Minister: Doing business in Estonia is easy

Sven Sester, the Minister of Finance of Estonia, presented to other eurozone finance ministers the experience and plans of Estonia to make business simpler: for example, using the information on wages already collected, the Tax and Customs Board for compiling official statistics would make it possible to reduce the reporting burden of companies.

“Doing business in Estonia is easy in comparison with many other countries: Estonia ranks first among European countries according to the ease of doing business index of the World Bank,” said Sven Sester. “But we still have a long way to go. The less time and effort entrepreneurs have to spend on bureaucracy, the more time they can commit to their businesses by creating better jobs and growing the wealth of society.

“We will work with the Tax and Customs Board, Statistics Estonia and the central bank to reduce and simplify reporting by companies in such a manner that the same information does not have to be submitted to the state twice. For example, using the information on wages collected by the Tax and Customs Board in national statistics would reduce the reporting burden. Authorities must share data with each other whilst guaranteeing the necessary confidentiality.”

Sester adds that e-residency also helps make simpler business, including cross-border business. “It also motivates us try and find ways of streamlining the identification and authentication of persons, and to provide services that support business also across the borders,” said Sester.

Source: Estonian Ministry of Finance

County governments’ activities are terminated

The Government decided on Jan.12, 2017 that all county government activities shall be terminated on 1 January 2018. The local tasks of the county governments shall be transferred to the local authorities and the state tasks shall be transferred to ministries and existing departments.

Minister of Public Administration Mihhail Korb is of the opinion that the current regional administration arrangements need changing. The county governments today have very few tasks remaining and that volume of tasks is set to be reduced further when after the administrative reform the larger and stronger local authorities are to receive more tasks. “The county government reform will enhance the decision-making rights on the local authority level, establish clarity regarding task distribution between state bodies and remove agency duplicity,” said Minister of Public Administration Mihhail Korb. “At the same time the counties will continue to exist as state administrative units, with the state providing the necessary services to the population. No required state service will disappear, but the service provision quality and availability at county centres will be streamlined. The local authorities will be providing the locally needed services.”

As a result of the reform, the local authorities will be able to engage in planning of county developmental activities, coordination of county cooperation, vital statistics, additional cultural undertakings and regional public transport improvements.

The ministries will be responsible primarily for organisation of supervision in different spheres, land actions, implementation of regional development programmes and compilation of state planning documents.

Preparation for the termination of county government activities has been entrusted to the Ministry of Finance, with March 2017 set as the date for submitting the plan to the Government.

Source: Estonian Ministry of Finance

State revenue was 7.6 pct higher than in 2015

According to the Ministry of Finance, a total of € 8.58 billion of revenue was received by the state in 2016, which is € 603.1 million, or 7.6%, more than the previous year.

“Last year, the state received tax revenue in the amount anticipated in the budget. I am also pleased to note that the expenditures of public authorities were within the budget as usual,” said Sven Sester, the Minister of Finance. “For the future, we hope to increase growth enhancing public investments.”

Tax revenues, including the taxes to be transferred to local authorities, the Unemployment Insurance Fund, the Health Insurance Fund, were received in the amount of € 7.53 billion, which is 5.7% or € 404.1 million more than the previous year.

Social tax receipts increased 6.5% (to € 2.55 billion) and VAT collection improved 5.7% (to € 1.96 billion). Excise duties were collected 11.2% more than a year ago, i.e. a total of € 970.5 million. The revenue from excise duties was affected by the stocking up of alcohol and fuels in anticipation of increases in tax rates in 2017.

The taxes to be transferred to local authorities, the Unemployment Insurance Fund, the Health Insurance Fund, and others were received in the amount of € 1.26 billion, which is 6.5% more than the previous year.

Non-fiscal revenues were received in the amount of € 1.1 billion – € 198.9 million more than in 2015. Of this, € 168.2 million came from the sales of goods and services; the rest of the revenue received was € 127.1 million.

The amount of aid received was € 616.4 million, including € 601.7 million of EU and other external aid, and € 14.6 million of domestic support. In 2016, we received external financing 62.2%, or € 230.8 million, more than in the previous year. The biggest part (298.4 million) or nearly 50% of external financing came from EU structural funds. Furthermore, € 119.7 million came from the European Agricultural Fund for Rural Development (EAFRD). Other agricultural payments received amounted to € 134.4 million, of this, € 35.5 million constituted of the instruments of the financial period 2007-2013 received in December.

