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Government has handed the Riigikogu draft legislation of the supplementary budget to support the economy

2. April 2020 - 0:00

Stenbock House, 2 April – Government approved the supplementary budget act and submitted it to the Riigikogu. The focus of the supplementary budget is to quickly support Estonian workers and entrepreneurs and alleviate the economic downturn caused by the coronavirus.

“We are supporting those people and businesses that are most affected by the current difficulties with the supplementary budget and the measures it contains at the moment. We are also making a direct contribution to resolving the health care crisis and ensuring the state's preparedness in an emergency. Our purpose is to preserve jobs for our people, to prevent companies from getting into difficulties and to lay the foundations for their economic recovery as soon as possible,” said Prime Minister Jüri Ratas.

“In order for the effects of the crisis to reach the Estonian people and companies as little as possible, we have put together and are ready to launch the largest aid package for the Estonian economy ever. In addition to large-scale surety and business loans and labour market measures, we will separately support the sectors that have been hit the hardest and lower excise duty rates on both diesel and electricity,” said Minister of Finance Martin Helme.

According to the Chairman of the Isamaa party, Helir-Valdor Seeder, the state must support entrepreneurs in the event of a sudden crisis. “We have set a goal to support business sectors that are important to Estonia. This economic package will allow companies to defer tax liabilities and help preserve jobs. These economic measures must be as short term as possible, but as long as necessary. In the coming weeks and months, we need to be flexible and, if necessary, we are certainly ready to make changes,” said Seeder. He added that the package submitted to the Riigikogu today will help mitigate short-term economic damage, but it is clear that tax revenues received by the state budget will decrease. “In the long run, we cannot cover the emerging deficit in the budget and additional health care needs and the economic support package with loans alone, so we must also be prepared to review public spending.”

The nominal deficit in the budget of the general government sector this year, together with the economic support measures of the government, will be -2.62 billion euros. The impact of the measures on the nominal general government budgetary position is 1.15 billion euros. The supplementary budget will reduce state budget revenues by 1.63 billion compared to this year's budget. The impact of the supplementary budget measures on the expenditure of the current state budget totals 513 million. Plus the usage of reserves.

The Ministry of Finance updated the economic forecast before drawing up the supplementary budget, according to which the economic downturn of Estonia this year could reach 8 percent, compared to the 10 percent of the previous forecast. Government measures are helping to alleviate the depth of the crisis for the economy.

To support businesses, the Ministry of Economic Affairs and Communications provides assistance in the supplementary budget through KredEx SA. This will help to alleviate the economic difficulties caused by the spread of the coronavirus. KredEx’s packages have been developed in accordance with various possible scenarios of the crisis and with the aim of helping to prevent or mitigate liquidity problems of businesses. KredEx will offer loan guarantees, working capital loans and investment loans. Small enterprises and the tourism sector will be supported separately through Enterprise Estonia. In the field of the Ministry of Economic Affairs and Communications, additional funds will also be directed to road construction and the construction of the so-called last mile. 300 million euros will be directed to the strategic investments of businesses; the transport sector will be supported separately.

In order to support employment,
250 million euros will be directed to a measure through the Estonian Unemployment Insurance Fund, which will help maintain the income of employees during the emergency.

To help the medical system, the Health Insurance Fund is provided with funds to compensate for the first three days of illness. In addition, the medical system will receive an additional 200 million to cover hospitals, ambulances and other exceptional expenditure.

In the social sphere, it is also possible to provide parents with children with special educational needs with a supplementary budget through the Estonian National Social Insurance Board. In addition, a change will be made to the assessment of the ability to work and the automatic extension of the severity of disability.

Tax and excise concessions reduce costs and alleviate deadlines and interest rates. In order to alleviate transport and household costs, the government will lower excise duty rates on several fuels for two years, from 1 May this year to 30 April 2022.
·         The excise duty rate on diesel will be reduced from 493 euros to 372 euros per 1,000 litres, as is currently the case in Lithuania. This is expected to reduce the price of diesel by 14.5 euro cents per litre.
·         The excise duty rate on natural gas will be reduced from 79.14 euros to 40 euros per 1,000 cubic metres, i.e to the 2017 level. For households, this means a 7.1 percent reduction in the price of natural gas.
·         The excise duty rate on electricity will be reduced from 4.47 euros to one euro per megawatt-hour, which is the minimum rate allowed by the European Union. For consumers, this will lead to a 3.1 percent reduction in electricity prices. In addition, there is a discount for large electricity users.

The Tax and Customs Board disregards interest on the tax debt in March and April. In addition, the interest rate calculated on the tax debt will be reduced from today's 0.06 per cent to 0.03 per cent and the tax administrator will be given the right to reduce the interest to zero during the rescheduling. The state pays the advance social tax of the first quarter for self-employed persons. In order to alleviate the tax burden on employers, the requirement of a minimum social tax liability will be abolished for three months.

It is planned to reduce the VAT rate for electronic publications to 9%, i.e to the same level as for paper publications. The VAT rate on audio books on a tangible medium will also be reduced.

The regulation of the deduction of expenses from income received upon the transfer of timber will also be extended to natural persons.

The state will suspend pension payments to the second pillar, that are made at the expense of social tax, from 1 July this year until 31 August 2021. In October 2020, everyone who has joined the mandatory funded pension will be able to decide whether to waive their contribution as well. To do this, an application must be submitted in October. There is a compensation mechanism for people who decide to continue their contributions.

Local governments will receive 100 million euros for investments and to cover expenses. For example, to repair roads, improve the energy efficiency of buildings needed to provide local services, demolish unnecessary buildings, etc. In addition, 30 million euros will be provided to local governments to alleviate the effects of the coronavirus crisis. To a greater extent, the renovation of residential buildings will also be started through KredeX.

Rural life is supported through loans from the Rural Development Foundation in the amount of 200 million euros. The budget for support for the agricultural producer replacement service will be increased.

In the field of education and science, 4 million euros will be provided to support research and development activities related to COVID-19, including investments in the third level biolab of the University of Tartu. In addition, private schools, kindergartens, hobby education, etc. are supported to cover expenses.

The size of the crisis package in the field of culture and sport is 25 million euros. The package is divided into two: income support for natural persons in the field of culture and sport, and partial compensation for costs already incurred and unavoidable fixed costs in the event of missed events in the field of culture and sport.

The state also helps to support the churches and ministers of religion in the supplementary budget whose activities have been severely disrupted during the crisis, but who continue to provide assistance to people.

In addition, the budgets and regulations of jurisdictions of other ministries will be changed in accordance with the updated forecasts.

The leading committee for the revision of the state budget will discuss the reduction of public sector expenditures in the second quarter of 2020, and the government will consider these proposals when preparing the 2021 state budget.

With the amendment of the State Budget Act, the state budget strategy will not be prepared this spring, because the assumptions of the forecasts will change very quickly.

Supplementary budget materials (in Estonian):

Explanatory memorandum of the draft legislation of the Supplementary Budget Act 2020:
https://www.valitsus.ee/sites/default/files/2020._aasta_lisaeelarve_eelnou_seletuskiri.pdf (PDF) (PDF) (PDF)
Text paragraphs of the Supplementary Budget Act 2020: https://www.valitsus.ee/sites/default/files/2020._aasta_lisaeelarve_seaduse_tekstiparagrahvid.pdf (PDF) (PDF) (PDF)
The draft legislation of the State Supplementary Budget Act 2020: https://www.valitsus.ee/sites/default/files/2020_aasta_lisaeelarve_seadus.pdf (PDF) (PDF) (PDF)