45.7 33.8 17.1 7 6 4 5 % of GDP 0.3 0.1 0.1 0.2 0.2 0.2 0.2 0.1 0.1 ** Budgetary position in 2014–2017 according to the balance statement of the Ministry of Finance. The position of 2018–2022 according to the economic forecast compiled by the Ministry of Finance in the spring. In the case of the Unemployment Insurance Fund, income from the Structural Funds is estimated to be 5 million euros lower during the period of 2021–2022.
3.4. Tax policy
3.4.1. 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 2016 was 34.5% of GDP, which is approx. 5 percentage points lower than the average of the European Union (see Figure 23). In comparison with the Central and East European countries, Czech Republic, Slovenia, Croatia and Hungary had a bigger tax burden than Estonia. Figure 11. Tax burden in the European Union in 2016 (% of GDP)
50
39,2 40,2 40 34,5
30
20
10
0
Source: Eurostat
108 The tax burden in 2018 will be 34.3% of GDP. During the period of 2019–2022, abandoning the increase in excise duty on alcohol will decrease tax accrual, whereas, wage increase and several SBS measures will increase the accrual of labour taxes and VAT. A larger distribution of dividends of state enterprises will increase accrual of income tax from legal persons. All in all, the tax burden will increase to 34.6% of GDP in 2019 and will decrease to 34.2% by 2022.
3.4.2. Implicit tax rate and tax wedge In addition to the share of tax revenue in GDP, the level of tax burden is also characterised by the implicit tax rate32, 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. During the period of 2014–2017, the effective tax rate of the labour force was affected by the higher rate for funded pension contributions (2+6 and 3+6 payments). Basic allowance was increased in 2016–2017 and a tax credit to low-income persons was introduced for a year (2017). The basic allowance reform (2018) reduces the implicit tax rate on labour; at the same time, technically, the expiry of the higher contributions to funded pension has the opposite effect and this indicator shall reach 34.0% in 2018. Lack of subsequent tax reductions related, wage increase agreed upon in the SBS and several measures increase the accrual of labour taxes, which takes the indicator to 35.4% by 2022. Implicit tax rate on consumption will drop to 26.7% by 2022. This is affected by the abandoning the increase in excise duty on alcohol and by several measures of the SBS, which increase VAT accrual (see Figure 27B). 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. The new system of basic allowance reduces, when compared to the system that was enforced until the end of 2017 (€180 basic allowance, 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 increases primarily for low and middle income employees, which is one of the objectives of the new system. The tax wedge of the new system will also remain below the EU average in 2016 at almost every income level. The tax wedge of a single childless person, who earns 67% of average wage, will decrease significantly to 32.8% in 2018 as a result of the basic allowance reform. The indicator will reach 34.4% by 2022 (see Figure 25C), which is still much lower than the European Union average 36.8% in 2016. The tax wedge of a married couple with two children where one parent earns 100% of the average wages (see Figure 25D) depends significantly more on the basic allowance (additionally for the non-working spouse and 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. The tax wedge for this family will decrease to 28.5% in 2018 as a result of the basic allowance reform. Wage income brings about a reduction in basic allowance in the wage range 1,200–2,100 euros and, as a result, the tax wedge will increase to 32.2% by 2022, which is still higher than the
32 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.
109 European Union average of 2016 (30.3%). 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 Latvia and Lithuania, Estonia's tax wedge was somewhat lower in 2017 (125% and 167% of the average wage) for larger incomes. 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
40% 30%
35% 25%
30% 20%
25% 15%
`20 `04 `06 `08 `10 `12 `14 `16 `18 `22 `04 `06 `08 `10 `12 `14 `16 `18 `20 `22 Estonia (SBS) Estonia (spring18) Estonis (SBS) Estonia (spring18) Latvia Lithuania Latvia Lithuania EU 28 EU 28 C. Tax wedge, single childless person D. Tax wedge, married couple, 2 children, one who earns 67% of the average worker’s parent earns 100% of the average worker’s wages* wages*
46% 40%
42% 35%
38% 30%
34% 25%
30% 20%
`07 `08 `09 `10 `11 `12 `13 `14 `15 `16 `17 `18 `19 `20 `21 `22 `06 `06 `07 `08 `09 `10 `11 `12 `13 `14 `15 `16 `17 `18 `19 `20 `21 `22
Estonia (SBS) Latvia Estinia (SBS) Latvia Lithuania OECD Lithuania OECD EU 28 EU 28 * According to the spring forecast of the Ministry of Finance, the gross average worker’s wages in 2022 will be 19,936 euros per year. Sources: OECD Taxing Wages 2017, European Commission http://ec.europa.eu/economy_finance/db_indicators/tab/, Ministry of Finance
3.4.3. Tax expenditures Tax expenditures are government instruments for directing social or economic policy and provide tax incentives for taxpayers with certain characteristics33. The revenue of the state budgets for 2018 is influenced by 17 and by 19 (in 2019) significant tax expenditure provisions in the Value Added Tax Act, the Income Tax Act and the Alcohol, Tobacco, Fuel and Electricity Excise Duty Act (Table 16). In 2019, deductions of excise duties on electricity and gas shall apply to major consumers. The total scope of the main tax expenditure in 2018
33The 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 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.
110 comprises 206.3 million euros, i.e. 0.8% of GDP. In 2018, tax expenditure decreased by 47.9% compared to the previous year, because the new basic exemption system eliminated increased basic exemption for pensions and the tax credit to low-income persons. In 2019, tax expenditure will increase by 4.5% to 215.6 million euros, as the deduction of excise on electricity for major consumers will be enforced. The highest volume of tax expenditure comes from lower value added tax rates for medicinal products and medical devices, more favourable rate of excise duty on diesel fuel for specific purposes and increased basic exemption as of the second child. The volume of the three largest types of tax expenditure constitutes 61% of the total tax expenditure in 2018. Table 17. Debt burden of the general government in 2017–2022 (% of GDP) Government Tax expenditure Provision 2018 2019 function34
1. 1. 9% value added tax rate on books, workbooks and Clauses 15 (2) 1) periodicals and 3) of the 9 10.1 10.7 VATA 2. 2. 9% value added tax rate on medicinal products Clause 15 (2) 2) 7 60.6 64.2 and medical devices of the VATA 3. 3. 9% value added tax rate on accommodation Clause 15 (2) 4) 8 27.8 29.5 services of the VATA Section 231 of the 4. Additional basic allowance from the second child 10 28.5 23.5 ITA SECTION 234 OF 5. Additional basic allowance for spouse 10 3.4 3.4 THE ITA Section 25 of the 6. Deduction of mortgage interest 6 5.7 6.2 ITA Section 26 of the 7. Deduction of training expenses 9 13.6 14.3 ITA Subsection 27 (1) 8. Gifts and donations 8 1.4 1.5 of the ITA 9. Insurance premiums and acquisition of units of a Section 28 of the 10 3.7 4 pension fund ITA 10. Additional basic allowance of self-employed Subsection 32 (4) 4 2 2 persons upon a sale of agricultural produce or timber of the ITA 11. 13 50% excise duty rate for independent small Subsection 46 (1) 4 0.7 0.8 breweries of the ATFEEDA 12. 14 Lower excise duty rate on diesel fuel for Subsection 66 (7) 4 37 38 specific purposes and light fuel oil of the ATFEEDA Clause 27 (1) 222) 13 Exemption of fishermen from excise duty on fuel 4 1.5 1.5 of the ATFEEDA Clause 27 (1) 24), 14. Electricity used for chemical reduction and in section 284 of the 4 0.6 0.6 electrolytic, metallurgic and mineralogical processes ATFEEDA 15. Electricity and fuel used for producing electricity Clause 27 (1) 282) and electricity used for maintaining the ability to 4 7.9 8.3 of the ATFEEDA produce electricity
34 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
111 Government Tax expenditure Provision 2018 2019 function34 Clause 27 (1) 24), 16. Fuel used for mineralogical processes section 284 of the 4 1.32 1.66 ATFEEDA 17. Natural gas used for the purpose of operating the Clause 27 (1) 286) 4 0.3 0.38 natural gas network of the ATFEEDA 18. Deduction of excise on electricity for major ATFEEDA 4 0 3 consumers 19. Deduction of excise on gas for major consumers ATFEEDA 4 0 1.9 TOTAL 206.3 215.6 Source: Ministry of Finance
3.5. Debt burden and the reserves of the general government
3.5.1. 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 2017 amounted to 9% of GDP, which is 0.4% less than in 2016. The main reason for the decline in debt percentage was the faster growth of GDP compared to debt growth. Last year, the debt of local governments, public law agencies and foundations included in the central government increased nominally. The central government debt (including the EFSF)35 comprised 1,307 million euros and the debt of local governments 758 million euros36 of the total general government debt of 2,066 million euros; the share of external debt in total debt was 62%. Without the funds of the EFSF, which amounted to 455 million euros in 2017, the central government debt was 853 million euros, i.e. 3.7% of GDP. Table 18. Change in the debt burden of the general government in 2017 31 December 2016 31 December 2017 Change million million % of GDP % of GDP % of GDP euros euros
General government 1,986.8 9.4 2,065.5 9.0 -0.4 Domestic debt 697.5 3.3 791.6 3.4 0.1 External debt 1,289.3 6.1 1,273.9 5.5 -0.6 Central government37 2,190.8 10.4 2,273.5 9.9 -0.5 Domestic debt 1,052.2 5.0 1,162.3 5.1 0.1 External debt 1,138.6 5.4 1,111.2 4.8 -0.6 Local governments 708.1 3.4 758.1 3.3 -0.1 Domestic debt 557.4 2.6 595.4 2.6 -0.1 External debt 150.7 0.7 162.7 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 decrease to 8.5% of GDP.
35 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. 36 Consolidated figure at the level of the general government 37 Consolidated figure at the level of the central government
112 Nominally, this year's debt is increasing, due to the increased contribution of public law agencies and foundations involved in central government, while the debt burden of local governments is decreasing compared to 2017. It is estimated that the debt burden will gradually decrease over the coming years, dropping to 5.3% of GDP by the end of the forecast period in 2022. The negative cash flow of the central government in 2018–2019 and 2022 will be funded from reserves, and the State Treasury will not incur a direct need for new loans based on cash flow. Although the state budget is nominally in surplus this year and the following year, the cash flow in total is negative from servicing the state budget, as other factors are taken into account in addition to the state budget position. The negative cash flow arises from three main factors: the loan amount repayable by the State Treasury; the adjustment arising from the difference between cash-based and accrual- based tax income; and taking into account the cash flow of external funds, which has a negative forecast for the first years, as payments of external grants exceed the receipt of external grants. Without the EFSF, the contribution of the central government to the debt burden will decrease nominally and as a percentage of GDP starting with 2019. 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 2.8% as percentage of GDP. Table 19. Debt burden of the general government in 2017–2022 (% of GDP) 2017 2018* 2019* 2020* 2021* 2022* 1. Total debt 9.0 8.5 7.7 6.9 6.2 5.3 2. Change in debt burden -0.4 -0.5 -0.8 -0.8 -0.7 -0.9 Contributions to change in debt burden: (2=3-4+5+6)38 3. Contribution of nominal GDP increase -0.8 -0.6 -0.5 -0.4 -0.4 -0.3 4. Primary budget balance -0.2 0.3 0.5 0.4 0.2 0.1 5. Interest payments 0.0 0.0 0.0 0.0 0.0 0.0 6. Difference between the change of debt burden and 0.1 0.4 0.2 -0.0 -0.1 -0.5 the budgetary position (stock-flow adjustment, SFA) Estimated interest rate of general government debt 0.5 0.5 0.5 0.6 0.7 0.6 (%) Other relevant indicators 7. Liquid financial assets 8.9 8.2 7.5 7.4 7.1 6.5 8. Debt amortisation since the end of last year39 0.1 0.1 0.3 0.3 0.2 0.2 9. Net debt (9=1-7) 0.1 0.3 0.2 -0.6 -0.9 -1.1 10. Share of debt denominated in foreign currency 0.0 0.0 0.0 0.0 0.0 0.0 (%) 11. Average limitation period40 (in years) 4.1 3.2 2.7 2.2 1.7 1.7 * - forecast Source: Ministry of Finance, Statistics Estonia
38 In some years, the equation is not applicable due to rounding. 39 Central government without foundations and legal persons governed by public law 40 Central government without foundations and legal persons governed by public law
113 Figure 13. Development of debt burden in 2008–2022 (% of GDP) A. General government debt (% of GDP) B. Difference between the change of debt burden and the budgetary position, SFA (% of GDP)
12 5 4 10 3 8 2 6 1 4 0 -1 2 -2 0 -3 2007 2009 2011 2013 2015 2017 2019* 2021* 2008 2010 2012 2014 2016 2018* 2020* 2022* Difference between the change in the debt burden and the budgetary deficit EFSF Local governments Central government (exept EFSF) C. Repayment of central government41 debt (million euros) D. Average interest rate of central government42 debt (%)
6 120 5 4 80 3 2 40 1 0 0 2008 2010 2012 2014 2016 2018* 2020* 2022* 2007 2009 2011 2013 2015 2017* 2019* 2021*
Average interest per year Loan repayments Source: Ministry of Finance, Statistics Estonia, Eurostat
3.1.1. General government reserves and net position The volume of the liquid financial assets of the general government as of the end of 2017 were 2,045 million euros, constituting 8.9% of GDP. Compared to 2016, the reserves of social security funds increased; however, the reserves of the central government and local governments decreased. This year, the amount of reserves will remain stable, compared to last year, but a decrease in general government reserves is forecast for 2019, 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 shall be in surplus next year, loan repayments, cash flow of external funds and tax adjustments also will be taken into account in the cash flow of the state budget.During the period of 2020–2021, 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 6.5% of GDP by the end of 2022.
