The Government gave an overview of the activities of 2015

On Dec.16, 2015 Prime Minister Taavi Rõivas, Minister of Health and Labour Jevgeni Ossinovski and Minister of Social Protection Margus Tsahkna gave an overview of carrying out the Government’s activity programme in 2015.

The Government’s priorities are strengthening Estonia’s security, promoting economic growth and reducing labour-related taxes, improvement of the subsistence of low-paid workers and developing an environment that supports childbirths, state and local administration reform and developing peripheries and preparing for the presidency of the European Union and carrying it out successfully.

To ensure security Estonia will continue keeping defence expenditure on the level of 2% of GDP, to which the expenses related to receiving allies are added. The Government has continued strengthening independent defence capabilities as planned and applied for the strengthening of NATO’s deterrence posture and increasing the presence of allies.

Several defence infrastructure objects have been completed this year: the NATO headquarters were opened in June and in February the Government made a principled decision to allocate 40.6 million euros over five years for the construction of infrastructure promoting the presence of allies and to allocate this money in addition to the 2% defence budget. Estonia also contributes to strengthening security internationally – we have supported the reducing of instability caused by Syria’s civil war, fight against the refugee crisis and terrorism. For example a police mission unit was sent to Slovenia and in May a team-size unit of the Defence Forces went to Lebanon.

To increase internal safety and ensure public order the salary fund of the police, officials of the rescue service and other internal security employees will be increased by 4% next year. The border line of the Estonian-Russian border was cleaned and the first border post has been placed there. In addition the Narva border point has been renovated and the renewed Narva-2 border point will also soon be opened. The Government also presented the Estonian-Russian border treaty to the Parliament for ratification.

To accelerate economic growth the Government reduced labour force taxation, which helps to increase competitiveness by shifting the tax burden more on the taxation of goods damaging health and polluting the environment. The Government reduced the rate of social tax from the current 33 per cent to 32 per cent by 2018. Tax exempt income will increase to 205 euros per month during the next four years, thereat to 170 euros in 2016. The additional basic exemption applicable to pension will continue to increase so that the average pension will remain exempt from tax.

To promote economic growth the Prime Minister has called an economic development working group consisting of experts and the Team Estonia cooperation platform is being created to improve the export capacity of Estonian companies and attract foreign investments into Estonia. The Government also simplified the opportunities for applying for e-residency.

A 5 million euro support measure for areas of growth was opened for enterprises to increase the productivity of enterprises and support export capacity. The availability of growth companies capital is improved by a 7 million euro support measure to accelerate start-up enterprise, i.e. Startup Estonia.

The work ability reform launching next year will bring more workers to the labour market and gives and opportunity to be necessary for the society. To increase the subsistence of low-paid workers the Government will launch a repayment system from 1 January 2016. Depending on the structure of income and tax exemptions the support is a maximum of 59 euros per month from 2017. In addition to increase social security from 2016 the subsistence level is 130 euros per month. The Government also agreed on the principles of the support scheme for pensioners living alone.

To improve the subsistence of families with children the Government decided to increase child support to 60 euros by 2019. From 1 July 2017 the benefit for large families will come into force for families with three or more children. The Government also approved the amendment, with which the housing benefit programme for large families will be extended to families with at least three children.

Launching the state reform is the first specific response to the forecast of population decline. To carry out the state and local administration reform the Government has agreed on the principles of the reform and the merging criteria of local governments. The content of the state reform is making principled choices on which activities, services and tasks to do differently compared to so far, what to do less in order to direct more resources into more important areas at its expense.

To reduce the volume of the Government, decisions have been taken in 2015 for structural reorganisation of the authorities of the government sector, consolidation of support services, increasing the efficiency of the Government and administrative arrangement, converting to an accrual-based budget and introducing spending review.

For the Estonian presidency of the European Union taking place in 2018 a supplemented preparation activity plan, Estonia’s European Union policy for 2015-2019 and a list of potential managers, who will represent Estonia in the leading positions of the negotiations of the EU Council have been approved.

Report of the Government’s activity programme (in Estonian): https://valitsus.ee/sites/default/files/content-editors/arengukavad/vali… (PDF)

Source: GOVERNMENT COMMUNICATION UNIT via Estonian Review

The current account of the Estonian balance of payments was in surplus in October

The flash estimate1 put the Estonian current account at 29 million euros in surplus in October 2015. The deficit on the goods account narrowed as imports fell faster than exports. Exports and imports of services also shrank, as turnover of travel services increased slightly but the figures for transport services and all other types of services were down. Investment income was less than a year earlier, reflecting lower profits and low interest rates. Payments to the European Union budget were larger than a year ago, but investment and other support from the European Union Structural Funds increased.

Structure of the current account in the flash estimate

Eesti Pank is publishing the flash estimate of the balance of payments monthly for the last month but one. Eesti Pank will publish the balance of payments for 2015 on 10 March 2016.

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.

See the graph on the Bank of Estonia website

The growth in the surplus on the current account slowed in 3Q

The current account surplus stood at 159 million euros in the third quarter of this year, which was equal to around 3% of the GDP of the quarter. The surplus was 67 million euros larger than in the third quarter of last year, but the growth that has been seen in the surplus since the second quarter of 2014 slowed down. The surplus on the current account has recently been caused by low investment activity levels and a reduction in the outflow of investment income. The surplus will be hindered from growing in future by weak foreign demand and a recovery in investment that mean some reduction in the surplus can be expected in the near future.

