Political January: crisis, conflicts and adjustment

The year 2024 began with a whirlwind of events on the Estonian political landscape that offered surprises and challenges. What does this mean for our businesses and clients, and what can we expect in the coming weeks? Kairi Uustulnd, META partner and head of the government relations team, gives a brief overview.

2024 started intriguingly for policy-makers:

• With the resignation of the Centre Party’s Parliament faction members, the coalition gained four more votes.
• Isamaa enjoys a position in the party rankings that has been rare in recent years – since November, Isamaa has been at the top of the rankings. Behind Isamaa is a close race between the Estonian Conservative People’s Party (EKRE) and the Reform Party. The Social Democrats’ rating is on the rise and holds fourth place, while the Centre Party’s rating is declining and has dropped to fifth. The Estonian 200 has been in sixth place since June 2023.
• The teachers’ strike is one of the most significant social initiatives in recent years, affecting the daily lives of thousands of families. Children are at home, and parents face the challenge of reconciling work and private life. However, the teachers’ strike has brought significant tensions into the Estonian government, with the Reform Party on one side and the Estonian 200 and Social Democrats on the other, in a confrontation over possible solutions.

What does this mean for our businesses and our customers?

• There needs to be some change in government, and in government policy in particular, in the coming months, first to reassure the politicians in the coalition parties themselves.
• When making changes, we need to consider the competitiveness of Estonian companies compared to other countries – Estonia should not apply stricter rules to Estonian companies than those agreed at the EU level.

In the coming weeks, the coalition will face intense and substantive discussions:

• Although Finance Minister Mart Võrklaev has said that businesses no longer have the stamina for tax rises, it is unclear to anyone what kind of tax rises he is talking about. Will it be only the tax increases that we know nothing about, or also those written as ideas on the revenue side of the national budget strategy but have not yet been enacted? No politician or official can answer this question today.
• The finance minister has said that the as-yet-unspecified future tax receipts of €400 million a year, set out without description in the national budget strategy, will likely come from savings. However, all ministers know this is impossible without decisions to cut public services or cancel infrastructure investment.
• The Social Democrats are unhappy that the Reform Party is walking away from tax rises and will push the limits of their influence in the face of a growing parliamentary group.
• Part of the coalition’s perception is that somebody needs to think about future economic growth – and this is the biggest gripe of the business, which has lacked any intelligent forward-looking approach and has scheduled dates to discuss the issue. One year on from the coalition agreement, the government is still expected to have a plan on the critical question underpinning economic and industrial policy: where will green electricity come from in sufficient quantities and at affordable prices to support growth (because no industrial customer will be able to buy anything but clean electricity in 5, 10 and 20 years, given its ESG and financing constraints)?

The period ahead will require adjustment and the definition of explicit political and economic directions.