Estonia’s third-quarter gross domestic product (GDP) decreased by 2.5 percent compared to the same time last year, but this is nothing new, as GDP has been in a downward trend for the past two years. In a situation where we have no clarity whether the economy will stabilize in a few years or not, it is high time for the state to define the priority sectors for the development of the economy and social capital, where to invest and create a supportive business environment. This does not mean regulating business, but on the contrary – creating suitable and favorable conditions, including the tax system.
Today’s decisions have a long-term impact on the country and, above all, on our people. In order to boost the economy, only an accounting approach is not enough, for this you need a vision – a long-term economic model. Currently, the main goal of the country is to balance the budget, but this does not contribute to the development of our economy.
The current government sees adaptation to changing business models and increasing investments in research and development as a long-term economic development plan, relying on the country’s long-term development strategy “Estonia 2035”. To this end, support for companies and development activities has been increased, and according to the Prime Minister, companies have shown great interest in, for example, the applied research program. According to the head of government, entrepreneurs are ready for large-scale developments in research and development, which should create the conditions to turn the changes of the coming years into opportunities.
It sounds good, but the research-intensive company that is set as a good example and supported by the state through the same program, which is building a shale ash beneficiation plant in Ida-Virumaa, is planned to open only in 2025 and does not in any way support existing and operating companies in the region. Too much, it’s not worth cheering before the evening – in view of the 350 million investment in the Auvere oil plant, but the construction and large-scale investment of which have been put on hold by the Ministry of Climate and the decision of the Supreme Court. And this is done in the current situation, where, on the contrary, you have to invest in energy to ensure your own energy, in order to ensure the security of the country’s energy supply and energy security. Not to mention that the oil factory to be built would help secure jobs for several hundred people in Ida-Virumaa.
It is not enough to adapt to changing business models for a long-term plan, but it is necessary to map the most important sectors, which the country deals with purposefully and which it stands for in times of crisis. The service and tourism sector is one of the important areas of the Estonian economy, but the prime minister considers the hotel industry, for example, a luxury item that is taxed low. In fact, hospitality is largely an export that contributes to other areas. Instead, the country decides to create a favorable tax environment in one important sector and suffocate it with tax increases.
The IT sector cannot be considered a priority in the eyes of the government either, because it cannot be considered important in a field where there is no substantial and long-term development strategy and the state does not invest in science and does not work purposefully in preparing specialists. There aren’t even enough math teachers for that. Although, the teacher shortage currently covers the entire education sector nationwide.
Therefore, in times of crisis, economic sectors should be consciously chosen to be protected in difficult times. This means both direct subsidies and public sector investments. If we do not invest in certain sectors, such as road construction, during a crisis, this will have even more painful and costly consequences. Factories close their doors, but restoring work later is much more expensive than maintaining it, and people who remain unemployed are an additional burden on the social system, and the state in turn lost income tax.
Theoretically, the state promises to contribute to its long-term strategy by sharing the risks of long-term investments with companies and by planning state investments, especially when the investment activity of companies has suffered setbacks. However, in times of crisis, employers also need support, and if it is not possible to influence all non-crisis factors, the state must contribute to ensuring that the economy and people survive the crisis as painlessly as possible.
One of the biggest victims of the current economic downturn is the manufacturing industry, which, in addition to high energy prices, is also suffering from the availability of high-quality raw materials and drastically reduced exports. According to Statistics Estonia, the volume of industrial production has decreased in most branches, but the wood industry is at the forefront with a decrease of nearly 27%. If, for example, the export turnover of the wooden house sector was 540 million euros in 2022, with the weakening of the economic situation of the target markets, the situation has changed since the end of last year, and the average decrease of the last three months is 36% compared to the same period last year.
During a crisis, the state must invest, taking a loan if necessary, in order to cover and soften the consequences of the economic crisis in the future and to lay the foundation for the recovery of the economy. For this, however, it is necessary to create a stable investment environment, to encourage investments – among other things, the coming of small and large foreign investments to Estonia, but not to scare them away.
Supporting businesses, especially small and medium-sized businesses, stimulating loans, investing in education and infrastructure are the measures that help to improve and increase economic growth in the long run. But it also requires an increase, not a decrease, in the costs of the state budget.
At the same time, the prioritization of economic sectors can also have a much larger and wider impact. This way we can also find our big idea and success story. To achieve what we can and do best at the world’s top level. It is certainly not impossible, because even a small country with its limited resources is capable of this.
