ISSN: 2560-1601 Vol. 36, No. 2 (EE) January 2021 Estonia economy briefing: The ‘reformists’ and the economy E-MAP Foundation MTÜ 1052 Budapest Petőfi Sándor utca 11. +36 1 5858 690 Kiadó: Kína-KKE Intézet Nonprofit Kft. [email protected] Szerkesztésért felelős személy: CHen Xin Kiadásért felelős személy: Huang Ping china-cee.eu 2017/01 The ‘reformists’ and the economy In 1994, when the Estonian Reform Party was founded by Siim Kallas, a former high- profile Estonian Communist functionary, the country had already been shown a politico- economic direction that eventually helped it to reach the level of a developed state. Due to a number of revolutionary reforms implemented by Prime Minister Mart Laar (Pro Patria) from October 1992 to November 1994, Estonia’s pace in the process of dismantling the post-Soviet economy overpassed many countries in the neighbourhood. The national currency – the kroon – was reinstated and then successfully adopted by the economy, the easy-to-understand flat tax- based fiscal system was introduced, and the Russian troops that used to be stationing on the Estonian soil since the USSR’s collapse were kindly sent back home. Siim Kallas, however, wanted to establish a mainstream party, which would be based on centre-right liberal values, strict fiscal discipline, and perpetual reforms-oriented political mentality of constant positive change. The idea was accepted by the society in general, but the ‘reformists’ had to wait for its first premiership until January 2002, when Siim Kallas himself ‘toppled’ the second cabinet of Mart Laar to get into a governmental coalition with the nominally leftist Centre Party. Nineteen years later, the ‘reformists-centrists’ Government has been appointed by President Kersti Kaljulaid to run Estonia once again, and the country’s Prime Minister’s family name is still Kallas. This time it is Kaja though, the daughter of Siim. This is, perhaps, where some quasi-nostalgic sentiments should be substituted by a more comprehensive look on what the new Government is planning to implement in 2021, economic reforms wise. For the ‘reformists’, it is not only about justifying the party’s name, but, presumably, the story should also be about the country’s economic strategy from a long-term perspective. Some of the main clusters, where quite a bit more strategy is urgently required, were outlined by President Kaljulaid in her speech on inauguration of this governmental coalition: First and foremost, the people of Estonia expect the new government to focus on containing the virus and ending the crisis so that our grandmothers and grandfathers no longer die from coronavirus. […] Our tourism sector and the related economy are in a dire state and await clear, effective solutions in order to get back on their feet once the virus curve flattens out. […] The Estonian e-state requires investment to ensure that e-services continue to be accessible 1 and their use secure. Estonia must protect its role as the leading shaper of the digital society; the export potential of our start-ups is limitless. […] Estonia’s regional development is extremely uneven. […] And, most importantly, nothing will protect the Estonian language, culture and customs more effectively than ending the segregation of children within the education system.1 Most definitely, the two major parties ‘listened’ to the President, and, in a relatively generic manner, all these urgent priorities found their places in the coalitional agreement2. The obvious (and very expected) lack of the document’s specificity can be speculatively explained by the coalitional partner’s strong desire to have some ‘space’ for a quick political manoeuvre closer to any kind of elections, be it the upcoming presidential, local, or parliamentary. Then, of course, there will be a situation when nobody is anybody’s ‘friend’. However, until that particular point in time, the newest Government of Estonia started working from 26 January 20213, having a common hope to ‘survive’ until March 2023. The ministerial line-up, as argued by Prime Minister Kallas, provides for “a balance between men and women and between experience and novelty”4. Indeed, the Government has plenty of new faces, and when Postimees TV had announced its new series ‘Minister in the Crossfire’ to interview the holders of the ministerial portfolios in the Kaja Kallas-led cabinet, the country’s community of political commentators immediately started looking forward to watch all of these. The information on the Government-driven prospective actions is urgently needed to be understood and then debated on, because, together with the Prime Minister herself, the cabinet has other six Ministers who have no prior experience of holding any governmental portfolio5. In regards of the economics-focused group of Ministers, it is represented by the following politicians: Minister of Finance – Keit Pentus-Rosimannus (Reform), Minister of Economic Affairs and Infrastructure – Taavi Aas (Center), Minister of Foreign Trade and Information 1 Kersti Kaljulaid, ‘President’s speech on inauguration of new coalition: The sun has just risen’ in ERR, 26 January 2021. Available from [https://news.err.ee/1608086506/president-s-speech-on-inauguration-of-new-coalition-the- sun-has-just-risen]. 