Overall spending in 2016 came to € 8.56 billion, including € 575.8 million of external financing. Aid payments in the amount of € 4.05 billion, including € 410 million paid from external financing, constituted the bulk of expenditure. Other operating expenses constituted a total of € 2.71 billion, the major share being tax revenue, payments and other charges paid to local authorities, the Health Insurance Fund, the Unemployment Insurance Fund and other relevant authorities.

Labour and administration costs constituted 98.9% of the planned budget. Labour costs increased by 3.4% compared to 2015, constituting € 747.2 million. Administration costs increased 3.5%, constituting € 737.7 million at the end of December.

Last year, € 330.4 million was allocated to investment, which is € 116.1 million less than in the previous year. Public authorities invested, € 299.3 million, i.e. € 38.1 million less than in the previous year. Investment aid was paid in the amount of € 31.1 million. The level of investment was the lowest it had been in the last six years, mainly due to the investments made on account of external financing.

In the previous financial period, in 2007-2013, significantly more external financing was allocated to investments, such as: infrastructure, roads, transport, and real estate. In the current financial period, 2014-2020, more support has been given to services, the labour market, and education measures, cooperation and development programmes, and other development and mentoring programmes targeted to people.

Public authorities planned € 322.9 million in investments during 2016; nearly half of this amount, i.e. € 142.8 million, was invested by the Ministry of Economic Affairs and Communications into the construction and improvement of public roads. Investments have followed a similar trend every year – the spending levels are low in the first five months of the year and payments increase in the second half of the year due to large-scale subcontracting.

External aid was paid in the form of expenses and prepayments, in the amount of € 575.8 million, of which structural aid constituted € 293.2 million. Most disbursements made, were made in the area of government of the Ministry of Rural Affairs: € 228.6 million, the bulk of which constituted payments from the European Agricultural Guarantee Fund in the amount of € 127.2 million. The payments in the area of government of the Ministry of Economic Affairs and Communications amounted to € 159.9 million, including support to the strengthening of entrepreneurship and the development of transport.

In the current financial period 2014-2020, € 4.4 billion is available to Estonia from the structural and investment funds; additional funding can be obtained under various programmes and from different funds. If Estonian applicants continue to apply successfully, it is estimated that nearly two billion euros could be obtained for the implementation of various projects.

As of the end of December, the treasury held liquid financial assets, i.e. deposits and bonds, in the value of € 1.19 billion, which is € 44.5 million or 3.9% more than in December 2015. The liquidity reserve held € 765.3 million and the stabilisation reserve € 405.9 million.

At the end of November, the nominal general government deficit was € 24.4 million or 0.12% of the GDP. The deficit of the budgets of local authorities amounted to € 65.4 million. The central public deficit was € 86.8 million and the deficit of social security funds was € 3 million.

Source: Estonian Ministry of Finance

Estonian construction volumes increased in 2016

According to the preliminary data of Statistics Estonia, in 2016 the total production of Estonian construction enterprises in Estonia and in foreign countries amounted to 2.1 billion euros, which was 3% more than in 2015. The construction volumes increased after two years of decline.

The production value of building construction was 1.4 billion euros and the production of civil engineering works totalled 656 million euros. Compared to 2015, the volume of building construction increased 9% and the volume of civil engineering decreased by a tenth.

The domestic construction market was affected the most by a decrease in civil engineering volumes. There was also a decrease in repair and reconstruction work in building construction. However, new building construction, which had taken an upturn already in 2013, continued its growth trend in 2016 as well.

The construction volume of Estonian construction enterprises in foreign countries increased 3% compared to 2015, affected mainly by the construction of buildings. Construction volumes in foreign countries accounted for 11% of the total volume of construction in 2016.

The number of dwelling completions increased for the fifth year. According to the data of the Register of Construction Works, in 2016, the number of dwelling completions was 4,732, i.e. 763 dwellings more than the year before. The largest share of completed dwellings was in blocks of flats and every second dwelling had two or three rooms. The majority of completed dwellings were situated in Tallinn, followed by the rural municipalities in the vicinity of Tallinn, and in Tartu county.

