Estonia’s government amends State Budget Act to allow running structural budget deficit

The government amended the State Budget Act to allow running structural budget deficits, BNS news agency reported on Wednesday. The new rule, which is in line with the European budgetary rules, will enable the government to use the structural surplus from the previous year for up to 0.5%/GDP. Under the old rule, if the fiscal deficit exceeded the allowed amount, the government should run budget surpluses in the next years to compensate for it. The new rule, which was opposed by the central bank and the opposition parties, will enter into force as of 2018. Moreover, the government endorsed the proposal, which envisages the state budget to include the impact of previous and new decisions in the perspective of four years, instead of just one, as of 2020. FinMin Sven Sester stated that the government wants to implement balanced fiscal policy which would enable it to make investments directed at the future.

According to the 2017 budget law, the general government should run 0.6%/GDP deficit and 0.2%/GDP structural surplus. We recall that previously the IMF advised the government to loosen its fiscal rule to allow for further reduction of the labor tax burden.

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