41 Central government without foundations and legal persons governed by public law 42 Central government without foundations and legal persons governed by public law
114
Table 20. Liquid financial assets, i.e., reserves of the general government in 2017–2022 (million euros, % of GDP) 2017 2018* 2019* 2020* 2021* 2022* Total of financial assets (million euros) 2,045 2,036 1,977 2,068 2,090 1,999 incl. central government 834 754 658 722 750 656 incl. local governments 313 326 323 305 264 251 incl. social security funds 898 955 996 1,041 1,075 1,092 Total financial assets (% of GDP) 8.9 8.2 7.5 7.4 7.1 6.5 incl. central government 3.6 3.0 2.5 2.6 2.6 2.1 incl. local governments 1.4 1.3 1.2 1.1 0.9 0.8 incl. social security funds 3.9 3.9 3.8 3.7 3.7 3.5 * - forecast Source: Ministry of Finance, Statistics Estonia In 2017, government debt somewhat exceeded the level of reserves and the net debt amounted to 0.1% of GDP (see Chart 14). The debt burden is forecast to decrease and the reserves is forecast to increase in the coming years, therefore, net assets will increase to 0.9% of GDP by the end of 2021. Due to a faster decrease in the debt ratio compared to reserves, net assets will increase to 1.1% of GDP by the end of the forecast period. Without the impact of the EFSF, reserves will exceed the debt burden starting from 2018, and net assets will, without the impact of the EFSF, reach 2.6% of GDP by 2022. Figure 14. Liquid assets, debt burden and net position of the general government in 2008– 2022 (% of GDP)
18
13 8.9%
8 6.5% Reserves
3 1.1% -0.1% -2
Dept -7 5.3% 9% -12 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20172018*2019*2020*2021*2022* Central government (debt) Central government (reserves) Social security funds (reserves) Local governments (debt) Local government (reserves) EFSF (debt) Net assets(+)/-võlg(-)
Source: Ministry of Finance, Statistics Estonia
3.2. Long-term sustainability Long-term budget projections provided in this chapter are based on the estimates and forecasts of the Ageing Report published in 2015. In the long run, these trends coincide with the developments forecast by that 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
115 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 shall no longer be included in this forecast. 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 emphasizing 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 policies. The impact of demographic trends on public finance has begun – according to Eurostat's latest population forecast (EUROPOP2015), the ratio of dependants (here assumed to be up to 18 years old and over 65 years old) to the working age population (age range 18–65) will increase from 59% in 2017 to 70% by 2036 and 88% by the year 2060. The following has been carried out to ensure long-term fiscal sustainability: o a conservative fiscal stance has been maintained and significant increases in general government debt have been avoided; o the pension system has been reformed and a contribution to pre-funded pension schemes has been facilitated; o retirement age has been increased and flexibility has been introduced into the pension index; o a better financial situation has been ensured through policies geared towards economic growth and employment. As a measure of the crisis period, it was decided to suspend payments to the II pension pillar from 1 July 2009 to 31 December 2010. Savings to the II pillar were restored in half the original volume as of 2011, and in full as of 2012. During 2014–2017, the share of social tax paid by the state to the II pillar increased to 6% for those who continued to pay personal payments in the interim period voluntarily and also for those who submitted a corresponding application in 2013. In the latter case, the individual payment also increased to 3%. According to the National Pension Act, retirement age will increase by 3 months per year as of 2017, reaching 65 years by 2026. At the moment, the retirement age for both men and women is 63 years. The increase in life expectancy of 63-year-olds for the year 2060 is worthy of mention here.When compared to 2014, in the next 50 years, the life expectancy of 63-year-old women is estimated to increase by 4 years and that of 63-year-old men is expected to increase by 6 years (according to the Aging Report 2015). 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 demographic developments. Increasing retirement age will compensate for demographic changes and, according to current estimates, keep the number of pensioners stable until 2026. 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. During the drafting process, the Parliament is also working on coordination of the draft amendment of the State Pension Insurance Act, which will decrease the dependence of I pillar payments to contributions, increase retirement age in correspondence to the estimated increase in life expectancy, increase the flexibility of retiring and shall open the II pillar to additional people.
116 Table 21. Debt burden of the general government in 2017–2022 (% of GDP) 2010 2020 2030 2040 2050 2060 Total expenditure 40.5 37.2 37.3 37.2 37.7 37.8 of that: expenditure related to aging 19.7 16.4 16.5 16.4 16.9 17.0 Pensions 8.9 6.4 5.9 5.9 5.9 5.6 Social insurance pensions 8.9 6.4 5.9 5.9 5.9 5.6 Old-age pensions 7.5 6.0 5.8 5.8 5.8 5.5 other (survivor’s pension, invalidity pensions) 1.4 0.4 0.1 0.1 0.1 0.1 occupational pensions (if paid from the general ------government budget) Healthcare 4.9 4.6 4.8 5.0 5.0 5.0 Welfare (previously part of healthcare costs) 0.5 0.7 0.8 1.0 1.1 1.2 Interest payments 0.2 0.1 0.1 0.1 0.1 0.1 Education expenditure 4.8 4.6 4.8 4.4 4.8 5.1 Other expenditure related to aging 0.6 0.1 0.2 0.1 0.1 0.1 Total revenue 40.7 37.2 37.3 37.2 37.7 37.8 of that: revenue from assets (incl. interest 0.0 0.0 0.0 0.0 0.0 0.0 revenue) of that: social security contributions (1st pillar 7.0 5.9 5.8 5.7 5.6 5.4 revenue) Pension insurance assets (1st pillar) 0.0 0.0 0.0 0.0 0.0 0.0 of that: consolidated assets of pension insurance 0.0 0.0 0.0 0.0 0.0 0.0 (other assets, other General Government bonds) Impact of the pension reform Social security contributions to the II pillar (state’s 0.0 1.07 1.16 1.20 1.20 1.15 4%) Payments of II pillar pensions 0.0 0.2 0.9 1.5 2.7 2.3 Prerequisites: Labour productivity growth 7.8 2.7 2.0 1.9 1.8 1.5 Real GDP growth 3.3 2.0 1.5 1.2 0.9 1.4 Participation rate in the labour force, men (aged 83.8 84.9 85.3 85.5 85.7 86.6 20–64) Participation rate in the labour force, women (aged 76.8 78.9 80.5 80.0 79.9 81.2 20–64) Total participation rate in the labour force (aged 80.2 81.8 82.9 82.8 82.8 84.0 20–64) Unemployment rate 16.7 9.8 9.4 8.6 7.5 6.8 Percentage of population over 65 years of age 17.0 20.6 24.3 26.8 28.8 29.9 Source: Ministry of Finance, Statistics Estonia, OECD, WHO, EU Economic Policy Committee. Note: The long-term forecast has not been updated in comparison to the previous Stability Programme, as a new Aging Report has not been compiled and several important changes, which have been approved by the Government, have not reached legislation yet.
3.3. Public finance reforms Updating the State Budget Act The current State Budget Act came into force on 23 March 2014. This Act transposed into national law the requirements of the Council Directive 2011/85/EU of 8 November 2011 on requirements for budgetary frameworks of the Member States and the requirements of the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, i.e., the Fiscal Stability Treaty. The Act established a government balance rule (balance rule for the general government budget), with a correction and compensation mechanism. In 2017, amendments to the State Budget Act were adopted, which came into force on 17 July 2017. Based on those amendments, the government balance is calculated as the average of a longer period. To this end, the general government budget is allowed to be prepared in a deficit that
117 extends to the cumulated structural surplus from previous years, but does not exceed 0.5% of GDP per year. The focus of the compensation mechanism also directed to the cumulated balance – the draft will bring about the requirement to compensate for the cumulated structural deficit in the general government budget immediately after the structural balance has been reached. The principles that entered into force in 2014, including the obligation of four-year cost ceilings in the State Budget Strategy, uniform rules for strategic planning and transition to activity-based budgeting, shall remain valid. When updating the Act in 2017, principles regarding management of the state’s cash flows and the coherent regulation of loans and guarantees were reiterated. Cash flow management is clearly related to the need to ensure that payments are made at any time. “If the general government deficit exceeds 2.5% of GDP or the debt burden exceeds 55% of GDP, then extraordinary credit limits shall apply to local governments. In such a situation, local governments must coordinate their loans with the Ministry of Finance.” The State Budget Act defines a more precise basis for implementing the spending review, the objective of which is to increase the efficiency and effectiveness of the use of public funds and the flexibility of the functioning of the state. Transition to activity-based budgeting Estonia transitioned to accrual-based budgeting in 2017 and shall transition to activity-based budgeting by 2020. 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. The structure format of the budget act, which shall be enforced in 2020, shall support the concept of activity-based budgeting: 1. The state budget is programme-based, strategic management is conducted in the entire country based on uniform grounds. The Government of the Republic sets the performance targets. The minister responsible for a specific performance target plans the achievement of targets and is responsible for the result to be achieved. To achieve these results, state authorities shall provide services corresponding to the quality, quantity and price previously agreed upon. The budget of the programme consists of the resources that are necessary to ensure the volume and quality of planned services. 2. The activities of state authorities are service-based and the output of each service contributes to the achievement of a greater objective. For example, the service of pension payments is linked to the objective of decreasing poverty in the framework of the social insurance programme. Services also include support services between authorities, such as personnel and salary accounting services offered by the State Shared Service Centre (RTK) to state authorities or services provided by IT institutions and services of ministries, such as the policy design service. 3. The services of authorities are linked to resources and priced. 150 state authorities shall implement traditional (resources directly related to services) or activity-based cost accounting (resources are linked to services through activities). To this end, the standards of accounting principles of financial accounting are supplemented and a uniform software solution shall be implemented in all state authorities. An authority may choose traditional or activity-based cost accounting based on its management needs or development needs of the organisation.
