Estonia’s e-residency program to cost 1.2 mEUR

The Estonian e-residency program is seen to cost 1.2 million euros during the first 18 months, according to initial estimates by the Ministry of Economy and Communications.

“The ministry has sent inquiries to all parties connected with the e-residency project to find out how much their expenditures will grow in their own estimate as a result of the e-residency project,” Taavi Kotka, deputy secretary general of the Ministry of Economy and Communications for communications and information systems and spokesman for the e-residency program, told BNS.

“According to an initial estimate by the ministry, costs for the e-residency project in the next 18 months will total approximately 1.2 million euros,” the official said.

As examples, he named a request for additional money by the Justice Ministry to improve customer support at Commercial Register, a request by the State Information System Authority for money to set up support for the ID card in English language, etc.

Kotka said it has to be kept in mind that the project’s costs and income depend on its success and are subject to change. The government has tasked the Finance Ministry and the Ministry of Economy and Communications with finding necessary fund.

“To go on with the project, the government decided to set up a project team with Enterprise Estonia. Enterprise Estonia is ready to partially cover the costs related to that team,” he said.

As the next step under the e-residency program the Ministry of Economy and Communication is about to launch a program titled “10 million e-Estonians” within whose framework at least 17,000 e-residents and via them 5,000 businesses are to be brought to Estonia in the next three years.

The program will be carried out by a program team to be set up with the Enterprise Estonia showroom. Kotka, who heads a council bringing together public and private sector representatives, will be responsible for the implementation of the program. The council will endorse the program’s content, goals and operational plans.

The program for 10 million e-Estonians covers six areas: registering of e-residency, developing of services geared toward e-residents, quality of services and support, risk management and security, developing of legal environment, and marketing and communication.

In addition to launching the program plans are to take faster steps to make application for e-residency simpler and simplify the services that e-residents show the biggest interest in.

E-residency is a state-issued secure digital identity for non-residents that allows digital authentication and the digital signing of documents. The purpose of e-residency is to make life easier by offering people living abroad an opportunity to use the secure e-services that have been accessible to Estonians already for years.

E-residency is provided by the government of the Republic of Estonia, but does not bring physical residency or rights of entry to Estonia or the EU. E-residency does not entail any residential or citizen rights and cannot be used as a physical identification card or travel document.

Source: BNS through Estonian Review

e-services in state agencies increase work efficiency

More and more state agencies use self-service based e-services to administer data, thus saving working time and increasing work efficiency.  Since November, the employees of 89 institutions manage their holidays, assets, and business trips via State Employee Self-Service Portal. The first to use all three services are the Ministry of Culture and Republic of Estonia Information System Authority.
“Using e-services has become an integral part of our everyday life and it is natural to introduce them in state support services,” said Agris Peedu, Deputy Secretary General of the Ministry of Finance. “The savings effect comes from the capacity – the more employees use self-service, the greater the savings for the entire state. The employees are free to use the time saved on routine tasks to perform their main activities.”
Since this autumn, State Shared Service Centre (SSSC) provides integrated service for managing business trips, holidays, and assets. Earlier, the agencies used various document management systems and data processing programs, which caused uneven service quality and increased workload. Currently offered service is based on a common standard and automated process.
“Introduction of the e-services of the self-service portal has generally improved the efficiency of data processing at the Ministry of Culture, because it combines automated operations in a single system. It helps to manage business trip compensations, or holiday pay, or something else. Only a few people miss the nostalgic cash deck and cashier who used to hand over cash against signature. Major efficiency of digital process consists in savings on time and quality,” said Paavo Nõgene, Secretary General of the Ministry of Culture. “Eventually, it facilitates the work of many people, and also helps to preserve nature.”
Transition to digital services supports national goal to implement nationwide centralised e-services. Establishment of the State Employee Self-Service Portal and provision of relevant services is one part of the project for linking state support services, resulting in introduction of a single financial software in state agencies, supranational e-invoices, and modernisation of the systems intended for submitting e-documents.
SSSC offers support service to state agencies and aims to save money and time, and improve quality through service centralisation by harmonising technological capacity and work processes.
Source: Estonian Ministry of Finance

PM: e-residency will be Estonia’s next success story

Prime Minister Taavi Rõivas said in his presentation speech held at Slush – the biggest event of start-ups and technology – that e-residency enables Europeans to start their business anywhere in the world and Estonia will be a landmark in this field.

