Andrus Kaarelson: Estonia's budget cuts are unavoidable

Andrus Kaarelson, chairman of the supervisory board of the Parempoolsed (The Rights) party, argues that Estonia's public finances are on a path to collapse and that the Reform Party has systematically avoided painful spending cuts. He warns that rising debt, a near-2 billion euro annual deficit, and international warnings from the IMF and OECD demand immediate action rather than election-year spending increases.

Andrus Kaarelson, chairman of the supervisory board of the Estonian party Parempoolsed (The Rights), writes that over the past two weeks it has been officials from the Bank of Estonia and the Ministry of Finance, not elected politicians, who have been publicly sounding the alarm about the sustainability of Estonia's public finances. He argues this is a deeply troubling sign of where things stand.

Tax hikes have not solved the problem

Raising taxes has never solved a revenue shortfall in any country, Kaarelson contends. Estonia's "tax festival" of the past three years, during which nearly 30 taxes and levies were introduced or increased, has not reduced the deficit. Instead, the country now faces what he describes as the deepest core budget deficit in its history, both this year and next.

At a recent party leaders' meeting, it became clear that parliamentary parties are unwilling to make the difficult spending cuts needed to put Estonia's finances on a sustainable path. Many party chairs spoke of cutting taxes while simultaneously raising benefits, a combination Kaarelson calls demagogy that will only lead to further tax hikes. He also criticises Prime Minister Kristen Michal for not attending the discussion, saying this undermines the credibility of Michal's stated desire to reduce the deficit.

The OECD, the IMF, the Bank of Estonia's president, and the Fiscal Council have all expressed serious concern. Estonia's debt-to-GDP ratio has climbed rapidly from 9% in 2019 to 25.9% today. On the current trajectory, Kaarelson warns, public debt could double by 2030, exceeding €20 billion, roughly 39% of GDP.

Finland as a cautionary tale

Kaarelson draws a direct parallel with Finland, whose debt rose from around 33% of GDP before the 2008 financial crisis to nearly 89% today. Finland's current centre-right government under Prime Minister Petteri Orpo is now implementing some €10 billion in budget cuts, focused primarily on social benefits and healthcare spending, with the goal of stabilising debt by 2027. According to Finance Minister Riikka Purra, debt interest payments are set to grow from €3.2 billion in 2026 to €6.3 billion by 2030, with total state debt projected to reach €264 billion. Kaarelson argues this proves that spending cuts are achievable when there is political will, something Estonia's government currently lacks.

Reform Party's electoral strategy

Kaarelson is sharply critical of the Reform Party's record. In the lead-up to the 2023 elections, Prime Minister Kaja Kallas explicitly promised that taxes would not rise. The result: the tax burden has grown from 33.7% to nearly 36% of GDP, and the deficit continues to widen. Cumulative inflation since the last elections has exceeded 20%, the highest in the eurozone.

Over five years, the Reform Party has increased state budget expenditure from €13.63 billion to €19.5 billion, a near-50% increase at a time when the economy was shrinking. The largest single-year jump came in 2023, just before elections, when spending rose by €3.16 billion. Budget expenditure has grown by more than 40% since 2023, far outpacing even the 20%-plus inflation over the same period.

A deliberate strategy to leave nothing behind

Kaarelson accuses the Reform Party of a deliberate, if unspoken, strategy: knowing they are unlikely to lead the next government after the 2027 elections, they are running the deficit to its maximum permitted limit of 4.5% of GDP, exploiting a temporary EU defence spending exemption, and leaving an empty treasury for their successors. When the next government is forced to make cuts, the Reform Party in opposition will be free to criticise them for not caring about the people.

Interest payments on Estonia's national debt are projected to grow from under €30 million in 2022 to around €650 million by 2030, money that will go to creditors rather than education, healthcare, or defence. The EU's defence spending exemption also expires in 2029, meaning that without fiscal consolidation now, another round of tax increases will be unavoidable.

What needs to happen

Kaarelson calls on Michal and Finance Minister Jürgen Ligi to produce a detailed, line-by-line spending reduction plan, not slogans. «We need not general mottos, but detailed budget lines and specific figures,» he writes. For a small country, sound public finances are one of the few remaining strategic assets. Allowing that asset to be squandered, he argues, is something Estonia simply cannot afford.