118 A transparent budget compiled according to uniform grounds refers to, among other things, to a more targeted and effective planning of external funds and to possibilities for monitoring results across sectors and in areas of activity. Activity-based budgeting gives leaders additional levers to make higher-quality (argumented, fact-based) decisions. Results based on performance and financial information require significant improvement in the quality of information and structuring in a way that allows the information to be used in conjunction with financial information. Activity-based budget refers to the interdependence between performance management and financial management, in which resources are related to results. The transition to an activity-based budget is based on the readiness of the ministries. By 2018, the Ministry of Education and Research and the Ministry of Social Affairs have transitioned to activity-based budgeting. All areas of government are preparing budgets on new grounds, and projects for the National Budget Strategy for 2020–2023 will be presented in an activity-based form by all 11 areas of government on 1 March 2019. 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. Cooperation has also been initiated with regard to developing the long-term (15 years) cross-sector development strategy “Estonia 2035”. “Estonia 2035” will be a strategic basis for the development or renewal of medium-term (7–10 years) sectoral development plans, as well as for agreeing upon a framework for the use of various EU funds of the financial period following 2020. Estonia will continue to focus on the planning state budget funds according to 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. The goals and indicators set out in the State Budget Strategy have been updated until the year 2019, based on the priorities of the Government that came into office in November 2016. The resources are in line with the macroeconomic and public finance indicators of the spring forecast of 2018, with the budgetary policy objectives of the current State Budget Strategy and current fiscal policy measures. In order to approach the areas of government in a comprehensive way, the planned activities and financial plans of other members of the general government were covered during the preparation of the State Budget Strategy and the state budget. Therefore, financial plans that were in
119 compliance with the objectives and activities of the Government, i.e., state budget application were submitted with data of general government institutions in the area of government of a particular ministry but not covered by the state budget. Implementation of spending reviews In order to increase the effectiveness and impact of using public resources and to support the implementation of the Government's priorities, a spending review concept has been developed. The purpose of preparing and implementing spending reviews is to review specific expenditure from the state budget and to provide the Government with suggestions in the process of preparing the budget to decrease or increase the expenditure or to arrange the sector more effectively (incl. more effective provision of public services) in the process of preparing the budget. In 2016, a pilot of the spending review was conducted, titled “Organising the Official Travel of Government Agencies” and in 2017, a spending review for enterprise and innovation was launched in co-operation of the ministers.
120 APPENDICES
Appendix 1. Economic forecast of spring 2018 of the Ministry of Finance and sensitivity analysis Forecast assumptions One basis for the budget strategy and its fiscal framework is the economic forecast compiled in the spring of 2018 by the Ministry of Finance, the macroeconomic overview tables of which are presented in this Appendix 1. A more detailed explanation of the economic forecast can be found on the website of the Ministry of Finance (https://www.rahandusministeerium.ee/et/riigieelarve- ja-majandus/majandusprognoosid). The economic forecast of the Ministry of Finance has been prepared by analysts of the Fiscal Policy Department of the Ministry, who, according to the State Budget Act, are independent in the preparation of the forecast and in selecting the compilation methodology. Assumptions for the spring economic forecast have been fixed as of end of March 2018. Table 22. The most important external assumptions of the forecast (percent) Assumptions of the MoF's spring 2018 forecast European Commission
2017 2018* 2019* 2020* 2021* 2022* 2017 2018* 2019* 1. Euribor, 3 months (annual -0.3 -0.3 0.0 0.4 0.6 0.8 -0.3 -0.3 0.0 average) 2. Long-term interest rate of 0.4 0.7 0.9 1.2 1.5 1.7 0.3 0.7 0.9 the euro zone (annual average) 3. USD/EUR exchange rate 1.13 1.24 1.24 1.24 1.24 1.24 1.13 1.23 1.23 (annual average) 4. Nominal effective exchange 1.1 1.3 0.1 0.0 0.0 0.0 - - - rate 5. World economic growth 3.9 4.2 4.2 4.1 3.9 3.9 3.9 4.1 4.1 (without the EU) 6. EU28 GDP growth 2.4 2.4 2.0 1.8 1.8 1.7 2.4 2.3 2.0 7. Import growth of Estonian 6.0 4.9 4.2 3.9 3.7 3.6 - - - export markets 8. World import growth 5.0 4.8 4.5 4.3 4.2 4.1 5.1 4.7 4.5 (without the EU) 9. Oil price (Brent, USD/barrel) 54.2 65.3 61.6 61.6 61.6 61.6 54.8 68.3 64.2 Sources: Eurostat, Eesti Pank, European Central Bank (ECB), IMF, US Energy Information Administration (EIA); Consensus Economics (CF), European Commission (COM winter forecast, February 2018) 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. 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 o Reducing labour tax evasion through dividend income as of 1 January 2018 o Restricting the removal of profits as of 1 January 2018. The minimum wage is expected to increase in the same pace as the average wage.
121 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 2018 takes into account the state budget amounts of 2018 and the RMK dividend increase as agreed upon in the budget process. The basis for 2019–2022 is made up of government decisions, including the potential sale of shares, which reduces dividends, and companies' financial projections and dividend proposals. Prerequisites of the general government expenditure forecast: In terms of 2018, the state budget for 2018 and detailed forecasts for the areas of government shall be used as basis. The expenditure forecast for 2019–2022 shall be based on the SBS for 2018–2021 (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 2018–2022 is 2% of GDP, plus costs related to the presence of allied forces and additional defence investments (coalition agreement). By areas of government, Riigi Kinnisvara AS retains rent payments at the level of 2018 and changes are reported in a nationwide manner. Decisions of the SBS 2018–2021 and the Government of the Republic that affect the expenditure of the state budget the most: o Investments (incl. the eastern border, Kose-Mäo 4-lane highway, Rail Baltic). o Overall wage fund growth of 2% in 2018. o Additional funding of health care. o Additional investments of up to 0.5% of GDP (Tallinn City Hall, infrastructure, defence). The costs accompanying the work ability reform are calculated as of 2017. An increase will occur in social tax accrual, which is linked to health insurance paid for unemployed people. Other prerequisites: It has been taken into account that the share capital of AS Eesti Energia will be increased by up to 20 million euros in 2018 and the increase in the share capital of AS Elering will reach up to 40 million euros in 2018. 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 social tax. The Estonian Health Insurance Fund’s (EHIF) budgetary position is based on the amount of expenditure approved in the 2018 budget and the share of health insurance in social tax revenue based on the forecast. For the years 2019–2022, the budgetary position approved by the Riigikogu has been used. The local authorities' forecast is based on the actual results of 2017 and the macroeconomic forecast, incl. taking into account changes in the local government's running costs due to inflation and changes in average wages.
122 Macroeconomic forecast Table 23. Gross Domestic Product Forecast for 2018–2022 (percent) 2017 2017 2018* 2019* 2020* 2021* 2022* level
1. Real GDP growth 18,849 4.9 4.0 3.2 3.0 2.9 2.9 2. Nominal GDP growth 23,002 9.0 7.6 6.3 5.8 5.4 5.4 Growth sources 3. Private consumption expenditure 2.0 4.7 3.3 3.0 2.7 2.7 (incl. NPISH) 4. Final consumption expenditure of 0.8 0.8 0.8 0.7 0.6 0.6 the general government 5. Gross fixed capital formation 13.1 3.3 5.1 4.3 3.9 3.7 6. Change in inventories (% of GDP) 1.6 1.9 1.6 1.6 1.7 1.8 7. Export of goods and services 2.9 4.5 4.2 4.0 3.8 3.8 8. Import of goods and services 3.5 4.6 4.3 4.2 4.0 3.9 Contribution to GDP growth1 9. Domestic demand (excluding
inventories) 4.2 3.4 3.1 2.7 2.5 2.5 10. Change in inventories -0.2 0.3 -0.2 0.1 0.2 0.2 11. Balance of goods and services -0.4 0.2 0.2 0.1 0.1 0.1 Growth of value added 12. Primary sector -1.1 1.7 2.2 1.8 1.7 1.7 13 Manufacturing 7.6 4.0 4.0 3.8 3.6 3.6 14. Construction 17.8 6.0 3.7 3.7 3.6 3.6 15. Other services 4.8 3.6 3.1 2.7 2.6 2.6 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 24. Forecast of prices for 2018–2022 (percent) 2017 2017 2018* 2019* 2020* 2021* 2022*
2010=100 % % % % % %
1. GDP deflator 122.0 4.0 3.5 3.0 2.7 2.5 2.5 2. Private consumption deflator 118.8 3.7 3.1 2.5 2.6 2.2 2.2 3. Harmonised consumer price index 118.8 3.7 3.0 2.5 2.6 2.1 2.1 3a. Consumer price index 115.4 3.4 2.9 2.3 2.4 2.0 2.0 4. . General government consumption 135.0 expenditure deflator 6.1 4.4 4.2 4.3 4.4 4.4 5. Investment deflator 114.8 2.5 3.2 2.7 2.6 2.3 2.3 6. Export deflator 106.6 4.1 2.6 2.3 1.9 2.0 2.0 7. Import deflator 110.8 2.8 2.4 2.0 2.0 2.0 2.1 Source: Ministry of Finance, Statistics Estonia Table 25. Labour market forecast for 2017–2022 (15–74-year-olds) (percentage) 2017 level 2017 2018* 2019* 2020* 2021* 2022*
% % % % % % 1. Employment 658.61) 2.2 0.8 0.5 0.0 -0.3 -0.3 3. Unemployment rate 5.8 5.8 6.2 6.3 6.5 6.8 4. Labour productivity, persons 28.62) 2.6 3.1 2.7 3.0 3.2 3.2 6. Compensation of employees 11,203.23) 7.6 8.0 6.6 5.8 5.4 5.4 7. Compensation per employee (6./1.) 17.04) 5.3 7.1 6.1 5.8 5.7 5.7 1) Thousand people. 2) Thousand euros per employed person.
123 3) million euros 4) Thousand euros. Source: Ministry of Finance, Statistics Estonia Table 26. Balance of payments forecast for 2017–2022 (% of GDP) 2007– 2017 2018* 2019* 2020* 2021* 2022* 2016
1. Net lending/borrowing vis-à-vis 0.8 the rest of the world 4.0 4.9 4.9 4.3 3.1 2.5 1a. Current account -1.5 3.2 3.2 3.2 2.9 2.4 2.0 2. Balance of goods and services 1.9 4.5 4.6 4.8 4.7 4.6 4.4 3. Balance of primary and secondary -3.5 income -1.3 -1.5 -1.6 -1.8 -2.1 -2.4 4. Capital account 2.4 0.8 1.7 1.6 1.4 0.6 0.5 5. Errors and omissions 0.1 0.5 Source: Ministry of Finance, Eesti Pank, Statistics Estonia Public finance forecast Table 27. Budgetary position of the general government 2018–2022 State 2018 2019 2020 2021 2022 budget 2018 Structurally adjusted budgetary position of the -0.2 -0.1 -0.7 -0.7 -0.3 -0.1 general government (% of GDP) Nominal budgetary position of the general -0.1 0.5 -0.2 -0.3 -0.2 -0.1 government (% of GDP) Central government -0.1 0.1 -0.3 -0.3 0.0 -0.1 Social security funds 0.0 0.2 0.2 0.2 0.1 0.1 Local governments -0.1 0.1 0.0 -0.2 -0.3 -0.1 Nominal budgetary position of the general -36 113 -45 -84 -52 -31 government (million euros) Central government -29 25 -77 -88 7 -21 Social security funds 8 57 40 46 39 22 Local governments -14 31 -8 -42 -97 -32 Source: Ministry of Finance.
