Mart Võrklaev: How Estonia's public finances reached their current state

Mart Võrklaev: How Estonia's public finances reached their current state It is extremely cynical to hear concern about budget balance from those who themselves have been the architects of irresponsible decisions, writes Mart Võrklaev in response to Jüri Ratas' commentary "Growth bought with state debt will clip future prosperity." Jüri Ratas writes in his opinion piece "Growth bought with state debt will clip future prosperity" that Estonia needs an honest and responsible long-term view. I agree with him one hundred percent; indeed, it is time to stop telling embellished stories and look at the real situation. But to restore an honest view, we must recall how Estonia's public finances reached their current state and who is actually responsible for it. When Jüri Ratas writes about "empty promises" in improving the budget, it is, to put it mildly, ironic. It is worth recalling what kind of legacy his government left to Kaja Kallas when handing over the leadership of the state. The then state budget strategy contained nearly one billion euros' worth of unfunded cut promises. This was not a "long-term view," but inaction, in which it was hoped that the next government would patch up these omissions and holes. The current accusations about "empty promises" are therefore a reflection of his own actions — or more precisely, inaction. Under Ratas' leadership, reserves were spent in good times If we look at the deficit and surplus chart, we clearly see that the credibility of public finances did not disappear overnight. Taavi Rõivas handed over the baton in 2016 with a sound budget. From there on, during Jüri Ratas' first government and then the EKRE, Isamaa and Center Party coalition, a financial feast began, where spending was done as if there were no tomorrow. Instead of building reserves in good times, fixed costs were inflated and a systemic deficit was created. In 2020, the EKRE–Isamaa–Center government under Jüri Ratas made a massive 5.4‑percent deficit, and Estonia's debt burden doubled in a single year. This is the "legacy" that later governments under Kaja Kallas and Kristen Michal have had to patch with difficult decisions. We have been pushed into a situation where, in addition to dealing with various crises, we have had to simultaneously reduce the budget deficit that previous governments so recklessly expanded. This has had a direct impact on the economy as well. If the state had retained larger reserves from earlier years, we would not have had to cope in recent years simultaneously with unexpected crises, rapidly rising defense spending, and patching earlier budget holes. This would have meant a smaller need for savings and tax changes and left more breathing room for the economy. In other words, Estonia's economic growth could have been higher in difficult times if we had not had to fix mistakes made in the past on top of new crises. Ratas criticizes debt but is silent about what has been the main source of budget pressure in recent years. That is security. In 2022, when Estonia's security situation changed due to Russia's full‑scale aggression, raising defense spending immediately from two percent to three percent of GDP was unavoidable. Comparing 2022 and 2026, we have raised defense spending from 700 million euros to more than 2.2 billion euros. This is an investment in our independence, not a convenience choice. If we still had the reserves that were spent during Ratas' governments, we would have significantly more "gunpowder" to respond to crises. Crocodile tears vs. real actions It is extremely cynical to hear concern about budget balance from those who themselves have been the architects of irresponsible decisions. We remember well how, during the 2023 budget negotiations, partners — including from Ratas' current home party Isamaa — pushed through unfunded promises, inflating public‑sector wage costs and indexing benefits without a long‑term financing plan. Opposition criticism is also deeply contradictory, because on the one hand there is talk about reducing the state budget deficit, while on the other hand there are demands to increase benefits, expand bureaucracy, and abolish taxes. This is political populism. Unlike the opposition's slogans, we have a plan based on real actions. Since 2023, we have made decisions amounting to more than one billion euros in savings. This consistent work has borne fruit. In 2024 and 2025, we have managed to reduce the budget deficit purposefully, by 1.1 and 2 percent of GDP respectively. This trend would have continued if there had not been an urgent need to raise defense spending even more sharply to more than five percent of GDP starting in early 2026. As a result, the budget deficit also increased to more than four percent of GDP. Going forward, we have a clear plan to continue fixing the state budget while keeping defense spending at least at five percent of GDP. The budget position must be improved by 0.5 percent of GDP per year until the state's debt burden stabilizes at 30 percent of GDP. We will do this through consistent savings in state expenditures and more efficient operations. This is certainly not an easy task, but from the perspective of responsible public finances, it is essential and realistic. Sound finances are a guarantee of security for a small state; we must have "gunpowder" to respond in difficult times. This requires building reserves in good times. It was precisely under Jüri Ratas' leadership that these reserves were spent, bringing us a larger budget deficit, a more difficult situation in responding to crises, weaker economic resilience, and also a higher debt burden and interest costs for the future. If Jüri Ratas truly wants an honest long-term view, then that view should begin with his own mirror, not only with the podium. -- Editor: Kaupo Meiel, Argo Ideon