2 ‘Uue valitsuse prioriteedid: Reformierakonna ja Keskerakonna koalitsioonilepe’ in ERR, 24 January 2021. Available from [https://www.err.ee/1608084442/uue-valitsuse-prioriteedid-reformierakonna-ja-keskerakonna- koalitsioonilepe]. 3 ‘Kallas and Ratas to sign coalition agreement on Monday’ in ERR, 25 January 2021. Available from [https://news.err.ee/1608084898/kallas-and-ratas-to-sign-coalition-agreement-on-Monday]. 4 Kaja Kallas as cited in ‘Kallas: We tried to put together a balanced government’, ERR, 24 January 2021. Available from [https://news.err.ee/1608084472/kallas-we-tried-to-put-together-a-balanced-government]. 5 Meinhard Pulk, ‘New government brings gender balance’ in Postimees, 25 January 2021. Available from [https://news.postimees.ee/7163800/new-government-brings-gender-balance]. 2 Technology – Andres Sutt (Reform), and Minister of Health and Labour – Tanel Kiik (Center)6. Out of them, only Minister Sutt, a highly experienced banker who entered the Riigikogu for the first time in March 2019, is a neophyte for the Government. Justifying her choice of Keit Pentus-Rosimannus for the key ‘Finance’ portfolio – she is the country’s former Minister of Environment (2011-2014) and Foreign Affairs (2014-2015) – Prime Minister Kallas noted that Pentus-Rosimannus was participated in the latest coalitional talks and, more than a decade ago, was involved in the process of “fixing the 2009 (crisis – ed.) budget and getting it ready for the switch to the euro”7. Appreciating the fact that the new Government usually need a couple of months to get accustomed to their roles and the common scope of responsibility, the country will, probably, live the same period in the absence of ground-breaking ideas on effective reforming the pandemic-affected economy. What is more or less forecasted, apart from the coalition having to stay still and monitor how many people will eventually decide to withdraw their funds from the second pillar of Estonia’s pensions ‘basket’ (this semi-reform was extensively discussed in the briefs throughout 2020), the Government will have to say something on the fuel excise duty by spring 2021. The new coalition made an agreement to have a ‘tax peace’ that “would apply equally to direct and indirect taxes”8. In the meantime, there will be some routine, which will keep the economic cluster of the cabinet being preoccupied with. For example, the Ministry of Finance and its new chief will carry on the process on establishing “requirements for service providers that offer investment opportunities, in crowdfunding projects or crypto assets”9, which was commenced by the previous Government. Minister Aas, acting within the framework of his ‘Economic Affairs and Infrastructure’, will be concentrating on smaller projects in the context of highway development, because “large-scale procurements is [considered] not reasonable”10 at this moment. Finally, on a larger scale of both infrastructural development and political ‘headache’, the Government will have deal with a number of issues associated with the Rail Baltica’s 6 Pulk. 7 ‘Kallas: We tried to put together a balanced government’. 8 ‘New government to decide fuel excise duty future in spring’ in ERR, 22 January 2021. Available from [https://news.err.ee/1608083176/new-government-to-decide-fuel-excise-duty-future-in-spring]. 9 ‘The Ministry of Finance will start regulating the field of crowdfunding and crypto assets’ in Rahandusministeerium, 19 January 2021. Available from [https://www.rahandusministeerium.ee/en/news/ministry-finance-will-start-regulating-field-crowdfunding-and- crypto-assets]. 10 ‘Minister: Smaller projects more reasonable for highway development’ in ERR, 28 January 2021. Available from [https://news.err.ee/1608088885/minister-smaller-projects-more-reasonable-for-highway-development]. 3 continuation as a ‘live’ initiative. As reported, Estonia, together with Lithuania and Latvia, expresses its determination to secure significant EU-issued funds to push the project into a more visible being. The point is that the Rail Baltica “was expected to receive EUR 1.4 billion from the [EU’s] long-term budget under a July deal among EU leaders, but the European Parliament is putting up a fight over earmarking funding for any specific project or group of countries”11. Politico report that when the EU “clinched the EUR 1.8 trillion budget and recovery package last July, [the entity’s] leaders also agreed to earmark €1.4 billion ‘for the completion of missing major cross-border railway links between cohesion countries to support the functioning of the Single Market’ — understood to be a reference to Rail Baltica, following strong lobbying from Baltic leaders”12. However, the European Parliament is “opposing the idea of earmarking money for any specific project, despite backing the Baltic railway project itself”, because, in accordance to the rules of the Connecting Europe Facility, “the money has to be awarded through a competitive procedure”13.