Table 28. Revenue and expenditure of the budget of the general government in 2017–2022 2017 2017 2018 2019 2020 2021 2022 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 -66.1 -0.3 0.5 -0.2 -0.3 -0.2 -0.1 2. Central government -67.4 -0.3 0.1 -0.3 -0.3 0.0 -0.1 4. Local governments -57.6 -0.3 0.1 0.0 -0.2 -0.3 -0.1 5. Social security funds 58.9 0.3 0.2 0.2 0.2 0.1 0.1 General government
124 2017 2017 2018 2019 2020 2021 2022 million % of % of % of % of % of % of euros GDP GDP GDP GDP GDP GDP 6. Total revenue 9,181.6 39.9 41.1 40.5 40.0 39.2 38.2 7. Total expenditure 9,247.7 40.2 40.6 40.7 40.3 39.4 38.3 8. Budgetary position -66.1 -0.3 0.5 -0.2 -0.3 -0.2 -0.1 9. Interest expenditure 9.1 0.0 0.0 0.0 0.0 0.0 0.0 10. Primary balance -57.0 -0.2 0.5 -0.2 -0.3 -0.2 -0.1 11. One-off and temporary measures -80.4 -0.3 -0.1 -0.1 0.0 0.0 0.0 Revenue by components 12. 12 Tax revenue (12=12a+12b+12c) 5,058.9 22.0 22.4 22.1 21.8 22.1 21.9 12a. Production and import taxes 3,348.9 14.6 14.7 14.8 14.5 14.5 14.2 12b. Income and wealth taxes 1,710.0 7.4 7.7 7.4 7.3 7.7 7.7 12c. Capital taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 13 Social security contributions 2,698.0 11.7 12.1 12.1 12.1 12.2 12.2 14. Property income 228.9 1.0 0.8 0.6 0.6 0.8 0.7 15. Other revenue 1,195.8 5.2 5.8 5.6 5.4 4.1 3.4 16.=6. Total revenue 9,181.6 39.9 41.1 40.5 40.0 39.2 38.2 p.m.: Tax burden (D.2 (incl. paid to the 7,736.3 33.6 34.4 34.2 34.0 34.3 34.0 EU)+D.5+D.611+D.91-D.995) Expenditure by components 17. Compensation of employees + intermediate 4,212.0 consumption 18.3 18.0 17.7 17.5 17.4 17.3 17a. Compensation of employees 2,661.3 11.6 11.4 11.2 11.1 11.0 10.9 17b. Intermediate consumption 1,550.7 6.7 6.6 6.5 6.5 6.4 6.4 18. Social transfers (18=18a+18b) 3,136.9 13.6 13.8 13.9 14.0 14.2 ‘14.3 of which unemployment benefits 77.3 0.3 0.4 0.3 0.3 0.3 0.3 18a. Social transfers in kind 440.1 1.9 1.9 1.9 1.9 1.9 1.9 18b. Financial social transfers 2,696.8 11.7 11.9 12.0 12.1 12.3 12.3 19.=9. Interest expenditure 9.1 0.0 0.0 0.0 0.0 0.0 0.0 20. Subsidies 101.0 0.4 0.5 0.5 0.5 0.5 0.5 21. Total capital investment 1,299.3 5.6 5.7 5.7 5.8 5.7 5.2 22. Capital movement 116.8 0.5 0.7 0.7 0.7 0.5 0.3 23. Other expenses 372.6 1.6 2.0 2.1 1.7 1.1 0.6 24.=7. Total expenditure 9,247.7 40.2 40.6 40.7 40.3 39.4 38.3
125 Comparison of this SBS with the previous SBS forecast Table 29. Comparison with the Stability Programme for 2017 and forecast of SBS for 2018–2021 2017 2018* 2019* 2020* 2021* 2022* Real GDP growth (%) Previous version 2.4 3.1 2.8 2.7 2.7 - Current update 4.9 4.0 3.2 3.0 2.9 2.9 Difference 2.5 0.8 0.3 0.3 0.1 - Nominal GDP growth (%) Previous version 5.6 6.3 5.7 5.6 5.5 - Current update 9.0 7.6 6.3 5.8 5.4 5.4 Difference 3.4 1.3 0.6 0.2 -0.1 - Harmonised consumer price index (HICP) (%) Previous version 3.4 2.9 2.6 2.6 2.1 - Current update 3.7 3.0 2.5 2.6 2.1 2.1 Difference 0.3 0.1 -0.1 0.0 0.0 - Nominal budgetary position of the general government (% of GDP) Previous version -0.5 -0.8 -0.7 -0.3 0.1 - Current update -0.3 0.2 0.5 0.4 0.2 0.1 Difference 0.3 1.1 1.2 0.7 0.1 - General government debt (% of GDP) Previous version 9.4 9.9 10.5 10.1 9.4 - Current update 9.0 8.5 7.7 6.9 6.2 5.3 Difference -0.4 -1.4 -2.8 -3.2 -3.2 - 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 2018–2022, the direct effect on the budget will be 6.2 million euros (0.03% of GDP) in the first year and the cumulative interest expenditure during the last year of the forecast period shall be a total of 27.3 million euros (0.1% of GDP). Table 30. Impact of increased interest rates Impact of increased interest rates by 100 basis points (1%) 2018 2019 2020 2021 2022 Difference in interest expenditure compared to 6.2 12.2 17.7 22.8 27.3 baseline scenario, million Difference in interest expenditure compared to the 0.03 baseline scenario, % of GDP 0.05 0.06 0.08 0.09
Risk scenario The aim of compiling a risk scenario is to show alternative options of economic development and their impact on the state budget. Economic risks can currently be estimated to be balanced – although the negative risks persist, the development of 2017 indicates to the possibility that the Estonian economy will be able to grow sustainably even faster than previously expected. In the spring forecast for 2018, a positive additional scenario has been compiled, in which the improvement of the external environment is more permanent and offers longer-term support for our economic growth. This also points to the
126 possibility that we have estimated our growth potential to be unduly low due to the poor demand environment during 2013–2016. According to the risk scenario, the Estonian economy will grow by 4.5% this year, and the longer-term growth trend is exceeds the base forecast by 0.3 percentage points, stabilising at 3.3%. The revenue and expenditure forecast of the risk scenario envisages an improvement in the budgetary position of the general government to 0.3% of GDP in 2018–2020. The larger surplus in comparison to the baseline scenario mainly results from an increase in tax revenue, which affects all levels of the general government. The most significant increase in the risk scenario concerns the forecast for the social tax revenue, which is linked to changes in both employment and wages. The VAT revenue forecast has also been increased due to private consumption and investment growth. However, the tax burden is decreasing as the GDP level rises faster than expected tax revenue. The improvement of the budgetary position is somewhat hampered by the increase of the state budget expenditure related to tax revenue (EHIF allocation, pension expenditure). Additionally, the level of defence expenditure increases due to the increased nominal GDP level. The budgetary position of social security funds, which is more positive than the baseline scenario, and the budgetary position of the central government increases the level of reserves by up to 0.4% of GDP. The improved budgetary position of local governments accelerates the decline of the debt burden of local governments in the risk scenario, which in turn reduces the general government debt by up to 0.2%. As a total effect of the changes, net assets shall increase by 0.6% of GDP in 2020. Table 31. Risk scenario (percentage) Difference from base Risk scenario forecast 2017 2018* 2019* 2020* 2018* 2019* 2020* GDP in current prices (billion 23.0 24.9 26.6 28.3 0.20 0.35 0.48 euros) Real GDP growth 4.9 4.5 3.5 3.3 0.5 0.3 0.3 Nominal GDP growth 9.0 8.4 6.8 6.2 0.8 0.5 0.4 CPI 3.4 3.1 2.6 2.6 0.2 0.3 0.2 Real growth of domestic demand 4.2 4.1 3.3 3.1 0.2 0.2 0.1 Real export growth 2.9 5.3 4.7 4.4 0.8 0.5 0.4 Employment growth 2.2 0.9 0.6 0.0 0.1 0.1 0.0 Nominal wage growth 6.5 7.3 6.1 5.8 0.3 0.4 0.3 Unemployment rate 5.8 5.7 6.0 6.0 -0.1 -0.2 -0.3 General government Tax burden (% of GDP) 33.6 34.1 34.3 33.9 -0.2 -0.3 -0.4 Budgetary position of the general 0.3 0.5 0.0 0.0 0.1 0.2 0.3 government (% of GDP) Debt burden of the general 9.0 8.4 7.6 6.7 -0.1 -0.1 -0.2 government (% of GDP) Source: Ministry of Finance, Statistics Estonia
127 Appendix 2. Funding Plan of the State Budget Strategy 2019–2022 SBS SBS SBC SBC 2019, 2020, 2021, 2022, thousan thousan thousan thousan d euros d euros d euros d euros Reserve of the Government of The Republic -16,360 -8,180 -8,180 -8,180 National ICT reserve -21,000 -20,400 -35,000 -42,000 Reserved spare capacity of investments -11,960 -8,450 -30,000 -64,700 Unallocated national volume of Riigi Kinnisvara AS -74,900 -141,730 -134,710 -124,610 Reserve for specific purposes -55,730 -45,900 -25,520 -17,640 Co-funding -56,870 -63,990 -69,860 -54,140
Part 1. RIIGIKOGU TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -25,764 -21,024 -21,575 -21,936 Cost ceilings -25,764 -21,024 -21,575 -21,936 Cost ceilings with limits -17,442 -13,552 -13,689 -13,660 Cost ceilings without limits (calculated and transferred costs) -8,322 -7,472 -7,886 -8,276
Part 2. OFFICE OF THE PRESIDENT OF THE REPUBLIC TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -4,314 -4,327 -4,366 -4,443 Revenue-dependent expenditure, without co-funding -28 -28 -28 -28 Cost ceilings -4,286 -4,299 -4,338 -4,415 Cost ceilings with limits -3,978 -3,968 -3,968 -3,968 Cost ceilings without limits (calculated and transferred costs) -308 -331 -370 -447
Part 3. NATIONAL AUDIT OFFICE TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -5,946 -5,987 -6,014 -6,051 Cost ceilings -5,946 -5,987 -6,014 -6,051 Cost ceilings with limits -5,242 -5,241 -5,241 -5,241 Cost ceilings without limits (calculated and transferred costs) -704 -746 -773 -810
Part 4. OFFICE OF THE CHANCELLOR OF JUSTICE TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -2,776 -2,751 -2,765 -2,775 Cost ceilings -2,776 -2,751 -2,765 -2,775 Cost ceilings with limits -2,601 -2,566 -2,566 -2,566 Cost ceilings without limits (calculated and transferred costs) -175 -185 -199 -209
Part 5. SUPREME COURT TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -11,932 -6,780 -6,818 -6,990 Cost ceilings -11,932 -6,780 -6,818 -6,990 Cost ceilings with limits -8,988 -3,609 -3,474 -3,474 Cost ceilings without limits (calculated and transferred costs) -2,944 -3,171 -3,344 -3,516
Section 1. GOVERNMENT OFFICE TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -10,430 -9,017 -8,812 -8,584 Revenue-dependent expenditure, without co-funding -1,458 -883 -667 -439 Cost ceilings -8,972 -8,135 -8,145 -8,145 Cost ceilings with limits -8,972 -8,135 -8,145 -8,145
Section 2. MINISTRY OF EDUCATION AND RESEARCH, area of government incl. the support fund of the Government of the Republic (for education -314,181 -314,181 -314,181 -314,181 expenditure) incl. the support fund of the Government of the Republic (for hobby activities) -14,250 -14,250 -14,250 -14,250 incl. the support fund of the Government of the Republic (wages of -15,000 -15,000 -15,000 -15,000 kindergarten teachers) TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -676,126 -704,887 -672,455 -626,005 Revenue-dependent expenditure, without co-funding -160,675 -161,605 -130,191 -83,522 Cost ceilings -515,451 -543,282 -542,264 -542,483 Cost ceilings with limits -506,323 -533 974 -532,845 -532,945 Cost ceilings without limits (calculated and transferred costs) -9,128 -9,308 -9,419 -9,538
128 SBS SBS SBC SBC 2019, 2020, 2021, 2022, thousan thousan thousan thousan d euros d euros d euros d euros Section 3. MINISTRY OF JUSTICE (MoJ), area of government TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -159,617 -161,532 -163,213 -165,280 Revenue-dependent expenditure, without co-funding -10,193 -9,725 -9,429 -9,546 Cost ceilings -149,424 -151,807 -153,784 -155,734 Cost ceilings with limits -122,823 -122,978 -122,985 -122,985 Cost ceilings without limits (calculated and transferred costs) -26,601 -28,829 -30,799 -32,749
Section 4. MINISTRY OF DEFENCE, area of government TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -594,581 -599,356 -623,038 -649,574 Revenue-dependent expenditure, without co-funding -25,264 -12,572 -6,299 -1,644 Cost ceilings -569,317 -586,784 -616,739 -647,930 Cost ceilings with limits -551,741 -567,013 -595,520 -623,404 Cost ceilings without limits (calculated and transferred costs) -17,576 -19,771 -21,219 -24,526
Section 5. MINISTRY OF THE ENVIRONMENT (MoE), area of government incl. the support fund of the Government of the Republic (waste storage) -2,200 -2,200 -2,200 -2,200 TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -184,374 -202,952 -185,189 -156,361 Revenue-dependent expenditure, without co-funding -87,347 -105,113 -86,851 -58,226 Cost ceilings -97,027 -97,839 -98,338 -98,135 Cost ceilings with limits -49,436 -49,450 -49,779 -49,674 Cost ceilings without limits (calculated and transferred costs) -47,591 -48,389 -48,559 -48,461
Section 6. MINISTRY OF CULTURE, area of government TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -243,696 -236,306 -234,514 -233,311 Revenue-dependent expenditure, without co-funding -11,651 -8,886 -7,152 -5,063 Cost ceilings -232,045 -227,420 -227,362 -228,248 Cost ceilings with limits -197,414 -193,182 -191,287 -191,287 Cost ceilings without limits (calculated and transferred costs) -34,631 -34,238 -36,075 -36,961
