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Document 52012SC0311
COMMISSION STAFF WORKING DOCUMENT Assessment of the 2012 national reform programme and stability programme for ESTONIA Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Estonia’s 2012 national reform programme and delivering a Council Opinion on Estonia’s updated stability programme for 2012-2015
COMMISSION STAFF WORKING DOCUMENT Assessment of the 2012 national reform programme and stability programme for ESTONIA Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Estonia’s 2012 national reform programme and delivering a Council Opinion on Estonia’s updated stability programme for 2012-2015
COMMISSION STAFF WORKING DOCUMENT Assessment of the 2012 national reform programme and stability programme for ESTONIA Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Estonia’s 2012 national reform programme and delivering a Council Opinion on Estonia’s updated stability programme for 2012-2015
/* SWD/2012/0311 final */
COMMISSION STAFF WORKING DOCUMENT Assessment of the 2012 national reform programme and stability programme for ESTONIA Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on Estonia’s 2012 national reform programme and delivering a Council Opinion on Estonia’s updated stability programme for 2012-2015 /* SWD/2012/0311 final */
CONTENTS Executive summary.. 3 1. Introduction.. 4 2. Economic developments and challenges. 5 2.1. Recent economic developments and outlook. 5 2.2. Challenges. 6 3. Assessment of policy agenda.. 7 3.1. Fiscal policy and taxation. 7 3.2. Financial sector 11 3.3. Labour market, education and social policy. 11 3.4. Structural measures promoting growth and
competitiveness. 11 3.5. Modernisation of public administration. 11 4. ... Overview table. 11 5. ... Annex.. 11
Executive summary
After a strong
rebound in 2011, Estonia's GDP growth is expected to slow down in 2012 to 1.6%.
The rate of unemployment dropped substantially in 2011 and is expected to
decrease further in 2012 to 11.6%. The robust
economic growth in 2011 led to a better-than-expected outcome in public
finances with a general government surplus of 1.0% of GDP. In 2012, the general
government is expected to record a deficit of 2.4% of GDP, mainly due to
one-off projects and already planned pension increases. The government managed
to engage resolutely in the higher education reform and
invest significantly in energy-efficiency policies. Notwithstanding these major achievements, reform efforts appear
insufficient, in particular given the scale of the challenges on the labour
market, in certain areas of education and in the energy sector. Estonia faces important challenges: in view of the moderate growth outlook,
continued fiscal effort will be required to achieve the medium-term objective.
In particular, both the 2012 and 2013 deficits are likely to be higher than
envisaged a year ago and implied by the budget. The efficiency of public
spending could be improved, in particular through better targeting of public
spending on social security. A lack of effectiveness at the level of local
governments is having a negative effect on the delivery of public services. Estonia’s energy and resource intensity is amongst the highest in the EU and there is a
need to develop more efficient energy sources. A better functioning and better
targeted education system could be instrumental in ensuring an adequate supply
of human capital. With an Estonian innovation framework still detached from the
real economy, a low number of companies are innovating, which could hamper
productivity growth and thus affect the country’s medium- and long-run
competitiveness.
1. Introduction
The 2012
national reform and stability programmes were adopted by Estonia’s Council of Ministers on 26 April 2012. They give an integrated outline of the fiscal
consolidation efforts, the key structural reforms and the reforms that underpin
macroeconomic stabilisation. The national reform
programme evaluates the progress made towards meeting the
national targets for employment, R&D, education, energy and climate change,
and poverty reduction for 2020. These targets map out the longer-term
development trajectory to modernise the Estonian economy and put imminent
reform priorities in a broader context. The national
reform programme also describes the measures Estonia has adopted to fulfil its obligations under the Euro Plus Pact. Estonia’s stability programme has been prepared in
parallel with the national reform programme and the multi-annual state budget
strategy. The stability programme is largely consistent with the code of
conduct for the Stability and
Growth Pact, while the national reform programme is consistent with the
guidance provided by the Secretariat-General of the Commission. Annual progress
reports and updates of the programmes were discussed with the main
socio-economic partners, the Sustainable Development Commission and the
Parliamentary committee for European Affairs in April 2012. The updating took
place in accordance with the government’s Action Plan. Overall assessment In June 2011
the Commission proposed four country specific recommendations (CSRs) for
economic and structural reform policies for Estonia. In July 2011 the Council
of the European Union adopted these recommendations which concerned public
finances, the labour market, education and energy. In
November 2011 the Annual Growth Survey for 2012 (AGS 2012) presented the basis
for building the necessary common understanding about the priorities for action
at national and EU levels in 2012. Against this background, Estonia presented its 2012 national reform programme and 2012 stability programme in April 2012.