“Both Estonia and Finland are offering excellent environment for launching innovative events and introducing them to the world, “ noted Prime Minister encouraging investors and entrepreneurs to come to Estonia.

“Estonia and Finland are the first countries in the world linking their e-services at state level and creating joint digital economic space, “said Prime Minister Rõivas performing with Finnish Prime Minister Alexander Stubb and Hiroshi Mikitani, Chairman of Japanese Corporation Rakuten. E-residency will be our next success story.”

This morning Prime Minister Rõivas met also the Estonian companies attending Slush. Approximately 100 Estonian companies are attending Slush this year.

Slush is the biggest regional event for start-ups, investors and technology. This year it brought together 14,000 attendees, including a vast number of Estonian companies, in addition to the participants from Nordic countries and Asia.

Source: Ave Tampere, Information Officer to the Government via Estonian Review

Infortar Group to be engaged as an investor in Estonian Air

On Tuesday the Supervisory Council of Estonian Air approved the modified restructuring plan to be submitted to the European Commission; approval of the plan creates preconditions for Infortar Group to be engaged as a majority shareholder of the airline.
The modified restructuring plan of Estonian Air is submitted to the European Commission on October 31. Upon approval of the restructuring plan Infortar Group is anticipated to invest into the company in Spring 2015. The changes in the ownership structure must be beforehand approved by the Government of Estonia.
“Estonian state has been looking for ways to engage a strong private investor among the shareholders of the national airline for the last three years,” said Ahti Kuningas, Chairman of the Supervisory Board of Estonian Air and Deputy State Secretary of the Ministry of Economic Affairs and Communications. “Today we have reached a framework agreement with a partner, who holds the best vision for Estonian Air’s future and best available knowhow from the tourism industry.”
Ain Hanschmidt, CEO of AS Infortar, described the investment as a challenge. At the same time, there lies an opportunity for Infortar Group to use its wide experience from investments in tourism and service industry as well as its financial strength for the development of Estonian Air.
“In addition, we see several substantial synergy possibilities with Tallink in terms of economies of scale – for example in purchasing, marketing activities, sales network,” noted Hanschmidt.
Estonian Air is national carrier of Estonia based in Tallinn, with a fleet of four Embraeer 170 and three CRJ900 airplanes. The regular route network of Estonian Air has 10 destinations, which are complimented by seasonal routes and charter services.
AS Infortar is an Estonian investment company, which investments include 36 per cent of the leading shipping company of the Baltic Sea, Tallink Group. The company’s focus is on investments into the tourism industry, transport sector and real estate.
Ministry of Economic Affairs and Communications

General government debt level continued to increase

According to the adjusted data of Statistics Estonia, in 2013 the Estonian general government deficit was 0.5% and the gross debt level was 10.1% of the gross domestic product.

At the end of 2013, the total expenditures of the general government exceeded the revenues by 89 million euros, according to the Maastricht deficit criteria. According to adjusted data,

the central government deficit decreased from 138 million euros at the end of 2012 to 64 million euros by the end of 2013. The deficit of the local government sector increased almost three times over the year, amounting to 89 million euros. The budget of social security funds was in surplus by 64 million euros.

The consolidated debt of the general government (Maastricht debt) rose by 10.3%, reaching 1.9 billion euros by the end of 2013. The overall debt level of the local governments grew by 19.7% compared to 2012. Social security funds did not contribute to the general government debt as at the end of 2013.

The indicators of government finance statistics are compiled on the basis of the new methodology of the European System of National and Regional Accounts ESA 2010. Several changes have been made compared to the preliminary indicators published in spring: the preliminary estimations have been replaced by actual data from the reports and the entire accounting has been transferred to the ESA 2010 methodology.

The majority of the methodological changes did not affect the balance of the general government consolidated budget and the debt level. For example, the changes arising from the capitalisation of research and development and military expenditures were made by rearranging different transactions which cancelled each other out. The change in the classification rules of public sector entities had the most significant impact on government finance statistics, resulting in the redistribution of public enterprises, foundations and non-profit institutions between the corporations sector, non-profit institutions serving households sector and general government sector.

Due to the reclassification, there was an increase in the number of public units assigned to the general government sector as non-market producers. The effect on the consolidated budget balance was positive in most years while the general government debt level increased slightly. The biggest change in debt burden occurred in the local government sector, due to the aggregation of the majority of the non-market producers assigned to the general government sector.

