New liberal government in Estonia

Kaja Kallas can stay in office
Kaja Kallas

Kaja Kallas

© picture alliance / ASSOCIATED PRESS | Sergei Grits

Composition of the new government

Estonia had quite a turbulent time in the previous legislature period, with three governments with different party compositions in power. The last government took office on 18 July 2022 in the constellation Reform-SDE-Isamaa (Conservative Party). The new government coalition Reform Party-Eesti200-SDE now aims to maintain a certain continuity: 7 ministers from the previous legislature remain in office and Kaja Kallas remains Prime Minister.

There are, however, some changes as well. The first one concerns the proportional distribution of ministerial posts. In the past, the parties had traditionally divided the posts equally, regardless of how many seats each party had won in the elections. This time, the number of seats won is decisive. Thus, the Reform Party (37 seats) has 7 ministers and the prime minister, and Eesti200 (14 seats) and SDE (9 seats) have 3 ministers each. Another change is the restructuring of the ministries, so that there will be only 13 ministries in this period instead of 14.

Balanced budget

The restructuring of the ministries is not only aimed at increasing their efficiency, but also at reducing government expenditure. The national debt has doubled in just a few years, government reserves are depleted and the new government does not want to borrow in a much more expensive credit environment. Therefore, one of the coalition's goals is to balance the national budget.

Last year alone there was a deficit of 1.2 billion EUR. The decision to run a deficit was justified by increased defence spending, the reception of Ukrainian war refugees, the continuing costs of the Covid crisis, inflation and rising energy prices.

The new Reform-Eesti 200-SDE coalition now pledged to increase VAT and income tax by two per cent (from 20 to 22). In addition, the coalition has commited to introducing a vehicle tax from 2024, which is expected to generate 120 million EUR annually for the state budget. This tax is to be calculated on the basis of two aspects. The first is CO2 emissions. This means that cars emitting more CO2 will have to pay more. The second aspect in the calculation is whether the car is electric. These are to become much more favourable in terms of taxation, which is supposed to serve as an incentive to buy electric vehicles. However, it is not yet exactly clear how the calculation will work.

Coalition agreement under the sign of war

This special treatment of the electric car is part of the new government's green transformation efforts. One of their goals is to get the public, private and tertiary sectors to work together for a green transformation and to pass a climate law. For example, the coalition wants to renovate as many buildings as possible to increase energy efficiency. The introduction of a methodology for CO2 assessment in planning and the introduction of an obligation to monitor the energy classes of public and commercial buildings are supposed to help.

However, the most important issue on the agenda is security. As Kaja Kallas said, the coalition agreement was negotiated taking into account the war in Europe. She underlined that Estonian defence spending must be increased. Defence spending should be a full 3% of GDP: " Without strengthening our defence capability, we cannot seriously talk about either of the future of our economy or about the kind of Estonia we will be leaving to our children and grandchildren," Kallas said in parliament. The purpose of increasing defence spending should not be to destroy the enemy, but to reduce the enemy's will to invade Estonia.

Another issue related to Estonia's security is the complete conversion to a purely Estonian-language education system. As a remnant from the Soviet era, about 15% of schools in Estonia are still Russian-speaking. In these schools, Estonian is only taught four times a week until the third grade. In fourth to seventh grade, the number of weekly lessons increases to five. This is to change. In December last year, the government of Kaja Kallas decided to switch all schools to Estonian. The new government wants to bring this conversion to a successful conclusion. According to Kallas, "communicating in a common language and living in a common information space is one of the best ways to ensure our defence capability and will to defend. A divided society is a tempting prey to an aggressor. Unity is a deterrent that makes the aggressor hesitate, fear, and abandon their attack."

Security and democracy

The new government takes the lead in a difficult situation and has many unpopular decisions and measures ahead of it, which are already being criticised by the opposition and arousing ambivalent emotions among citizens. However, the new government seems determined to take the necessary measures that will strengthen the country and guarantee its democracy and security.

Ester Povýšilová is a project manager at the Friedrich Naumann Foundation for Freedom in the office for Central European and Baltic States in Prague.