These programmes give details of the progress made since July 2011 and of the
plans going forward. This Staff Working Document
assesses the state of implementation of the 2011 CSRs in Estonia, identifies current policy challenges and, in this light, examines the country’s latest
policy plans. On the positive
side, the country has managed to achieve a sizeable budget surplus and nearly halve
its high unemployment level, thanks also to the robust economic growth, and to
engage resolutely in the higher education reform and invest significantly in
energy-efficiency policies. Notwithstanding these major achievements, reform
efforts appear insufficient, in particular given the scale of the challenges on
the labour market, in certain areas of education and in the energy sector. Unemployment is still high and, given the subdued global outlook,
may stabilise at this level for some time. Competitiveness is still hampered by
skills mismatches, a lack of qualified professionals (both blue and white
collar) and relatively weak innovation: Estonia needs to move towards more
technology-intensive sources of growth. Finally, in the
light of the exceptionally high energy intensity of the Estonian economy,
further efforts will be needed to reduce the energy bill. Therefore, in these
areas, but also in fiscal policy, the challenges identified in June 2011 and
reiterated in the AGS for 2012 still apply. The policy
plans submitted by Estonia are generally relevant. Beyond measures already
scheduled in the 2011 Action Plan for 2011-2015, the new Action Plan proposes
quite a large number of new measures, mostly focusing on the quality of the
education system and labour market needs, the efficiency and sustainability of
labour market policies, energy efficiency and the efficiency of public
spending. However, the programme could have been more comprehensive in the
energy sector and local government reforms. Also, given that some of the existing
and the new measures are quite ambitious in scope and scale, their
implementation is spread over several years. For some measures, the estimated
budgetary impact is only indicative, as details of the planned reforms are
still being discussed.
2. Economic developments and challenges
2.1. Recent economic developments and outlook
Recent
economic developments After a deep
contraction of foreign trade and GDP in 2008 and 2009, the Estonian economy has
rebounded promptly, with growth reaching 2.3 % in 2010 and 7.6 % in
2011 and exports the driving force behind the recovery. In 2011, private
consumption and investment were also on a solid footing. In the last months of 2011, Estonia was not immune to the
deteriorating confidence seen in many Member States. As a result, GDP shrank in
the last quarter. The contraction was, however, limited to specific segments of
the exporting sectors. More recently, manufacturing production seems to have
stabilised somewhat below its recent peak level. The external
balance showed large surpluses in 2009, 2010 and 2011, reducing the stock of
external liabilities. In 2010 and 2011, the negative net foreign assets
position fell by 9 and 15 pps respectively (from 82.0 % of GDP in 2009).
The ratio of gross and net external debt to GDP improved similarly, with
short-term liabilities fully covered by short-term assets. After negative
values in the first half of 2010, average annual HICP (harmonised index of
consumer prices) inflation rose rapidly to 5.1 %
in 2011, spurred by high international food and oil
prices. However, the contribution made by non-energy
industrial goods remained low, alleviating the risk of loss of competitiveness.