There is still a demand for new high-quality dwellings in a good location. In 2016, building permits were granted for the construction of 6,021 dwellings, which is about 8% more than in 2015. The most popular type of residential building was a block of flats.

In 2016, the number of completed non-residential buildings was 1,060 with a useful floor area of 771,000 square metres – these were primarily new commercial, storage and industrial premises. Compared to 2015, the useful floor area as well as the cubic capacity of completed non-residential buildings increased.

In the 4th quarter of 2016, the production value of construction amounted to 572 million euros, which was 3% more than in the 4th quarter of 2015. The volumes of building construction as well as civil engineering increased.Construction volume index, 2000–2016

The statistics are based on the questionnaire “Economic activity, quarter”, the submission date of which was 20 January 2017. Statistics Estonia published the quarterly summary in 23 working days. For the statistical activity “Financial statistics of enterprises (quarterly)”, the main representative of public interest is the Ministry of Economic Affairs and Communications, commissioned by whom Statistics Estonia collects and analyses the data necessary for conducting the statistical activity.

Source: Statistics Estonia

Minister: the EU budget must contribute to growth

The Economic and Financial Affairs Council, commonly known as the Ecofin Council, approved its guidelines for the 2018 EU budget today.

“The EU budget should help boost smart and inclusive growth. To achieve this, the budget should concentrate on new investments conducive to jobs and growth,” said the Minister of Finance of Estonia, Sven Sester. “However, steps should be taken to ensure that the red tape associated with the use of EU funds does not increase. Therefore, we urge all institutions, bodies and agencies to reduce or freeze their administrative expenditure as much as possible and to request financing only for justified needs.”

The guidelines by the finance ministers of the European Commission marked the start of the procedure for drawing up the general budget of the Union. During its term of the EU presidency, Estonia must lead the negotiations with the European Parliament, the Council of the European Union, which represents the governments of the Member States, and the European Commission preceding the adoption of the EU budget.

The finance ministers also gave the discharge to the Commission for the implementation of the EU’s budget for 2015. The discharge to the Commission was prepared in the light of an annual report from the Court of Auditors.

The finance ministers agreed on the general approach of the Anti-Tax Avoidance Directive draft (ATAD2). The new legislation will counter tax evasion and avoidance stemming from disparities between the taxation systems of different countries.

“Tax evasion and tax avoidance should not give anyone an undue competitive advantage,” said Sven Sester. “Estonia supports the fight against tax evasion and tax avoidance as well as the common approach proposed by Malta, holders of the current EU presidency.”

ATAD2 will be a supplement to the Anti-Tax Avoidance Directive adopted last summer, addressing hybrid mismatches with regard to non-EU countries. Hybrid mismatches occur where the same transaction or entity is treated differently in two different jurisdictions, providing an opportunity to avoid taxation in cross-border cases.

On Tuesday, Minister of Finance Sven Sester meet with Andrus Ansip, the European Commissioner for Digital Single Market and Vice President of the European Commission, following the meeting of the Council, to discuss matters related to the forthcoming Estonian EU presidency.

At the meeting of the finance ministers of euro area countries (the Eurogroup) on Monday in Brussels, the Minister also presented Estonia’s proposals for cutting red tape, including the entrepreneurial account initiative. The ministers discussed the ease of doing business in the euro area and the opportunities to improve the business climate. The discussions will continue in April.

ECB President Mario Draghi, the IMF’s European chief Poul Thomsen and ESM Managing Director Klaus Regling briefed the Eurogroup on the situation in Greece: the country has returned to economic growth and its unemployment rate is in decline for the third consecutive year. Greece has achieved the target of medium-term primary surplus set out in the last year’s economic adjustment programme.

The European Commission also presented its winter 2017 economic forecast to the Eurogroup.

Source: Estonian Ministtry21 of Finance

Estonian trade increased after three years of decline

According to Statistics Estonia, in 2016, the exports and imports of goods increased by 3% each compared to 2015. The last time trade grew in comparison of years was in 2012.

In 2016, exports of goods from Estonia amounted to 11.9 billion euros and imports to Estonia to 13.5 billion euros at current prices. The trade deficit in 2016 was 1.6 billion euros, the deficit increased by nearly 73 million euros compared to 2015. The largest surplus was in the trade in wood and articles of wood and miscellaneous manufactured articles (incl. furniture and prefabricated buildings of wood), the largest deficit was registered in the trade in transport equipment and in raw materials and products of chemical industry.