Section 7. MINISTRY OF ECONOMIC AFFAIRS AND COMMUNICATIONS (MoEAC), area of government incl. the support fund of the Government of the Republic (maintenance of local -29,313 -29,313 -29,313 -29,313 roads in public use) TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -790,397 -826,654 -648,497 -594,824 Revenue-dependent expenditure, without co-funding -307,774 -310 085 -237,620 -179,145 Cost ceilings -482,623 -516,569 -410,877 -415,679 Cost ceilings with limits -482,623 -516,569 -410,877 -415,679
Section 8. MINISTRY OF RURAL AFFAIRS (MoRA), area of government TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -369,049 -383,820 -353,726 -314,213 Revenue-dependent expenditure, without co-funding -301,004 -332 769 -301,611 -262,108 Cost ceilings -68,045 -51,051 -52,115 -52,105 Cost ceilings with limits -67,205 -50,211 -51,275 -51,265 Cost ceilings without limits (calculated and transferred costs) -840 -840 -840 -840
Section 9. MINISTRY OF FINANCE, area of government incl. equalisation fund of local governments -100,181 -105,181 -105,181 -105,181 incl. the support fund of the Government of the Republic (benefit of population -1,127 -1,127 -1,127 -1,127 operations) TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -803,498 -779,388 -823,923 -834,989 Revenue-dependent expenditure, without co-funding -108,934 -79,718 -65,772 -51,646 Cost ceilings -694,564 -699,669 -758,151 -783,343 Cost ceilings with limits -139,345 -117,304 -117,796 -117,368 Cost ceilings without limits (calculated and transferred costs) -555,219 -582 365 -640,355 -665 975
Section 10. MINISTRY OF THE INTERIOR, area of government TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -393,834 -402,530 -403,377 -404,747
129 SBS SBS SBC SBC 2019, 2020, 2021, 2022, thousan thousan thousan thousan d euros d euros d euros d euros Revenue-dependent expenditure, without co-funding -10,146 -11,225 -8,823 -8,051 Cost ceilings -383,688 -391,305 -394,554 -396,696 Cost ceilings with limits -349,574 -355,401 -355,893 -355,809 Cost ceilings without limits (calculated and transferred costs) -34,114 -35,904 -38,661 -40,887
Section 11. MINISTRY OF SOCIAL AFFAIRS (MoSA), area of government incl. the support fund of the Government of the Republic (social expenditure) -45,269 -45,269 -44,769 -43,269 TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding - - - - 4,802,43 5,100,05 5,360,37 5,603,62 6 0 1 0 Revenue-dependent expenditure, without co-funding -120,220 -138,822 -98,905 -44,109 Cost ceilings - - - - 4,682,21 4,961,22 5,261,46 5,559,51 6 8 6 1 Cost ceilings with limits -119,003 -119,410 -127,468 -127,268 Cost ceilings without limits (calculated and transferred costs) - - - - 4,563,21 4,841,81 5,133,99 5,432,24 3 8 8 3 Section 13. MINISTRY OF FOREIGN AFFAIRS, area of government - TOTAL OF EXPENDITURE AND INVESTMENTS, without co-funding -72,665 -74,993 -70,517 -70,517 Revenue-dependent expenditure, without co-funding -96 -96 -96 -96 Cost ceilings -72,569 -74,897 -70,421 -70,421 Cost ceilings with limits -72,569 -74,897 -70,421 -70,421
Appendix 3. External grants across funds and areas of government SBS 2019, SBS 2020, SBC 2021, SBC 2022, By funds thousand thousand thousand thousand euros euros euros euros TOTAL 1,047,858 1,079,802 890,438 642,178 European Regional Development Fund 353,219 357,968 272,009 174,504 European Social Fund 103,427 98,157 67,657 24,031 Fund for European Aid to the Most Deprived 1,336 1,349 134 12 Cohesion Fund 194,502 194,216 162,571 95,938 European Maritime and Fisheries Fund 16,889 21,469 20,750 14,896 European Agricultural Guarantee Fund 147,556 173,468 173,468 172,438 European Agricultural Fund for Rural Development 130,014 131,258 100,836 68,218 Norwegian and EEA financial instrument 16,444 14,789 14,796 9,824 Interreg 24,392 14,285 6,001 4,559 Others (direct payments to institutions) 54,272 66,336 67,697 73,807 Internal security funds 5,808 6,507 4,519 3,951 SBS 2019, SBS 2020, SBC 2021, SBC 2022, By areas of government thousand thousand thousand thousand euros euros euros euros TOTAL 1,047,858 1,079,802 890,438 642,178 Area of administration of the Government Office 1,291 802 607 387 Ministry of Education and Research, area of government 150,307 151,106 119,535 72,792 Ministry of Defence, area of government 25,146 12,553 6,283 1,627 Ministry of the Environment, area of government 55,688 76,474 84,978 56 728
130 SBS 2019, SBS 2020, SBC 2021, SBC 2022, By funds thousand thousand thousand thousand euros euros euros euros Ministry of Culture, area of government 7,513 4,676 2,879 712 Ministry of Economic Affairs and Communications, area of 292,424 297,188 235,096 176,617 government Ministry of Rural Affairs, area of government 294,498 326,233 295,055 255,552 Ministry of Finance, area of government 96,392 66,969 44,760 31,969 Ministry of the Interior, area of government 7,499 8,578 6,276 5,504 Ministry of Social Affairs, area of government 114,800 133,402 93,452 38,656 Ministry of Justice, area of government 2,299 1,822 1,517 1,634
131 Appendix 4. Calculated and transferred costs 2018–2022 2018, SBS 2019, SBS 2020, SBC 2021, SBC 2022, thousand thousand thousand thousand thousand euros euros euros euros euros Total calculated costs 4,943,089 5,350,799 5,672,111 6,038,071 6,378,387 Riigikogu 6,424 8,322 7,472 7,886 8,276 Wage fund of members of the Riigikogu 6,424 8,322 7,472 7,886 8,276 Office of the President of the Republic 278 308 331 370 447 President's wage fund 157 174 187 202 224 Special pensions paid during the financial year and 121 134 144 168 223 pension increases National Audit Office 680 704 746 773 810 Wage fund of the Auditor General 125 94 100 106 111 Special pensions paid during the financial year and 555 610 646 667 699 pension increases Supreme Court 2,257 2,944 3,171 3,344 3,516 Judges' wage fund 1,490 1,616 1,717 1,812 1,910 Special pensions paid during the financial year and 767 1,328 1,454 1,532 1,606 pension increases Office of the Chancellor of Justice 152 175 185 199 209 Wage fund of the Chancellor of Justice 87 95 100 106 111 Special pensions paid during the financial year and 65 80 85 93 98 pension increases Government of the Republic 28,719 18,234 18,234 17,734 16,234 Support fund 28,719 18,234 18,234 17,734 16,234 Ministry of Education and Research, area of 5,549 5,750 5,823 5,827 5,827 government Beginner’s allowances for teachers 960 1,150 1,214 1,214 1,214 Social tax payable for Doctoral allowance 4,584 4,595 4,604 4,608 4,608 Costs related to repayment of student loans 5 5 5 5 5 Ministry of Justice, area of government 16,598 25,601 27,779 29,699 31,649 Judges' wage fund 12,539 14,221 15,114 15,948 16,737 Special pensions paid during the financial year and 2,965 4,846 5,623 6,216 6,868 pension increases Advance payments to bailiffs 24 24 24 24 24 Wage fund of State Prosecutors 0 5,440 5,948 6,441 6,950 Legal fees of third parties 570 570 570 570 570 Postage expenses for courts 500 500 500 500 500 Ministry of Defence, area of government 17,798 17,560 19,754 21,202 24,506 Special pensions paid during the financial year and 9,015 8,040 8,795 9,546 10,464 pension increases Compensation in the case of a fall or injury 159 159 159 159 159 Alternative service, social tax paid for children 116 129 141 156 171 Alternative service, support and professional travel cost 542 585 628 675 726 compensation Social tax payable for conscripts 4,606 5,287 6,356 6,991 8,786 Benefits for conscripts 3,360 3,360 3,675 3,675 4,200 Ministry of the Environment, area of government 1,186 1,516 1,336 1,286 1,286 Land tax and maintenance costs of state lands 1,186 1,516 1,336 1,286 1,286 Ministry of Finance, area of government 619,914 676,832 714,174 781,850 817,413 Funded pension 415,200 469,820 504,750 539,170 574,240
132 2018, SBS 2019, SBS 2020, SBC 2021, SBC 2022, thousand thousand thousand thousand thousand euros euros euros euros euros Customs duty to the EU 197,878 200,404 200,004 229,400 229,900 Costs related to repayment of student loans 639 453 396 362 342 Legal aid and compensation for unjust deprivation of 1,000 1,000 1,000 1,000 1,000 liberty Land tax expenditure of unreformed lands 2,900 2,000 2,000 2,000 2,000 Organising settlements, financial assets and obligations of 716 666 679 692 705 the state Interest expenditure 734 2,262 5,020 8,893 8,893 Tax stamps 847 227 326 333 333 Ministry of the Interior, area of government 31,131 34,114 35,904 38,661 40,887 Special pensions paid during the financial year and 19,176 21,464 23,346 25,598 27,808 pension increases Issuing of personal identification documents 11,385 11,805 11,697 12,186 12,186 Compensations in the case of a fall or injury 269 297 297 297 297 Advance payments to bailiffs 251 251 251 251 251 IT Agency benefits 50 50 50 50 50 Postage expenses of fine notices 0 247 263 279 295 Ministry of Social Affairs, area of government 4,212,403 4,558,739 4,837,202 5,129,240 5,427,327 National Health Insurance resources 1,179,281 1,315,710 1,395,450 1,476,020 1,557,180 National pension insurance resources 1,737,025 1,790,042 1,891,488 1,999,842 2,109,971 Family benefits 283,991 298,945 293,275 288,328 287,247 Parental benefit 228,234 242,262 257 093 274,473 284,082 Unemployment insurance premium 183,000 203,780 217 060 229,440 242,530 Working ability allowance 179,426 213,711 259 588 300,390 334,390 Allocation to the Health Insurance Fund from the state 91,347 139,695 165,327 192,815 221,932 budget Social tax payable by the state in special cases 77,150 81,678 86,521 91,595 96,566 Monthly social benefits for people with disabilities 69,417 75,888 79,679 83,816 85,633 Social tax paid by the state, in special cases, for a person 37,001 51,736 59,849 68,989 77,699 receiving pension for incapacity for work while working (allocation to the EHIF) Social tax paid by the state, in special cases, for registered 22,777 23,604 25,422 27,586 29,985 unemployed persons (allocation to the EHIF) Residency costs 16,886 16,809 0 0 0 Allocations to the mandatory funded pension fund 17,764 19,467 20,605 21,768 23,009 Additional holiday pay 15,375 17,142 14,953 12,697 13,413 Purchase of inventories 15,427 0 0 0 0 Increase in civil servants' pensions 12,747 14,157 15,058 15,812 16,498 Unemployment benefit 12,228 11,250 11,905 12,552 13,282 Benefit for pensioners living alone 9,954 9,965 9,965 9,965 9,965 Expenditure related to statutory rates 9,007 6,516 6,540 6,567 6,591 Damages paid in relation to accidents at work 5,667 6,066 6,334 6,591 6,828 Benefits for repressed persons 2,759 2,358 2,346 2,300 2,277 Services for asylum seekers 330 368 368 368 368 Technical aids service 0 11,314 11,764 0 0 Support for winners of the Olympic Games 142 156 180 189 200 Benefit to a conscript’s child 4 16 16 16 16 Parliament pensions 5,464 6,104 6,416 7,121 7,665
133 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 auction43 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 of the economic forecast of spring 2018 of the Ministry of Finance are as follows: 2013 2014 2015 2016 2017 2018 2019 2020 Total Auctioned amount 4.091 1.2445 2.7675 4.4795 6.8215 9.0824 6.9054 5.7624 45.630 (data from the Ministry of the Environment), excluding free-of- charge electricity (million allowances) Revenue forecast (million 292.038 euros) 18.074 7.409 21.125 23.569 39.308 70.844 58.696 53.014 In accordance with Article 10 of Directive 2003/87/EC44 and the Atmospheric Air Protection Act45, 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; 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
43 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. 44 The Directive can be found at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2003L0087:20090625:et:PDF 45 The Act can be found at: https://www.riigiteataja.ee/akt/123122016002; see section 161 (4)
134 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. A list of measures planned to be funded from the auctioning revenue (based on the revenue forecast provided in the basic scenario of the economic forecast of spring 2018 of the Ministry of Finance) is presented in the table below.46
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– Responsible measure 2013 2014 2015 2016 2017 2018 2019 2020 2020 authority
50% of the revenue forecast for climate policy objectives (million euros) 9.037 3.704 10.563 11.784 19.654 35.422 29.348 26.507 146.019
6. Energy 9.037 3.200 8.410 10.784 18.654 28.767 19.015 21.943 119.811
Minister of Energy saving Economic measures in apartment Affairs and buildings 9.037 0.000 0.000 0.000 0.000 2.462 0.000 6.162 17.661 Infrastructure
46 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.