Looking forward, lower commodity prices since mid-2011 should contribute to moderating
inflation in 2012 and 2013. Unemployment was still high at 12.8 %, but
adjusting quickly downwards, reflecting high labour market flexibility. Unemployment is expected to contract further from spring 2012, but
at a much slower pace amid more moderate GDP growth. At slightly
less than 160 % of GDP in 2011 (consolidated figures), the stock of
private debt still reflects the rapid accumulation in the boom years. However,
credit deleveraging is continuing, even though the pace is slowing down, while
large domestic deposits and prudent supervisory policies are helping to
maintain the stability of the banking sector. Public-sector
finances remain among the strongest in the EU, with the lowest debt level, at around
6 % of GDP, and a budgetary surplus in 2011 due to better-than-expected
growth and one-off factors. Outlook Reflecting the
economy’s catching-up potential, real GDP is expected to continue growing above
the EU average over the long term thanks to continuing capital accumulation and
productivity gains. Economic growth is projected at 1.6 % in 2012,
reflecting lower confidence and weaker external demand around the turn of the
year. However, in 2013 growth should be back to around 3.8 %, driven by
exports and increasingly also by domestic demand mostly through stronger
private investment. The export-led recovery may resume soon as global demand is
recovering. This could allow the country to continue deleveraging smoothly.
However, as domestic demand increases, maintaining external balances may still
require improvements in competitiveness to foster exports, while further
internal adjustment appears necessary to reduce risks to macrofinancial
stability. The government balance is expected to
deteriorate in 2012 before improving in 2013 and staying within the 3 % of
GDP limit during the period. Both the national reform programme and the stability
programme share the same short-term economic outlook,
but neither of them gives any figures on the impact of the planned structural
reforms on growth. For 2012 the outlook is broadly in line with the most recent
Commission forecasts. However, for 2013 the Estonian authorities are more
pessimistic and forecast real GDP growth of 3 %. Overall, the
level of potential growth in Estonia in the years ahead is likely to stay below
its pre-crisis rate, when rapid capital accumulation reflected EU accession and
swift financial convergence. Moreover, the population is ageing, with the
working-age population declining. Post-crisis structural unemployment will also
be durably higher, weighing on the potential growth. However, steady foreign
direct investment inflows should still bring a sizeable contribution by total
factor productivity to growth, while continuing structural reforms could boost
potential growth. In parallel, a number of factors are likely to support a
strong contribution by capital to potential growth, such as the existence of a
business and policy climate that favours private investment, public
infrastructure investment supported by EU cohesion funds, and the need for
further improvements to the housing stock when real wage growth resumes. These
factors combined could pose a risk of re-emerging inflationary pressures once
domestic demand has recovered.
2.2. Challenges
Overall, the
main policy challenges facing the country have not changed since the 2011
assessment exercise, though some adjustments are needed as the government
progresses with its reform agenda. First, a
continued fiscal effort will be required in order to achieve the medium-term
objective in view of the moderate growth outlook. In particular, both the 2012
and 2013 deficits are likely to be higher than envisaged a year ago and implied
by the budget. Given the need to maintain a prudent fiscal stance, the
efficiency of public spending could be improved, in particular through better
targeting of public spending on social security. In parallel, at this stage the
fiscal framework does not fully incorporate the necessary formal elements that
could support Estonia’s longer-term commitment to overall sound fiscal
policies. Second,
although the banking sector weathered the economic and financial crisis
relatively well, private-sector indebtedness remains relatively high. Moreover,
in the present context of high inflation, wage pressures are reappearing and
could feed into excessive credit growth relatively soon. This risk is
compounded by fiscal provisions that still encourage borrowing, including the
underdeveloped property taxation and the quasi-abolition of land tax from 2013. Third, while
unemployment, which soared during the crisis, has declined rapidly, long-term
and youth unemployment are still high. Moreover, they could become persistent
due to skills mismatches and the low coverage of active labour market policies.
