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State Budget Strategy 2018–2021

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State Budget Strategy 2018–2021 STATE BUDGET STRATEGY 2018–2021 April 2017 Table of Contents Introduction ......................................................................................................................... 4 1. PRIORITIES OF THE GOVERNMENT OF THE REPUBLIC ............................................. 7 2. OBJECTIVES OF PERFORMANCE AREAS ..................................................................... 14 2.1. Foreign and national security policy and national defence ........................................ 14 2.1.1. Foreign and EU policy ........................................................................................ 14 2.1.2. National security and defence ............................................................................. 17 2.2. Economic policy, public investments and taxation ................................................. 20 2.2.1. Public finance .................................................................................................. 20 2.2.2. Enterprise and innovation ................................................................................ 22 2.2.3. Transport .......................................................................................................... 25 2.2.4. Information society .......................................................................................... 27 2.3. Demographics, public administration and civil society .......................................... 30 2.3.1. Public administration ....................................................................................... 30 2.3.2. Development of civil society ........................................................................... 33 2.4. Research and education policy................................................................................ 35 2.4.1. Research ........................................................................................................... 35 2.4.2. Education ......................................................................................................... 37 2.4.3. Estonian language and identity ........................................................................ 41 2.5. Culture and sports ................................................................................................... 43 2.5.1. Culture ............................................................................................................. 43 2.5.2. Sports ............................................................................................................... 47 2.6. Integration ............................................................................................................... 49 2.6.1. Citizenship policy and integration ................................................................... 49 2.7. Environment and energy ......................................................................................... 51 2.7.1. Environment .................................................................................................... 51 2.7.2. Energy .............................................................................................................. 55 2.8. Local governments and regional policy .................................................................. 56 2.8.1. Regional development and rural life ............................................................... 56 2.9. Rural life ................................................................................................................. 59 2.9.1. Agriculture and fishing .................................................................................... 59 2.10. Internal security and legal space ............................................................................. 62 2.10.1. Internal security .............................................................................................. 62 2.10.2. Legal order ..................................................................................................... 67 2.11. Social policy and health .......................................................................................... 73 2.11.1 Family policy ..................................................................................................... 73 2 2.11.2. Labour market ................................................................................................... 75 2.11.3. Social protection ............................................................................................... 77 2.11.4. Health ................................................................................................................ 79 3. FISCAL FRAMEWORK ........................................................................................ 83 3.1. Fiscal policy objectives of the Government of the Republic .................................. 83 3.1.1. Objective of the budgetary position of the general government ......................... 84 3.1.2. Objective of tax burden ....................................................................................... 85 3.2. Budgetary position of the general government ....................................................... 85 3.2.1. Cyclically adjusted position of the budget of the general government ........... 89 3.2.2. Structural budgetary position of the general government................................ 91 3.2.3. Budgetary position of the central government ................................................ 93 3.2.4. State budget position ....................................................................................... 94 3.2.5. State budget expenditure.................................................................................. 95 3.2.6. Position of other central government............................................................. 102 3.2.7. Budgetary position of local governments ...................................................... 102 3.2.8. Budgetary position of social security funds .................................................. 104 3.3. Tax policy, tax burden and tax expenditure .......................................................... 106 3.3.1. Changes in taxes ............................................................................................... 107 3.3.2. Implicit tax rate and tax wedge ......................................................................... 109 3.3.3. Tax expenditure .................................................................................................. 111 3.4. Debt burden and the reserves of the general government ..................................... 114 3.4.1. Debt burden of the general government ........................................................ 114 3.4.2. Reserves and net position of the general government ................................... 116 APPENDICES ............................................................................................................................ 118 Appendix 1. Economic forecast of spring 2017 of the Ministry of Finance................... 118 Appendix 2. Financial plan of the State Budgetary Strategy 2018–2021 by areas of government (does not reflect funds dependent on revenue) ........................................... 122 Appendix 3. Use of revenue from the EU scheme for greenhouse gas emission allowance trading in 2013–2020 ...................................................................................................... 124 3 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 Policy 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
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