135 Total in Performance area, 2013– Responsible measure 2013 2014 2015 2016 2017 2018 2019 2020 2020 authority
Minister of Increasing the use of Economic alternative fuels in Affairs and transport (biogas) 0.000 0.000 0.000 2.584 8.952 5.176 7.907 3.271 27.890 Infrastructure
Promoting energy efficiency and the use of renewable energy in Minister of public sector Public buildings47 0.000 0.000 8.410 8.201 9.702 21.129 11.108 12.511 71.059 Administration
Supporting small residences in taking Minister of renewable energy into Economic use and updating their Affairs and heating systems 0.000 3.200 0.000 0.000 0.000 0.000 0.000 0.000 3.200 Infrastructure
14. Environmental protection 0.000 0.423 1.000 1.000 1.000 7.888 10.333 4.563 26.208
Estonia’s contribution to international climate Minister of the change co-operation 0.000 0.423 1.000 1.000 1.000 1.000 1.000 1.000 6.423 Environment
Managing the risk of Minister of the flooding 0.000 0.000 0.000 0.000 0.000 0.500 1.500 2.540 4.540 Environment
Minister for the Environment, Pilot projects designed Minister of to implement the Economic climate policy Affairs and objectives48 0.000 0.000 0.000 0.000 0.000 6.388 7.833 1.023 15.244 Infrastructure
Implementing the climate policy objectives, total*: 9.037 3.623 9.410 11.784 19.654 36.656 29.348 26.507 146.019 * 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 requirements and restrictions related to the auctioning system (and the use of revenue arising from it) have not been set out in final detail. As such, there is also no sufficient basis to plan the use of revenue. It was presumed upon preparing the economic forecast of spring 2018 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. The relevant revenue forecast for 2021–2022 is initially, until the circumstances that enable more specific planning of the use of revenue have become clear, planned
47 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. 48 From the auctioning revenue planned for that measure during the trading period of 2013–2020, 50% in the performance are of energy is directed to the measures of increasing the energy efficiency of apartment buildings and the use of alternative fuels in transport, and 50% in the environmental protection performance area is directed first and foremost to conducting activities of adapting to climate change and activities of climate change mitigation.
136 as nationwide in the budget of the Ministry of the Environment and the cost estimate is initially planned as nationwide in the budget of the Ministry of Finance. Planning the use of funds is scheduled to take place as a long-term strategic planning process in the coming years, in parallel to that of funds of the EU budget period starting in 2021 and the planning of other state budget funds. 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 49 and the Atmospheric Air Protection Act50, 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; 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 2018 of the Ministry of Finance are as follows:
2013 2014 2015 2016 2017 2018 2019 2020 Total in 2013–2020 Auctioned amount (data 7,000 7,500 7,500 7,500 7,500 7,500 7,000 7,000 58,500 from the Ministry of the Environment) Revenue forecast 0.048 0.051 0.056 0.042 0.047 0.056 0.060 0.067 0.426 (million euros) Pursuant to the 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
49 The Directive can be found at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CONSLEG:2003L0087:20090625:et:PDF 50 The Act can be found at: https://www.riigiteataja.ee/akt/123122016002; see section 161 (6)
137 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 CO2 equivalent (t CO2 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 with Appendix 2 to the decision of the European Commission dated 10 August 201751. 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 CO2 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. Member States, incl. Estonia, prepared the first transactions of trading with AEAs at the earliest possible time when the European Commission had officially approved the GHG emission quantities submitted with the national greenhouse gas stocktaking. The stocktaking reports are always submitted for the year before the last (so-called x-2 rule). Pursuant to the European Parliament and Council Regulation52, 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
51 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 52 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
138 (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 trading53 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 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 units54. 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 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 (similar 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 2018 and the GHG emission quantity forecast of Estonian Environmental Research Centre for 2017, assuming an average unit price of 1.2 euros/AEA) are presented in the table below55. Forecast of the surplus of GHG emission allocations in 2013–2020 and the trading revenue in case of a scenario based on development plans in force
2013 2014 2015 2016 2017 2018 2019 2020 Total in 2013–2020 Remaining balance of GHG emission quantities in case of a scenario based on the measures of current development plans (t CO2 eq) 0 0 544,025 238,219 201,225 192,170 -90,819 -50,572 1,034,248 Forecast revenue from sales of AEAs (million euros*) 0 0 0 0 0 0 0 * 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.
53 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. 54 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. 55As 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.
139 When implementing one of the cooperation mechanisms stipulated in the Renewable Energy Directive 2009/28/EC, 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, in order for the other Member State to be able to cover their its deficit of its set renewable energy target. The transfers are made in the form of Eurostat calculations and only in the context of general 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 with other Member States, a contract for using cooperation mechanisms of renewable energy was concluded with the Grand Duchy of Luxembourg at the end of 2017. The funds received on the basis of that contract shall be used 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, preparatory work is continued with other potential buyers and negotiating over contracts with them.
140 Appendix 6. Personnel and salary analysis of the general government Number of employees 117,044 employees56 worked in the general government in 2017, divided mainly between the central government, local governments and social insurance funds. The number of general government employees increased by 261 employees, i.e. by 0.2% in 2017. In terms of absolute numbers, the highest increase in the number of employees occurred in the central government, where 135 additional employees (0.2%) were hired. The biggest impact to the increase in employees of the central government came from hospitals under the central government – the North Estonia Medical Centre hired 458 additional employees and the Tartu University Hospital hired 390 additional employees. At the same time, the number of employees in state authorities that are part of the central government decreased by 580 employees, i.e. by 1.9%57. In terms of percentages, the highest increase of employees took place in social security funds, where the number of employees increased by 119, i.e. by 14%, incl. the 124 additional employees at the Estonian Unemployment Insurance Fund. The increased number of employees at the Estonian Unemployment Insurance Fund is linked to the implementation of the Work ability reform. The number of employees in local governments has increased by 7 employees58. Figure 15. During the period of 2008–2017, the number of general government employees has decreased by 5.1%, i.e. on average by 0.6% per year
Total of the general government (2008=100%) Central government 105% 100% 100,4% 99% 100% 98% 95% 100% 98% 98% 97% 97% 100% 96% 96% 97% 96% 96% 95% 95% 97% 96% 96% 96% 96% 85% 95% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 94% 95% 94,7% 94,9% 95% State Authorities 92% 110% 100% 97% 90% 100% 94% 94% 91% 92% 90% 87% 85% 90% 83% 81% 85% 87% 80% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Employed in the country in the general government Local governments 105% Number of full-time equivalent employees in 2017 95% 100% 99% Total of the general government in 97% 96% 96% 96% 95% 117 044 95% 94% 94% 2017 85% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Local governments 61 847 Social insurance funds Central government 54 231 165% 175% 145% 129% 115% 154% including State Authorities 29 911 125% 136% 100% 132% 131% 132% 134% 105% Social insurance funds 967 85% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0 25000 50000 75000 100000 Total of the general government Group of authorities Source: Balance data information system of the Ministry of Finance
The proportion of both general government and central government employees among the employment-age population increased by 0.1 percentage points in 2017, which means that the
56 For the purpose of this chapter, the number of employees is considered to be the annual average number of full-time equivalent employees. 57 Changes to the legal form of institutions have been deducted when calculating the net change in the number of employees: The Estonian Maritime Museum and the Saaremaa Museum were reorganised from managed state authorities into foundations (90 employees). Additionally, one museum of the Harju County joined a local government. 58 As of 6 April 2018, not all local governments have submitted their balance data.
141 number of general government employees increased somewhat faster, when compared to the employment-age population; however, it did not exceed 12% of the employment-age population. Figure 16. The percentage of general government and central government employees among the employment-age population increased in 2017
Source: Balance data information system of the Ministry of Finance Wages In 2017, the average wage growth of the general government (incl. the central government) was 0.4 percentage points slower than the average wage growth in Estonia and the wage level in the general government remained the same for 3 consecutive years (101% of the average wage level in Estonia). In 2017, the average wage in Estonia increased by 6.5% and the average wage in the general government increased by 6.1%. The wage growth of the general government took place mostly on account of internal resources of the institutions and reorganisation of work, as no general decision was made for increasing the wage fund from the state budget in 2017. The wage growth of the general government influences the additional wage money allocated to employees that are considered as separate target groups, as the target groups make up about 45% of the entire staff of the general government. Additional funds from the wage fund (3%) were allocated for employees in the field of internal security and social welfare, as well as cultural workers and teachers for the year of 2017. Health care workers also received additional wage funds pursuant to the wage agreement. Without the additional funds allocated to the target groups, the wage growth of the general government would have remained within the estimated 3% limit, which would have been significantly lower than the wage growth on the general market. Figure 17. Increase in the wages of the general market exceeded the increase in the wages of the general government in 2017
142
Source: Balance data information system of the Ministry of Finance The average wage position of the general government, when compared to the average wage in Estonia, decreased in most fields, incl. fields that include target groups that received funds for wage growth from the 2017 state budget, i.e. public order and security, education, health care and social welfare.59 However, the average wage in the field of recreation and culture, when compared to the average wage in Estonia, has improved. This field includes cultural workers. Figure 18. Average monthly wages in the general government as a ratio to the average in Estonia
59In 2017, 3% of additional funds were allocated from the state budget to cultural workers, teachers, employees of the fields of social welfare and internal security.
