Analytics, Budget, Estonia, Financial Services, GDP, Taxation

According to the 2018 summer economic outlook of the Finance Ministry, the Estonian economy will grow 3.6% this year and 3 % in 2019. Compared with spring, the growth outlook has been decreased due to weaker external demand. The Fiscal Council said that the ministry's outlook describes Estonia's economic growth and inflation outlook with sufficient trustworthiness and is in accordance with the outlooks of several other institutions, the advisory body said.

The Finance Ministry said that the Estonian economy will exceed its long-term manageable rate this and next year. Compared with the ministry, the Fiscal Council's assessment of the current state of the economic cycle is even better. This is evidenced by fast salary growth, a low unemployment rate, a large number of job vacancies and the continued increase in the high employment rate. Entrepreneurs are also referring to the clearly better than usual economic situation.

The strong state of the economic cycle promotes the continuation of good tax receipts. According to the Fiscal Council, the payment of labor taxes may be even faster than what was expected in the forecast, but when it comes to value added tax receipts, the risk of shortfall is more likely. In conclusion, the risks of overpayment and shortfall are balanced.

According to the summer forecast of the Finance Ministry, the budget position of the government sector will be at a structural deficit of 0.2% of GDP in 2019. The Fiscal Council advised to improve the structural budget position to at least percentage points of GDP, that is by approximately 100 mln euros, when compiling the state budget bill of next year.

The Fiscal Council said that firstly, it is important to adhere to the structural balance aim set forth in the state budget strategy, and secondly, it is not reasonable to relax the budget policy during the current economic boom. The Finance Ministry is expecting a structural surplus of 0.2 % of GDP for this year.

According to the State Budget Act, the Fiscal Council shall provide an opinion regarding the Finance Ministry's macroeconomic forecast and the financial forecast within two weeks as of the publication of the two. The Fiscal Council introduced the main points of its opinion at a Cabinet sitting held on September 19.