This could put additional pressure on both labour market policies and social
protection, with the poverty risk affecting children in jobless households and
single parents most. If active labour market policies are not effective enough,
structural unemployment could weigh on labour supply and lead to premature
upward pressures on wages in growing sectors. Fourth,
although export performance and fundamentals (wage-setting parameters and
labour market regulations) are strong, competitiveness issues remain a cause
for concern. As economic restructuring is taking place, shortages of qualified
labour are exerting upward pressure on wages, leading to higher costs for companies[1] and affecting investment and growth potential. In this light, a
better functioning and better targeted education system could be instrumental
in ensuring an adequate supply of human capital. Also, better functioning
markets, including for services, along with further reduction of the
administrative burden for enterprises could help contain domestic price
pressures and ensure competitiveness. In particular, the low stock of infrastructure
investments at both domestic and cross-border levels restrains the mobility of goods
and factors of production. Finally, with the Estonian innovation framework
still detached from the real economy, a low number of companies are innovating,
which could hamper productivity growth and thus affect the country’s medium-
and long-run competitiveness. Fifth, Estonia’s energy and resource intensity are amongst the highest in the EU, while the
importance of oil shale as an energy source emphasises the need to develop more
efficient and less polluting energy sources and adequately address the pressing
waste issue. Finally, a lack
of effectiveness at the level of local governments is having a negative effect
on the delivery of public services in the areas of education, social assistance,
health and transport. Also, given the significant impact of EU cohesion funds
on the economy, it will be important to create the conditions for effective
support and to tighten strategic programming of funds for 2014-2020 in order to
deliver on the Europe 2020 priorities.
3. Assessment
of policy agenda
3.1. Fiscal policy and taxation
Budgetary developments and debt dynamics[2] The main goal
of the Estonian budgetary strategy, as expressed in the 2012 Stability
Programme, is to ensure sustainable fiscal policy that supports balanced
economic growth. The medium-term objective (MTO), unchanged compared to the
previous programme, is a structural surplus. The MTO adequately reflects the
requirements of the Stability and Growth Pact. According to the programme, the
MTO will be achieved as of 2013. Other fiscal objectives include ensuring
sufficient fiscal buffers and reducing the tax burden to the pre-crisis level by
lowering labour taxes. In 2011, the
general government budget position was a surplus of 1 % of GDP, which was
considerably better than the deficit of 0.4 % projected in the 2011
stability programme. This was primarily a result of significantly stronger-than-expected
economic and employment growth. In addition, the outcome was positively
affected by the sizeable sales of the Kyoto units,[3] which amounted to 1.2 % of GDP in 2011, combined with delays
in implementation of the related investment projects. The 2012 programme forecasts
a deficit of 2.6 % of GDP in 2012, which is bigger than projected both in
the 2011 stability programme and in the Commission spring forecast. The
deterioration is a result of weaker revenue related to the worsened growth
outlook, but also of higher-than-expected expenditure on the one-off investment
projects back-loaded from 2011 (1.7 % of GDP according to the national
projections). Risks to the fiscal target for 2012 seem balanced overall, with
the authorities’ macroeconomic projections being realistic. For 2013, the
programme targets a nominal budget deficit of 0.7 % of GDP. The
improvement on 2012 primarily stems from an improving macroeconomic outlook and
gradual completion of the Kyoto investment projects. The new target is
significantly different from the surplus of 0.1 % targeted in the 2011
stability programme, mainly due to the negative base effect from 2012. The
authorities intend to hold back growth in government consumption expenditure,
which is set to increase at a slower rate than nominal GDP over the whole
programme period, in line with the Commission spring forecast. Compared with
2012, expenditure as a share of GDP is expected to decline in all areas with the
exception of health care. The projected consolidation is also supported by the
planned revenue-increasing discretionary measures (see Box 1). || Box 1. Main budgetary measures || || Revenue || Expenditure || || 2012 || || Abolishing reduced excise duty rates for special-purpose diesel fuel (net effect 0.4 % of GDP*) Increasing tobacco excise duty rate by 10 % (0.1 % of GDP) Increasing alcohol excise duty rate by 5 % (0.1 % of GDP) || n.a. || || 2013 || || Lowering unemployment insurance contributions from 4.2 % to 3 % (-0.3 % of GDP) Increasing tobacco excise duty rate by 10 % (0.06 % of GDP) || n.a. || Note: The budgetary impact in this table is the impact reported in the programme, i.e. by the national authorities. A plus sign means that revenue/expenditure increases/decreases, as a consequence of the measure. * As estimated by the Commission For 2014-16,
the programme targets a continuous improvement in the nominal balance through a
gradual build-up of headline surpluses to 0.9 % of GDP in 2016. Revenue as
a share of GDP is set to remain higher than expenditure in the outer years of
the programme, declining by 3.5 pps of GDP between 2011 and 2015 as a result of
the phasing-out of the EU structural funds, the reversal of temporary
consolidation measures and the planned cut of personal income tax in 2015.
