Sharp increase in defence spending
In order to strengthen the defence capabilities of Estonia, at least 5% of the GDP will be allocated to national defence in 2026 in accordance with NATO criteria – that is €844.5 million more than this year. Investments in air and missile defence, drone capabilities, as well as long-range and precision strikes are increasing. An air defence brigade and new engineer battalions will be established, C-RAM systems will be developed to protect critical infrastructure, and training and exercise areas will be expanded. The development of defence industry parks will also continue. Approximately 50 million euros is planned for the design and preparation of the park in Pärnu County.
Estonia will also continue supporting Ukraine at the level of 0.25% of the GDP, amounting to 110.7 million euros, most of which will be directed to orders from the Estonian defence industry.
The economy is gaining momentum
The planned income tax increase will not be included in the budget. The income tax rate for both companies and individuals will remain at 22%. Together with the increase in the tax-free minimum, the tax burden will decrease by 1.4 percentage points, leaving nearly 780 million euros in the economy.
At the same time, public sector spending will be kept under control – the 5% cuts in labour and administrative costs that came into force this year will be supplemented by a further 3% in 2026 and 2% in 2027. Ministries will reduce labour and operational expenses by an additional 20 million euros in 2026.
Investments will be directed towards projects that support economic growth. For example, Estonia will launch the largest four-lane highway construction programme since the restoration of independence, with 276.8 million euros allocated for 2026. A total of 684.2 million euros will be directed toward the development of Rail Baltica and railway transport, with the goal of completing construction by 2030.
The incomes of people are increasing
The tax-free minimum will increase to €700 per month, leaving the average wage earner with more than 1,800 extra euros per year.
The salary funds for teachers, police officers, rescue workers, and cultural employees will increase by up to 10%. A pay rise is also planned for the special care sector. The minimum wage for teachers will rise to €1,970, with the average wage reaching €2,403. The goal is to raise the average salary of teacher to 120% of the national average by 2027. Prison officers are also set to receive a pay rise to ensure the attractiveness and security of the service.
The average pension is expected to increase by 5.4%, with 210 million euros allocated in the state budget for this purpose. An additional 4 million euros will be allocated to subsistence benefits to ensure more support reaches people in difficult economic circumstances.
Changes will also be made to the motor vehicle tax, reducing the tax burden for families with children by up to €100 per child under the age of 19. As a result, families will retain more than 16 million euros, in total.
Main focuses of the ministries
Ministry of Education and Research – increasing the salaries of teachers (salary fund +10%, minimum wage €1,970, average salary €2,403; a total of approximately 117 million euros for priority salaries), increasing the number of doctoral study places to 350 (+50 places), and continuing with the action plan for the transition to Estonian-language education. Investments in research and development account for 1% of the GDP in the budget for next year.
Ministry of Justice and Digital Affairs – reforming the court system, increasing training opportunities for judges, developing court information systems, and ensuring pay rises for prison staff.
Ministry of Defence – defence expenditure as a whole will increase to at least 5% of the GDP in 2026 (+844.5 million euros compared to 2025). This will fund the development of air defence, division-level structures, drone capabilities, and the defence industry, including the continued construction of the defence industry park.
Ministry of Climate – directing investments to the development of Rail Baltica and railway maintenance (684.2 million euros, including 435.7 million euros for Rail Baltica), road infrastructure (283.1 million euros), increasing renewable energy capacity (40 million euros), climate measures (11.5 million euros), biodiversity protection (23.3 million euros), and forestry development (14.4 million euros).
Ministry of Culture – ensuring salary increases in the fields of culture and sport, covering cultural workers, coaches, and team leaders, and supporting the organisation of international cultural and sporting events. For example, the volume of support measures for Team Estonia will increase by two million euros in 2026.
Ministry of Regional Affairs and Agriculture – allocating 174.4 million euros to the financing of sustainable public transport, plus approximately 50 million euros in ticket revenue. This will ensure the performance of long-term transport contracts, help implement a public transport reform, bring in new electric trains, and provide more frequent train connections. The budget for this area will ensure food security and safety in Estonia (e.g. 1.7 million euros for monitoring animal diseases and plant pests).
Ministry of Economic Affairs and Communications – attracting investments and extending the support measure for large-scale investments (40 million euros per year); an upper limit on renewable energy fees will be set for energy-intensive companies, which will reduce energy prices for companies. In order to improve productivity and competitiveness, a total of 117 million euros will be allocated to support the research and development activities of businesses next year, including 27.3 million euros for a new innovation loan measure. Planning will be streamlined and a fast track for strategic investments will be created. The majority of the budget of the ministry is allocated to the Estonian Unemployment Insurance Fund, including to help people enter the labour market. For example, 14 million euros has been earmarked for promoting employment.
Ministry of Finance – developing a unified ERIS budget system (7.2 million euros, including 6.2 million from external funds), updating the SAP business software of the state (6.5 million euros, including 2.85 million from external funds), contributing to the modernisation of the tax and customs systems (7.2 million euros) and the quality of statistics (1 million euros).
Ministry of the Interior – in 2026, 28.9 million euros will be allocated for wage increases within the area of governance of the ministry. This will enable nearly a 10% salary increase for front-line workers such as rescue workers, police officers, emergency dispatchers, and lecturers at the Estonian Academy of Security Sciences. In 2026, the focus will be on increasing internal security, strengthening border control, starting investments in a drone wall, continuing preparations for crises, and investing in civil protection.
Ministry of Social Affairs – the deficit of the Health Insurance Fund is estimated to remain 73 million euros lower than in previous years (deficit of 104.9 million euros in 2026). The ministry will continue to streamline healthcare financing, for example by reorganising the hospital network, eliminating duplication, and harmonising the quality of primary care. The subsistence benefit cap will be increased by 20 euros. Funding for special care will be increased by 4.2 million euros so that institutions in this field can raise the salaries of their employees. Pension indexation will continue, with the average pension expected to increase by 5.4% and 210 million euros earmarked for this in the budget for next year.
Ministry of Foreign Affairs – the budget for expenditure and investments in 2026 will be 138 million euros. The funds will be directed towards strengthening the security of Estonia, increasing diplomatic capabilities, and diversifying export markets. An additional 2.1 million euros will be allocated for civil aid to Ukraine, who is fighting Russian aggression. A further 1.8 million euros will be allocated for the preparation of the global Ukraine Recovery Conference, which will take place in Estonia in 2027.
Along with the 2026 state budget, the government also approved the 2026–2029 state budget strategy and confirmed other draft acts that must be submitted to parliament together with the budget.
Overview of the budget on the government’s website: https://valitsus.ee/2026-aasta-riigieelarve
Information on the website of the Ministry of Finance (including materials on the 2026 State Budget Act, fact sheets, thematic articles, civic budget, and the state budget management dashboard): www.fin.ee/2026-riigi-eelarve
State budget strategy: State Budget Strategy | Ministry of Finance
