According to Mihhail Kõlvart, the chairman of the Estonian Central Party, the government should deal with creating the prerequisites for economic growth in the ongoing budget negotiations, but currently the opposite signals are being heard.
Kõlvart pointed out that there are several reasons for the crisis we are rapidly entering: the pandemic, gas shortages and Russia’s war against Ukraine. “But the crisis in itself is not unique – the economy cannot grow all the time, it develops cyclically and growth is always followed by decline and decline by growth,” said Kõlvart. “And in the downturn, our main focus should be on what we can do to mitigate the downturn and move as quickly as possible to the next phase of the cycle, to growth. However, the government offers an answer, which essentially boils down to the fact that we do nothing – we save money, cut back.”
According to Kõvart, in a situation where we cannot influence all factors outside of the crisis, we must in any case contribute to the fact that both the Estonian economy and the Estonian people survive the crisis as painlessly as possible.
“During an economic downturn, when demand, private investment and real incomes decrease, you have to invest in the economy to keep it afloat. Tax increases affect people with low incomes the most. Supporting companies, especially small and medium-sized companies, stimulating loans, investing in education and infrastructure, and preserving jobs – all these measures, which economists call “counter-cyclical regulation”, require an increase in the expenditure side of the state budget, not a decrease,” said Kõlvart.
He agreed that savings must be found, but noted that the planned sharp cost cuts in various areas will certainly worsen the recession. “To alleviate the crisis in a situation where the revenue side is limited, a caring government is considering either using the reserve fund accumulated during the growth phase or taking a loan,” said Kõlvart.
“Of course, the loan must be repaid, but the more efficiently the state supports the economy, the stronger the companies will be in the next stage of the cycle, and the increased tax revenues will enable the loan to be serviced without setbacks. That is why the developed countries of the European Union are not afraid of borrowing, and Estonia should show greater activity here. Our national debt to GDP ratio is lower than anywhere else in the community. You can really be proud of that during an economic boom, but balancing the budget with cuts during a recession is extremely short-sighted.”
Finally, Kõlvart admitted that he watched the state budget negotiations in Vihula with great concern. “But instead of making strategic decisions about the future of the economy, the honorable members of the government held an accounting seminar,” he stated.