While this strategy is subject to risks — related to both macroeconomic
developments and implementation of the strategy — these risks can be assessed
as broadly neutral, in particular given the solid track record of the
authorities in meeting the previous targets. The structural
balance[4]
is expected to improve by 0.3 % of GDP in 2013 reaching a balanced
position according to the programme.[5] In 2014 and 2015, the programme targets a continuous improvement in
the structural balance, reaching a surplus of 0.8 % of GDP in 2015. The
programme forecasts continuous attainment of the MTO over the whole programme
period with the exception of 2012. The improvement in the (recalculated) structural
balance corresponding to these targets complies with the requirement for an
annual improvement of 0.5 % of GDP in 2013 in accordance with the national
projections, while it falls slightly short of the requirement in the Commission
spring forecast. Nevertheless, both estimates show a significant improvement in
the structural balance compared with the deterioration in 2012. Moreover, the
estimates should be seen against the uncertainties related to determination of
the cyclical position in real time for countries undergoing significant
structural adjustments, the ambitious MTO set by the Estonian authorities and
the relative closeness of the structural balance to the MTO. Based on the
information provided in the programme, the expenditure benchmark will be met in
every year, except in 2013 when the MTO is to be reached according to the
(recalculated) structural balance estimates and for a minor deviation from the
benchmark in 2014. Using the Commission’s estimate of the discretionary impact,
the deviation would be above the expenditure benchmark in 2012 and below it in
2013. According to the programme, the general government debt, which is
the lowest in the EU, is projected to increase somewhat, peaking at 11 %
of GDP in 2013, before gradually declining to 9.5 % in 2016. This profile
reflects an accumulation of financial assets due to nominal surpluses after
2013. Long-term sustainability Estonia has a very low level of government debt. Under a no-policy change
assumption, debt would increase to 14.6 % of GDP by 2020.[6] The long-term increase in age-related expenditure is below the EU
average.. Although recent reform measures undertaken in the field of pensions
would reduce sustainability risks, the projected decline in the benefit ratio
could pose a risk to the adequacy of pension entitlements. Ensuring sufficient
primary surpluses over the medium term would improve the sustainability of
public finances. Fiscal framework The strength of
the current fiscal framework lies in the long-standing commitment to the ‘soft’
budget balance rule applying to the general government balance. Although the
rule has not been formalised in law, all Estonian governments have adhered to
it, except in 2008-09. As the rule was adapted only recently to take account of
cyclical elements, there are no mechanisms in place that would limit
expenditure growth when economic growth is above potential. In 2011, the
government committed itself to formalising the budget balance (or surplus) rule
in the State Budget Law before summer 2012 (Euro Plus Pact commitment). No real
progress has been achieved to date, given the intentions of the government to
take full account of the new governance rules adopted at EU level. The
balanced-budget rule is complemented by a debt rule applicable at the level of
local government. A new Law on financial management of local governments in
force as of 2012 provides a basis for a medium- to long-term financing
framework. It modernises and increases the transparency of financial governance
and includes provisions on enforcement of fiscal discipline. It also sets a net
debt ceiling of 60 % to 100 % of revenue from the main activities in
the current fiscal year[7] on borrowing by local governments and dependent units, with no
escape clauses. Responsibility for monitoring and enforcing the rule lies with
the Ministry of Finance. Finally, the
medium-term budgetary framework in place provides a basis for planning beyond
the next year’s budget. However, the expenditure limits set in the framework
are indicative and can be revised in the following year’s update. In order to
prevent pro-cyclical fiscal loosening in years of high economic growth, the
expenditure ceilings could be made more binding and augmented by multi-annual
expenditure rules. The same applies to the system for monitoring and reporting
on the strategic targets, including elements of public accountability. Tax system Estonia’s tax-to-GDP ratio, which stood at 34.2 % in 2010, is below
the EU average, based on low nominal tax rates, and is relatively skewed
towards taxes on consumption. The taxation policy is framed in terms of a
simple tax system and a broad tax base. The tax burden on consumption, as measured
by its implicit tax rate, was 25.6 % in 2010, among the highest in the EU.
