General government budget for 2015 was in nominal and structural surplus July 21, 2016

Under § 79 section 5 of the State Budget Act, the Fiscal Council must issue its opinion on the achievement of the target for the structural budget position after the government’s consolidated report on the financial year has been published. The state budget for 2015 was the first budget to be drawn up after the updated law was passed and the first that had to ensure that the budget for the general government is at least in structural balance.

The government’s consolidated report for 2015 confirmed the earlier assessments that found the general government budget position to be better than was forecast when the state budget was prepared. Data from the Ministry of Finance showed that the general government structural position, which takes account of the economic cycle and of the impact of one-off measures, was in surplus by 1% of GDP in 2015. Assessments by other institutions also indicate structural balance or a surplus. The Fiscal Council finds the budget outcomes for 2015 to be in line with the current legal framework and with the budget policy targets set for this year.

In 2015 as a whole the revenues of the general government exceeded spending by an amount equal to 0.4% of GDP. The nominal surplus and the larger than forecast structural surplus were mainly due to tax revenues being better than had been expected. Although the government has introduced measures in the past couple of years to make tax collection more efficient, the primary contribution to the surplus came from taxes on rapidly rising wages and on dividends paid out. The latter were boosted a lot by the extraordinarily large dividend paid out by one commercial bank. Given that tax revenues grew several times faster than the economy did, such growth cannot be considered sustainable.

Indicators for the labour market, private consumption, investment activity and exports give contradictory information on whether the Estonian economy is performing above or below its potential. An accurate answer to this is an important input in the calculation of the structural budget position however. For this reason the Fiscal Council considers that nominal indicators should be used more alongside the structural budget position in explaining the plans and results of fiscal policy, as they can be more easily measured and interpreted.

The Fiscal Council's opinion and a more thorough explanatory report on the achievement of the general government structural budget position target in 2015 can be found here: Opinion Achievement Structural Target 2015.pdf

Additional information:
Andrus Alber
Vice-Chairman of Fiscal Council
Tel: +372 526 1707