• The structural deficit in 2018 was larger than had been targeted, and efforts to improve the fiscal position already need to start in 2019
• The Fiscal Council recommends that a minimum target of structural balance should be set for 2019

The economy continued to perform well in 2018 as nominal growth in the economy and growth in tax revenues in the state budget reached around 9%. Even so the fiscal position of the general government was weaker than expected, and Statistics Estonia puts it in a nominal deficit of 0.5% of GDP.

In the assessment of the Ministry of Finance, the structural deficit of the Estonian general government in 2018 was 1.4% of GDP, which is more than in the state budget strategy and more than the target set when the state budget was compiled. The calculations of the Fiscal Council also indicate a structural deficit in 2018. Although the economy has grown faster than the average, the general government fiscal position is in nominal and structural deficit for the third year in a row.

The state budget act allows a structural deficit to be planned of up to 0.5% of GDP a year, if a structural surplus of at least the same amount has previously been built up. As the structural deficit in 2018 was larger than this, the fiscal position will need to be improved this year. The state budget act requires the structural fiscal position to be improved by at least 0.5 percentage point a year, until structural fiscal balance has again been achieved for the general government.

The spring forecast 2019 of the Ministry of Finance expects the structural deficit this year to improve to 1% of GDP, which is very close to the maximum deficit permitted for this year of 0.9% of GDP. It is the opinion of the Fiscal Council though that such a large structural deficit is not justified as the economy remains in a good position. The Fiscal Council recommends that the government should already recover structural balance this year.

The Fiscal Council's opinion and a more thorough explanatory report can be found here.

Additional information:
Raul Eamets
Chairman of Fiscal Council
Tel: +372 514 0082
Email: raul.eamets@ut.ee

Under the State Budget Act, the Fiscal Council must give its opinion in spring on the achievement of the target for the structural fiscal position in the previous year and on the targets set in the state budget strategy for the next four years, looking at the budget rules and the need to adjust the structural budget position. As the general government structural deficit was larger than planned in 2018 and the fiscal position needs to be improved this year, the Fiscal Council is extraordinarily publishing its opinion on the results of last year before the state budget strategy is compiled.