Similarly to previous years, electrical equipment was exported the most, accounting for 22% of Estonia’s total exports in 2016. This was followed by the exports of wood and articles of wood (10%), agricultural products and food preparations (9%) and miscellaneous manufactured articles (9%). The increase in exports was mostly impacted by a rise in the exports of mechanical machinery, electrical equipment and wood and articles of wood. The biggest decrease in exports in 2016 year was recorded in mineral products and agricultural products and food preparations.

The top destination country of Estonia’s exports in 2016 was Sweden (18% of Estonia’s total exports). Finland (16%) was second and Latvia (9%) third. The biggest increase occurred in exports to Mexico, Germany and Finland. Exports to Latvia, Sweden and the USA decreased the most in 2016.

The share of goods of Estonian origin in total exports was 72% in 2016. In the exports of goods of Estonian origin, the largest increase was in the exports of mineral products, wood and articles of wood and electrical equipment. The exports of agricultural products and food preparations dropped significantly.

The main destination countries of goods of Estonian origin are Sweden, Finland and Germany. The biggest increase in the exports of goods of Estonian origin was in the exports to Mexico and Germany and the biggest decrease in the exports to Sweden and Russia.

In 2016, the main commodity imported to Estonia was electrical equipment; its share amounted to 18% of Estonia’s total imports. The second and third places were held by transport equipment (11%) and agricultural products and food preparations (11%). In a year, the imports of transport equipment and base metals and articles of base metal increased the most. The imports of mineral products decreased.

The main countries of consignment in 2016 were Finland (13% of Estonia’s total imports), Germany (11%), and Lithuania (9%). The biggest increase occurred in imports from the Netherlands, Hungary and France. The largest decrease was registered in imports from Finland and Russia.

Estonia exported goods to 179 countries and imported goods from 144 countries. A positive foreign trade balance was recorded in the case of 97 countries. The biggest surplus (1 billion euros) was recorded in trade with Sweden, followed by Norway, Mexico and Finland. The biggest deficit was recorded in trade with Germany, Poland and Lithuania.

In 2016, the share of European Union countries in Estonia’s total exports was 74% and total imports 82%. The trade deficit with other European Union countries totalled 2.4 billion euros, which is 219 million euros more than in 2015. Exports to EU countries increased by 85 million euros and imports by 303 million euros. In trade with non-EU countries, exports increased by 232 million and imports by 86 million euros.

In 2016 compared to 2015, export prices decreased by 1% and import prices by 2%.

In December 2016, exports of goods from Estonia amounted to 1.0 billion euros and imports to Estonia to 1.2 billion euros. Compared to December 2015, exports increased 10% and imports 8%.

Read more from Statistics Estonia

Exports of both goods and services increased in December 2016

The flash estimate1 put the Estonian current account at 65 million euros in surplus in December 2016. The surplus on the goods and services account doubled over the year to 74 million euros. The growth of 6% in goods exports at the end of the year was faster than the 5% in imports, so the deficit on the goods account narrowed to 112 million euros. The surplus on the services account was 186 million euros, which was 32 million euros more than at the same time a year earlier. Services exports increased by 11% because of growth in travel services and other services, while imports of services increased by only 6%. The net outflow on the primary and secondary income accounts totalled 9 million euros.

The current and capital accounts were in surplus by a total of 58 million euros in December. This meant that the Estonian economy has been a net lender to the rest of the world in the past nine months.

1 The quarterly balance of payments is compiled from a combined system of representative primary data sources, including surveys of companies, while the monthly balance of payments draws from a considerably smaller database. Although the monthly report uses as much data available for the month reported as possible, including administrative data sources and reports on international payments, it is subjective to a certain degree, which is why it is called an estimate. Once the quarterly balance of payments is released, the monthly balances of payments are adjusted accordingly. For more on the principles used in compiling the flash estimate, see http://statistika.eestipank.ee/failid/mbo/kiir_mb_eng.html

Eesti Pank publishes the flash estimate of the balance of payments monthly for the last month but one. Eesti Pank will publish the balance of payments for the fourth quarter of 2016 on 9 March 2017.

Source: Bank of Estonia (see better graph here)