Diagram: Surplus/deficit and debt level of the general government in Estonia

In Estonia the general government sector comprises three sub-sectors: 1) central government (state budgetary units and extra-budgetary funds, foundations, legal persons in public law);
2) local governments (city and rural municipality governments with their subsidiary units, foundations); 3) social security funds (Estonian Health Insurance Fund, Estonian Unemployment Insurance Fund).

Eurostat is going to publish the data on the debt and deficit levels of the Member States according to ESA 2010 on 21 October.

Source: Statistics Estonia

Governemnt pledges to seek new export markets

With the Agriculture Ministry saying the EU is unlikely to decide support for sectors hit by Russian sanctions before September, Estonian officials and producers focused today on what the national government can do. The focus will lie on finding new markets and working with banks to secure more favorable terms for dairy farm investors.

Agriculture Minister Ivari Padar and Foreign Trade Anne Sulling said after meetings with lobby groups today that the sanctions were a political conflict between the EU and Russia and a united front would have to be agreed on the EU ministerial level. A meeting is due to take place in Brussels on Wednesday.

But domestic efforts will also be at center stage for now, with ministries pledging to work with banks to institute grace periods for dary farm investors and possibly to roll out more export subsidies in the 2015 state budget, Padar and Sulling said.

Farmers and milk producers said going into the meeting that they expect decisive action, including more direct subsidies and government intervention on milk prices.

Read more from ERR News

Recession in the distorting mirror of the state budget

The sustainability of state financing is measured in Europe by the structural fiscal balance, which indicates what the budget balance would be if it were not affected by the cyclical position of the economy or one-off factors. When the economy is growing fast, a nominal surplus is needed for the budget to be at least in balance structurally, and the opposite also applies, so when the economy is temporarily operating below its long-term growth potential, the nominal fiscal position is worse than the structural position. Structural budget balance or a small surplus is necessary so that the public finances would remain good over the longer term and the general government debt would not grow. The Estonian government debt is the smallest in Europe and the surplus targeted in the budget strategy is more than the minimum required by the European Union. However, both the previous and the current governments have relaxed the fiscal targets. In the latest budget strategy for 2015-2018 set by the new government, the government target is a structural budget surplus of 0.2% of gross domestic product (GDP). A year ago the previous strategy aimed for a surplus of 1.0%.

The structural position planned in Estonia’s national budget strategy meets the criteria observed by the European Commission, but whether the targets that have been set are actually fulfilled is another question altogether. The main debate is around the assessment of the current and future cyclical position of the economy. Both the European Commission and the Estonian government measure the economic cycle using the GDP gap, which shows how far GDP is above or below its potential, or its long-term capacity for growth. Measuring the current GDP gap is an inexact science and estimates only prove their accuracy during the subsequent years as more statistical data become available. This means that discrepancies can ensue in estimates of the structural budget position and in opinions on government activity, and debate can arise.

Measuring the economic cycle and estimating the cyclical effects on the budget becomes even more complicated if the structure of the economy is changing at the same time, and this has been the case with the Estonian economy recently. Economic growth has slowed to close to zero and GDP actually shrank at the start of this year, but wages and household consumption increased rapidly at the same time because of the decline in the population, emigration and structural unemployment. Some three quarters of government revenues comes from taxes on labour and consumption, and the sharp drop in economic growth did not directly affect that, so revenues to the state budget have increased by substantially more than the general cyclical position of the economy would suggest.

It is also important to be quite careful in forecasting the structural budget revenues, as they largely dictate the level of expenditure that the government will be able to sustain over the longer term. The most recent forecast from Eesti Pank expects the cyclical effect on the fiscal position to turn positive next year already, though the economy as a whole will remain below its potential. This means that tax revenues are already close to balance and will pass that point next year. By this interpretation of the cycle the state should limit expenditure growth to the same degree and put some of the tax revenues into the reserves. If the estimates of the economic cycle that are based on a negative GDP gap are used as a guide now, the consequence could be that the budget later turns out to have remained in structural deficit and the fiscal targets set in law prove to be unattainable. In the long run this could create problems of fiscal sustainability as the reserves built up in the good times prove insufficient to finance the deficit through more difficult times. The government has three options in that case. The first is to increase the general government debt and leave some of the costs to future generations; the second is to cut spending; and the third is to raise income, which generally means increasing the tax burden.

Source: Bank of Estonia

Author: Ardo Hansson, Governor of Eesti Pank

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