143 NATIONAL DEFENCE GENERAL PUBLIC SERVICES ECONOMY 1,50 1,35 1,34 1,31 1,31 1,28 1,29 1,27 1,28 1,30 1,30 1,32 1,30 1,27 1,27 1,22 1,26 1,26 1,23 1,25 1,25 1,22 1,25 1,21 1,22 1,20 1,20 1,16 1,16 1,25 1,10 1,11
1,00 n = 6 800 n = 4 600 0,75 n = 8 700
0,50 PUBLIC ORDER AND SECURITY ENVIRONMENTAL PROTECTION HEALTH CARE 1,50 1,37 1,24 1,25 1,27 1,23 1,21 1,20 1,23 1,22 1,21 1,21 1,23 1,21 1,23 1,23 1,22 1,25 1,17 1,17 1,18 1,18 1,09 1,07 1,07 1,06 1,06 1,05 1,06 1,09 1,10 1,07 1,00
n = 10 600 0,75 n = 10 600 n = 1 400 n = 20 400
0,50 1 2 3 EDUCATION4 5 6 7 8 9 10 SOCIAL PROTECTION 1 2 3RECREATION,4 5 6 CULTURE7 8 9 10 1,50
1,25
1,00 0,81 0,81 0,82 0,77 0,77 0,77 0,76 0,79 0,77 0,76 0,76 0,78 0,80 0,78 0,74 0,72 0,71 0,75 0,87 0,89 0,87 0,87 0,90 0,900,89 0,69 0,71 0,75 0,86 0,83 0,85 n = 47 300 n = 6 900 n =8 800 0,50 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Ratio of the average wage of the corresponding field to the average wage in Estonia Ratio of the average wage of the general government to the average wage in Estonia Source: Balance data information system of the Ministry of Finance
For 2018, funds were allocated for general wage growth (2.5%) and additional funds were allocated for employees in the fields of social welfare and internal security (3.5% + 1%), as well as cultural workers and teachers pursuant to the coalition agreement. Health care workers also received additional wage funds pursuant to the wage agreement. In 2017, the average total wage of cultural workers with higher education in the area of government of the Ministry of Culture was 1,296 euros (104% of the average gross monthly wage in Estonia), i.e. 100 euros higher than in 2016. The wages of cultural workers in the area of government of the Ministry of Education and Research, the Ministry of Rural Affairs and the Ministry of the Environment have not increased at the same speed. The Basics of Cultural Policy Until 2020, which was approved by the Riigikogu, aims to increase the minimum wage of cultural workers with higher education and that of accredited specialists with professional qualifications onto the same level as the average wage in Estonia. As of now, that goal has not been reached yet. The average gross monthly wage of teachers in 2017 was 1,284 euros, i.e. 107% of the average gross monthly wage in Estonia. The target level stipulated in the coalition agreement is 120% from the average gross monthly wage in Estonia. Figure 19. Wage change for teachers
144
Source: Balance data information system of the Ministry of Finance
Pursuant to the coalition agreement, additional funds have been included in the State Budget Strategy for the wage increase of cultural workers and teachers have been agreed upon for coming years as well. Wages in institutions in the target group of internal security have increased in 2017. The target group is made up of the Police and Border Guard Board, the Estonian Academy of Security Sciences, the Alarm Centre, the Rescue Board, prisons and the Tax and Customs Board. As of 2019, there has been a proposal to add the Environmental Inspectorate to the target group as well, as the public servants in the investigatory supervision function group are required to meet the same requirements (similar functions, procedural competences, obligation to carry a weapon, specialised training) as the police officers and tax and customs officials who work in the same function group and whose wages are significantly lower in the target group. At the same time, it is reasonable to view the target group of internal security based on separate institutions, so that the heads of institutions would have more flexible opportunities to direct additional funds to those public servants whose wages need the most correction from the viewpoint of internal security. Figure 20. Dispersion of total wages in internal security institutions60
60 Displayed as a box-and-whiskers diagram, where institutions are listed by average wages. The dark blue line refers to median wage, the edges of the box mark the upper and lower quartile, the ends of whiskers mark the upper and lower decile. Average wage indicator is included under every box. The change of average wage has been included after the name of the institution.
145
Source: Report HR057 “Wage Survey” of the reporting environment SAP BO
Table 32. Average wage of the investigatory supervision function group in the internal security target group
Average monthly basic wage in 2017 Environmental Inspectorate 1,292 Tax and Customs Board 1,860
Police and Border Guard Board 1,521 Prisons 1,835 Source: Wage survey report of the reporting environment SAP BO When comparing wages between the institutions of the internal security target group, the lowest wages are in the Rescue Board and the Alarm Centre, in which more attention should be paid to the function groups of rescue workers and rescue leaders respectively. Despite the fact that the rescue Board has been in the internal security target group previously as well, the wages of rescue workers at the Rescue Board have not increased significantly during the past two years.
146 Figure 21. Average wage of rescue workers and rescue leaders
Source: Wage survey report of the reporting environment SAP BO Average monthly wage as a ratio of the average wages in Estonia The average gross monthly wage of employees in the field of social welfare increased slightly in 2017, amounting to only 63% of the average gross monthly wage in Estonia, their wage position has actually decreased when compared to 2016. Due to small wages, recruiting people into the field of social welfare is becoming a real challenge. Figure 22. Change in average gross monthly wages in social welfare
Source: Balance data information system of the Ministry of Finance
In addition to current target groups, to whom more additional funds for wage increase have been allocated than the rest of the general government, several employee groups, whose wage level has been exceeded by that paid to people with similar jobs on the private market, which enhances the likelihood of employees moving to the private sector, thereby causing significant difficulties in
147 hiring new employees, stand out among state employees. This in turn is bringing about a situation in which important national functions can be unfulfilled in the near future and the resulting consequences to continuity of the state may be significant. From the viewpoint of the continuity of the state, employees of the IT field, among whom special attention ought to be paid first and foremost to employees of IT institutions of the state, make up an important target group. This is because the majority of information systems that ensure the continuity of the state are managed by state authorities specialised on the provision of IT services. IT institutions also require special attention in order to support the direction, pursuant to which, those ministries that do not have a separate IT institution in their area of government would consolidate and cooperate with existing IT institutions of the state. In 2017, voluntary employee turnover has increased considerably in IT institutions of the state and it is becoming more and more difficult to recruit new employees. The average monthly basic wage in IT institutions of the state is 26% lower than that of ICT employees according to the general market survey in Estonia, this is because the wages of IT employees increase faster than the average on the labour market.
Figure 23. Average monthly basic wages61 for IT works at IT institutions in 2016–2017
Source: Data from the wage survey of Fontes
* In brackets at the number of the year, the number of IT employees has been reduced to the number of full-time equivalent employees and their percentage among the staff of the institution. The change of average total monthly wages when compared to that of the previous year has been included under the column.
61ICT works in the case of the IT and Development Centre at the Estonian Ministry of the Interior
148 Figure 24. Voluntary employee turnover in IT institutions in 2012–2017
Source: Reports HR055 “Statistics of Departure” and HR013 “Employee turnover” of the reporting environment SAP BO 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. In the comparison of boards and inspectorates, in 2017, the lowest basic wage was in the Veterinary and Food Board, where the most critical group is that of veterinarians who work as inspection officials and whose basic wage is significantly lower than the average basic wage of doctors with the lowest monthly basic wage working in out-patient rehabilitation establishments (1,820 euros). According to data of the Veterinary and Food Board, in 2017, the basic wage of veterinarians was 1,164 euros; whereas that of doctors was 2,064 euros, i.e. the basic wage of veterinarians is 77.3% lower. Small wages have also brought about a situation in which young people do not wish to come and work at the Veterinary and Food Board and a great deal of employees are older people, who will be retiring in the near future. Employees qualified as veterinarians conduct state supervision in a field where a lack of employees and the accompanying failure to complete tasks can cause significant damage to people’s health.
149 Figure 25. Dispersion of basic wages in boards and inspectorates in 201762
Another board the employees of which need special attention due to market pressure is the Civil Aviation Administration. 70% of the 10 recruitment campaigns organised by the Civil Aviation Administration (the institution as 25 employees) in 2017 were not successful. The biggest problem here is ensuring that employees who conduct aviation supervision, as it is hard to compete with the private market aviation sector, which offers wages that are about twice as high to employees with the same qualification. A significant wage difference is also apparent when compared to other general government institutions, where employees are required to have the qualification of an aircraft commander or professional education in air navigation. For example, the average basic wage at the Estonian Air Navigation Services (Lennuliiklusteeninduse AS) is 3,171 euros; the average basic wage of a senior pilot-in-command, pilot-in-command and co-pilot of helicopter is 2,971 euros; whereas, the average basic wage at the Civil Aviation Administration is 1,847 euros. The departure of employees from the Civil Aviation Administration and difficulties with hiring new employees may bring about a situation in which Estonia is no longer able to provide aviation supervision. In that case, the service would have to be purchased from the European Aviation Safety Agency (at a price of 300 euros per hour + transport and accommodation costs), which would make the service about 7 times more expensive for Estonia. Should aviation monitoring not be conducted in Estonia, companies operating in aviation should be closed or transferred away from Estonia. The average wage increase on the general wage market in Estonia is forecast to be 5.2% in 2018 and 5.5% in 2019. The wage increase on the general labour market shall also put pressure on general government authorities, as it is becoming increasingly difficult to retain employees and ensure high-quality performance of tasks set for the state while the labour force decreases in number. The workload of existing employees shall increase, as will the expectations of a wage increase. State authorities will also receive additional tasks, however, they are still not ready to
62 Displayed as a box-and-whiskers diagram, where institutions are listed by average wages. The dark blue line refers to median wage, the edges of the box mark the upper and lower quartile, the ends of whiskers mark the upper and lower decile. Average wage indicator is included under every box. The change of average wage has been included in parentheses following the name of the institution.
150 forgo previous tasks. Decisions regarding the growth of wage fund SBS 2019–2022
% 1. Growth of wage fund for the rest of the institutions that are not part of the target group 2.5% 2. Internal security incl., Prisons 4.5% Tax and Customs Board 4.5% Police and Border Guard Board 10.7% Rescue Board 20% Alarm Centre 5.0% Estonian Academy of Security Sciences 4.5% Environmental Inspectorate 4.5% 3. IT institutions, incl. Information Technology Centre of the Ministry of the Environment 20% Information Technology Centre for the Ministry of Finance 20% Centre of Registers and Information Systems 20% Information System Authority 20% IT and Development Centre at the Estonian Ministry of the Interior 20% Health and Welfare Information Systems Centre 20% 4. Ministry of Foreign Affairs 5.9% 5. Veterinarians (MoRA) 29% 6. Civil Aviation Administration (MoEAC) 5% 7. Social welfare (MoSA) 12% 8. Advocate Generals (MoJ) 5.7% 9. State Prosecutors (MoJ) 5.2% 10. Cultural workers, incl. Cultural institutions in the area of government of the Ministry of Culture 5.7% Rural Life Museums (MoRA) 7.9% Estonian Museum of Natural History (MoE) 7.9% Estonian National Archive (MoER) 7.9% 11. Teachers, incl. Ministry of Education and Research 3.1% Ministry of Social Affairs (Astangu) 3.1%