External assets grew faster than external liabilities in the third quarter year on year, but the net international investment position, showing the difference in external assets and liabilities, did not change as a ratio to GDP and remained at -38%. The Estonian net investment position has in recent quarters moved towards -35% of GDP, which the European Union considers as indicting balance. Despite this, the European Commission noted in its latest alert mechanism report that one possible source of danger for Estonia is that the net external liabilities are too large. It should be remembered in the Estonian context that more than half of the external liabilities are direct investments in the country, which are considered as a method of financing that has a lower risk of creating imbalances. With the current account close to balance, no continuous rapid improvement in the net investment position is foreseeable.

For more on the European Commission report see the Eesti Pank website (Estonian only).

Source: Bank of Estonia

Read also: The services account in external trade was substantially in surplus in the balance of payments in the third quarter

Border guards receive 159 new vehicles

The Ministry of the Interior will give the Police and Border Guard (PPA) 3.6 million euros to buy 96 patrol cars and 63 all-terrain vehicles.

The new vehicles will mostly be used to strengthened border security, replacing 82 older models.

The all-terrain vehicles will include 10 UTVs, 23 snowmobiles and 26 mountain bikes.

A procurement deal will be signed in February and the first vehicles should arrive in April 2016.

Source: ERR

 

Estonian state budget 2016

The planned expenditures of the draft state budget for 2016 are 8.9 billion euros, a growth of 4.2 percent or 358 million over the 2015 budget. The general government budget is projected to reach a structural surplus of 0.6 per cent of GDP.

Defense expenditures will reach 2.07 per cent of forecast GDP. This means an increase of 37.1 million euros, or 9 per cent over 2015. The national defense budget of 451 million euros will ensure the development of defense capabilities.

Read more from the report of the Estonian Ministry of Finance here

EC: government aid to Estonian Air was illegal

The Estonian national airline will fold following a decision by the European Commission that funding given to the company by the Estonian government was not in line with EU regulations. The company, founded in 1991, does not have the funds to pay back the state and will declare bankruptcy.

The Commission began an investigation into Estonian state aid to the company in 2013, with Estonian authorities waiting for a decision ever since.

Today, on November 7, the Commission ruled that the around 90 million euros given by the Estonian government to the company, gave the company an competitive advantage over others. This means the government must demand the full amount, plus interest, back from Estonian Air. The state had also earmarked a further 40 million euros, which would have been given to Estonian Air in case of a positive decision. That money will now go to the Nordic Aviation Group.

Commissioner Margrethe Vestager, in charge of competition policy, said: “Companies should compete based on a sustainable business model rather than relying on continued support by the State to stay in the market. Estonian Air has repeatedly received public subsidies over the past five years but did not carry out the necessary restructuring to become viable as a business. It would not be a good use of taxpayer money to keep Estonian Air in the market artificially – nor would it be fair to competitors, which have to compete without such support.”

The crunch question for the Commission was whether a private investor would have acted the same was as the Estonian state, pouring in as much money on the same conditions – if the state aid corresponded with market conditions.

The Commission ruled that Estonian Air received support three times, although EU regulations allow state aid to be given only once a decade. The Commission also ruled that the company did not have a credible restructuring plan and that measures aimed at limiting the distortions of competition were not sufficient.

The end

The government has set up two companies, which will begin to take over from Estonian Air. One (Nordic Aviation Group) will manage Estonian Air’s routes, while the other (Transpordi Varahaldus) will take on lease contracts.

Economy Minister Kristen Michal said on Friday that if a negative decision is made, then the Estonian Air fleet will be grounded from Sunday.

He said those at their destinations will be flown back home and those with tickets for future flights, will receive compensation. Those with an Estonian Air ticket have been asked to go to www.estonianair.ee or call +372 605 8888 for more information.

The board of Estonian Air today decided to halt all business activity from Sunday, November 8.

The company serviced around 500,000 people annually in the last few years, giving employment to 200 people.

History

It is a sad ending for a company, which became a symbol for newly re-independent Estonia at the beginning of the 1990s.

The company was founded during turbulent times but helped Estonia establish connections with the West. In 1995, the company purchased two brand new Boeing aircraft, giving a boost to a nation trying to rebuild from over 50 years of occupation.

Between 1996 to 2010 the state relinquished controlling shares in the company, and only purchased the company back in 2010 to ensure it did not go bankrupt.

Since 2009, the government has handed around 135 million euros into the company in capital injections, state aid and restructuring aid. The last time the company earned a profit was in 2005.

In 2012, losses amounted to over 50 million euros, from a turnover of less than 100 million. Until then, and after, losses were far smaller. The reasons for 2012 losses were in the company’s drive to expand. In 2011 the state hired Tero Taskila, a Finnish expert who came with a much criticized 30,000 euros per month salary, to take the company to another level. Yet, the plans to expand the company failed. Estonian Air was also hit by higher fuel prices, troubles with aircraft and salary increases.

In 2013, the company embarked on a large-scale restructuring path, cutting its fleet and the number of destinations. Staff numbers were halved.

Source: ERR

Estonia rocked by corruption scandal

The Internal Security Service KAPO on Sept.22, 2015 detained Tallinn Mayor Edgar Savisaar as a suspect for repeatedly accepting bribes.

The Center Party chairman is suspected of repeatedly accepting bribes in 2014 and 2015 in assets and favors for himself as well as for a third party with a total value of several hundred thousand euros.

Read more from BBN

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