151 Appendix 7. Four-year plan of investments, including real estate investments made via Riigi Kinnisvara AS, million euros State Budget Strategy 2019–2022 2019 2020 2021 2022 Total expenditure and investments 11,257 11,738 11,928 12,137 Volume of investments from the state budget expenditure and 9% 9% 7% 6% investments Total investments planned in the state budget and by Riigi 969.5 1,054.7 870.7 783.5 Kinnisvara AS by accounts: Investment in the state budget and the budget of Riigi Kinnisvara 452.7 449.8 391.0 464.5 AS Investment subsidies 516.8 604.9 479.7 319.1 Total investments planned in the state budget and by Riigi 969.5 1,054.7 870.7 783.5 Kinnisvara AS by budget types: From external funds 513.1 548.1 470.2 315.4 From public revenues 454.5 504.7 398.6 466.3 From own revenue 2.0 1.9 1.9 1.9 Total estimated volume of real estate investments: 362.1 396.7 332.9 296.2 Build-up real estate investments from the budget of Riigi 55.8 56.6 59.0 83.6 Kinnisvara AS* Real estate investments from public revenues 110.9 151.7 105.8 108.4 Real estate investments from external funds 195.4 188.4 168.1 104.2 Investments of areas of government by types and objects: Office of the President of the Republic 0.01 0.01 0.01 0.01 Public revenues 0.01 0.01 0.01 0.01 Inventory 0.01 0.01 0.01 0.01 Riigikogu 0.6 0.5 0.5 0.4 Public revenues 0.6 0.5 0.5 0.4 Inventory 0.01 0.01 0.01 0.01 IT investments 0.3 0.4 0.4 0.2 Monument at the Governor's garden 0.1 Machinery and equipment 0.03 Renovation of Riigikogu buildings 0.2 0.1 0.1 0.1 Supreme Court 4.9 0.0 0.0 0.0 Public revenues 4.89 0.03 0.03 0.03 IT investments 0.03 0.03 0.03 0.03 Renovation of Lossi 17 4.9 National Audit Office 0.0 0.0 0.0 0.0 Public revenues 0.02 0.01 0.01 0.01 IT investments 0.02 0.01 0.01 0.01 Ministry of Education and Research, area of government 51.6 67.6 52.2 22.8 Public revenues 1.9 1.9 1.9 1.9 IT investments 0.3 0.3 0.3 0.3 Investments for repair works at vocational education institutions 0.2 0.2 0.2 0.2 Machinery and equipment 0.5 0.5 0.5 0.5 Investments of institutions of professional higher education 0.9 0.9 0.9 0.9 External funds 49.3 65.2 49.9 20.4
152 State Budget Strategy 2019–2022 2019 2020 2021 2022 Organisation of the network of uppers secondary schools 18.6 29.3 22.2 9.3 Organisation of the SEN school network 4.5 9.7 1.5 Organisation of the basic school network 20.8 20.8 20.8 6.2 Scientific infrastructure of national importance 5.3 5.3 5.3 4.9 Own revenue 0.5 0.5 0.5 0.5 Inventory 0.1 0.1 0.1 0.1 Investments for repair works at vocational education institutions 0.1 0.1 0.1 0.1 Machinery and equipment 0.2 0.3 0.2 0.2 (incomplete) necessary for educational activities of the Tartu 0.01 0.01 0.01 0.01 Health Care College Ministry of Justice, area of government 0.3 0.3 0.3 0.3 Public revenues 0.2 0.2 0.2 0.2 IT investments 0.2 0.2 0.2 0.2 Machinery and equipment 0.1 0.1 0.1 0.1 Own revenue 0.1 0.1 0.1 0.1 IT investments 0.1 0.1 0.1 0.1 Machinery and equipment 0.0 0.0 0.0 0.0 Ministry of Defence, area of government 102.0 114.2 101.1 137.3 Public revenues 78.5 102.6 95.8 135.7 Renovation of cemeteries of the Defence Forces 0.04 0.04 0.04 0.04 Purchase and renovation of buildings and facilities 23.3 37.1 27.2 10.4 Inventory 0.4 0.1 0.1 0.1 IT investments 2.1 1.8 2.2 1.6 Defence-related special equipment 44.4 56.8 60.8 120.3 Renovation of access roads of the Defence Forces 0.5 0.5 2.4 0.8 Infrastructure of the allies 6.7 4.2 1.8 2.0 Purchases of land 0.0 0.0 0.0 0.1 Machinery and equipment 1.0 2.1 1.3 0.4 External funds 23.5 11.6 5.3 1.6 Purchase and renovation of buildings and facilities 20.0 4.0 1.2 Machinery and equipment 3.5 7.7 4.1 1.6 Ministry of the Environment, area of government 46.3 64.2 73.5 44.5 Public revenues 1.0 1.0 1.3 1.2 IT investments 1.0 1.0 1.0 1.0 Transport vehicles 0.3 0.2 External funds 45.2 63.1 72.1 43.2 Projects financed from the sale of greenhouse gas emission 6.5 4.1 quotas Machinery and equipment 0.2 Other Investments 5.1 2.1 1.4 1.2 Ex situ conservation 0.2 0.1 0.1 0.2 Reutilisation of waste 1.0 2.0 1.0 0.5 Circular economy of waste 1.0 3.0 6.0 3.0 Infrastructure of visiting organisation of protected areas 1.1 1.1 0.2 0.2 Conservation of semi-natural habitats 1.6 2.0 2.2 1.2
153 State Budget Strategy 2019–2022 2019 2020 2021 2022 Increasing resource productivity 10.0 22.0 30.0 17.0 Developing the Infrastructure of Water Economy 18.5 26.7 31.2 20.0 Ministry of Culture, area of government 20.9 15.6 11.7 11.7 Public revenues 20.8 15.6 11.7 11.7 Eesti Kontsert SA (Estonian Concert Foundation) 0.7 0.5 0.5 0.5 Eesti Kunstimuuseum SA (Art Museum of Estonia Foundation), 0.0 renovation of the Niguliste Museum Acquiring fixed assets for the Estonian Children’s Literature 0.0 0.0 0.0 0.0 Centre Building of the National Library of Estonia 0.1 0.1 0.1 0.1 IT investments 0.1 0.1 0.1 0.1 Machinery and equipment 0.4 National Heritage Board 0.7 0.7 0.7 0.7 Other Investments 7.6 6.3 6.3 6.3 Estonian Public Broadcasting 2.0 2.0 2.0 2.0 Tehvandi Spordikeskus SA (Tehvandi Sports Centre Foundation) 4.3 3.9 Virumaa Muuseumid SA (Viru County Museums Foundation) 0.1 Design works of the National Library of Estonia and the 1.3 Estonian National Archive (reserve for specific purposes) Planning and designing television studios for the Estonian Public 1.5 Broadcasting (reserve for specific purposes) Repair resources for foundations under the Ministry of Culture and of legal persons governed by public law (reserve for specific 2.0 2.0 2.0 2.0 purposes) Own revenue 0.1 Other Investments 0.1 Ministry of Rural Affairs, area of government 73.8 78.5 67.6 54.5 Public revenues 3.3 2.1 2.1 2.1 IT investments 2.1 2.1 2.1 2.1 Acquiring movables in relation to the construction of the Estonian Crop Research Institute and the Jõgeva Breeding 1.2 Centre (reserve for specific purposes) External funds 70.2 76.1 65.1 52.0 The main house of the Farm Museum of C.R. Jakobson 0.1 Investments of the operational programme of fishery 11.0 12.7 14.1 9.0 Investments of the operational programme of rural life 59.1 63.4 51.0 43.0 Own revenue 0.3 0.3 0.3 0.3 Breeding complex of the Estonian Crop Research Institute 0.03 0.03 0.03 Arched hall of the Estonian Crop Research Institute 0.02 0.02 0.02 Machinery and equipment 0.3 0.3 0.3 0.3 Transport vehicles 0.02 0.02 0.02 0.03 Ministry of Economic Affairs and Communications, area of 419.5 468.7 351.1 305.9 government Public revenues 211.0 249.7 160.5 162.1 Construction of the Aaspere-Haljala 2+2 highway section 4.0 11.0 Arbavere drill core depositories 0.4 0.4 0.5 0.5 Construction of traffic nodes of the E20 Tallinn-Narva highway 2.6 0.1 IT investments 4.4 4.5 4.5 4.5
154 State Budget Strategy 2019–2022 2019 2020 2021 2022 Supporting investments in the housing stock of local 20.0 18.8 8.8 governments Construction of the Kose-Mäo highway section into 2+2 lanes 31.5 Continued construction of the broadband distribution network 10.0 Renovation of buildings of the Road Administration 0.1 0.1 0.1 0.1 Purchase of land of the Road Administration 1.5 1.5 1.5 1.5 Other Investments 1.3 1.2 1.3 1.0 Reconstruction Pärnu Airport 17.3 Supporting reginal companies for establishing electrical 2.1 2.1 2.0 2.0 connections Summary project of the renovation of national roads 125.8 131.4 130.4 130.4 Implementation of renewable energy 1.0 1.0 1.0 1.0 Renovation of the Tallinn City Hall 10.0 10.0 20.0 Construction of Via Baltica on Tallinn-Pärnu highway 15.0 29.0 Renovation of the Tallinn-Tartu railway and increase of travel 10.0 speed to 135 km/h Increase of travel speed to 135 km/h on the Tapa-Narva railway 0.4 Transport vehicles 0.1 Lighthouses 0.4 0.4 0.4 0.4 Renovation of buildings of the Maritime Administration 0.1 0.1 0.1 0.1 Renovation of the Rohuküla production base of the Maritime 0.2 Administration Deepening of waterways 0.4 0.4 Works conducted for the relocation of the certification department of the Maritime Administration (reserve for specific purposes) External funds 207.6 218.0 189.7 142.8 Development of Rail Baltic 28.8 59.5 73.0 83.3 Reconstruction of harbours for regular public services 2.9 2.3 Construction of traffic nodes of the E20 Tallinn-Narva highway 14.6 0.7 Stage II of the construction of E265 Tallinn ring road 21.4 4.9 Straightening of the Nurme road section on the E67 Tallinn- 7.7 Pärnu-Ikla highway Construction of the Tallinn-Top road section on the E67 Tallinn- 3.1 Pärnu-Ikla highway Stage II of the reconstruction of Hundipea Harbour 5.3 Construction of the Kose-Mäo highway section into 2+2 lanes 60.0 50.0 10.0 Construction of Reidi Street in Tallinn 11.2 Improving the environmental condition of the air traffic area of 7.3 7.8 Tallinn Airport Reconstruction of the traffic management system of Tallinn- 4.5 4.5 5.5 Keila-Paldiski Tallinn-Keila-Paldiski; repair works II of Keila-Riisipere railway 3.5 Reconstruction of the Tapa-Narva railway 2.3 8.1 Reconstruction of the Tapa-Tartu railway 0.2 Reconstruction works of the TEN-T transit roads in Narva 3.6 5.4 Additional allocation 74.7 50.7 61.2 49.5 Developing the movement environment between the old harbour 3.9 3.9 and the city centre
155 State Budget Strategy 2019–2022 2019 2020 2021 2022 IT investments 0.7 0.3 Projects financed from the sale of greenhouse gas emission 11.8 9.9 quotas Own revenue 0.9 1.0 1.0 1.0 IT investments 0.1 0.1 0.1 0.1 Summary project of the renovation of national roads 0.8 0.8 0.8 0.8 Ministry of Finance, area of government 80.2 60.6 57.4 44.8 Public revenues 9.7 9.8 10.2 9.8 IT investments 2.9 2.9 3.4 2.9 Other Investments 6.9 6.9 6.9 6.9 External funds 70.5 50.9 47.2 35.0 IT investments 1.1 1.1 1.1 1.1 Other Investments 58.3 38.6 25.9 15.0 Projects financed from the sale of greenhouse gas emission 11.1 11.2 20.2 18.9 quotas Ministry of the Interior, area of government 35.9 34.3 15.9 11.3 Public revenues 35.7 34.3 15.9 11.3 IT investments 0.6 4.4 2.0 2.0 Shore bases 3.1 Machinery and equipment 0.1 0.1 0.1 0.1 Other Investments 2.4 2.4 2.4 2.6 Kase street complex of the Estonian Academy of Security 1.3 0.6 0.6 0.6 Sciences Transport vehicles 2.5 4.0 4.2 4.5 Maintenance and spare parts of aircraft 2.1 1.8 1.6 1.6 Continued construction of the eastern border – infrastructure 18.0 14.0 5.0 (reserve for specific purposes) Narva College of the Estonian Academy of Security Sciences 5.6 7.0 (reserve for specific purposes) External funds 0.2 Machinery and equipment 0.2 Ministry of Social Affairs, area of government 50.7 64.7 42.3 21.6 Public revenues 4.2 1.5 1.5 1.3 IT investments 1.4 0.8 1.5 1.3 Investment of the SA Agrenska Fond 0.7 0.7 Creating service places for the elderly with a dementia diagnosis 2.1 External funds 46.5 63.2 40.8 20.3 Special care institutions 13.7 17.1 14.1 0.9 Adaption of homes of people with special needs Hospital network 1.0 12.7 14.9 9.7 Design works for the active treatment section of the Ida-Viru 1.0 6.7 4.3 3.5 Central Hospital IT investments 1.0 0.5 Health centres 29.7 26.2 7.6 6.2 Ministry of Foreign Affairs 5.8 8.5 3.1 3.1 Public revenues 5.8 8.5 3.1 3.1 Inventory 0.01 0.01 0.01 0.01
156 State Budget Strategy 2019–2022 2019 2020 2021 2022 IT investments 0.3 0.3 0.3 0.3 Machinery and equipment 0.9 0.3 0.2 0.2 Embassy building in Washington 2.0 5.3 Transport vehicles 0.3 0.3 0.3 0.3 Construction investments of the Ministry of Foreign Affairs and 2.3 2.3 2.3 2.3 of foreign representative offices Build-up real estate investments from the budget of Riigi 55.8 56.6 59.0 83.6 Kinnisvara AS Complete reconstruction of the Estonian Crop Research Institute 1.9 and building an extension for breeding grain and grass plants. Reserved spare capacity of investments 12.0 8.5 30.0 64.7 Fine Art School 0.7 0.0 0.0 Establishing the Kihnu rescue squad 0.6 Development of the joint building of Pärnu police and rescue 11.7 3.4 board (entire development) Establishing state houses 1.6 1.6 1.6 1.6 Riigi Kinnisvara AS investment reservations 5.9 23.9 13.6 3.5 Estonian Knighthood House 4.3 3.5 Sillamäe joint building (construction) 1.2 1.9 Sillamäe joint building (design works) 0.02 0.01 Development of the new Tallinn Prison (MoJ) 2.4 Development of the new Tallinn Prison (MoI) 0.01 Optimization reserve 13.5 13.8 13.8 13.8 *Only includes investments by objects that have been decided by the Government of the Republic
157