The 37 % implicit tax rate on labour is somewhat above the EU average. By
contrast, taxes on businesses, on corporate income and on capital stocks are
well below the EU averages. Overall, the implicit tax rate of 9.1 % on
capital is lower than 28.8 % in the EU-25. In 2011, Estonia adopted a package of legislative proposals that move in the direction of
implementing the Council recommendations to reduce the tax burden on labour, provide
incentives to increase participation in lifelong learning and reduce incentives
to borrow. They include reducing personal and corporate income tax rates by one
percentage point (to 20 %) as of 2015, abolishing the fringe-benefit tax
on work–related studies as of 2012 and lowering the ceiling for total income tax deductibility
(related in particular to mortgage interest payments) by about 40 % as of
2012 (see section 3.2.). These reforms were among Estonia’s Euro Plus Pact
commitments and have been fully implemented. On the other
hand, Estonia has also abolished the land tax on small
and medium-sized residential plots from 2013, if the
primary residence of the taxpayer is located on that land (see section 3.2.). While the fiscal effect of this measure is
rather small (-0.09 %), it weakens the counter-cyclical effects in the
housing sector. It also reduces the policy potential to strengthen and
diversify budgetary revenue without harming growth.[8] Environmental
taxes are dominated by motor fuel taxation and pollution and resource taxes,
but have been ineffective so far (see section 3.4.). Introducing or tightening taxation
measures on other sources of energy and also on transport and waste (e.g. road
tax, annual tax on motor vehicle use, energy consumption-linked taxes on
ownership or registration of motor vehicles or landfill taxes) could help to
achieve environmental goals while providing room for a further tax shift away
from labour. In 2011, Estonia enacted the first stage of a comprehensive reform
of the preferential excise taxation system for motor fuels, narrowing the applicability
of the preferential excise rate. This measure is expected to reduce market
distortions, minimise fraud and create incentives to improve energy efficiency. Most policy
indicators show that, due to the simple tax administration and widespread use
of e-government, Estonia has relatively low costs of tax compliance. There is a
broad consensus that the relative share of informal work is about 10 % of the
labour force, which is below the EU average. However, available estimates of
the potential size of the shadow economy vary greatly from 4 % (National
Statistical Office) to around 30 % of GDP,[9] providing contradictory messages about the importance of this issue
for Estonia. It should be added that some features of the Estonian tax system
could induce tax evasion, such as the fact that social contributions are paid
by the employers or the differences in the tax treatment of employees and
self-employed. Estonia intends to extend the powers of the Tax Office to fight
tax evasion, with its stability programme mentioning electronic receipts,
mandatory registration of employees and taxing individuals importing goods from
outside the EU which are liable to excise as areas where tax collection can be
improved.
3.2. Financial
sector
Financial
stability Estonia’s banking sector is sound, with strong capital buffers (capital
adequacy ratio approximately 16.9 %), high provision coverage and a decreasing
non-performing loans level (5.1 %). However, credit growth is recovering
and may accelerate since real interest rates are negative and the reserve
requirement for banks is low, while there is no regulation on the maximum
loan-to-value ratio for mortgages. This could reverse the decline in private-sector
indebtedness relatively soon. Also, Estonia’s economy is inherently volatile.
Therefore, promoting savings as a means to support the
on-going deleveraging of private operators and prevent recurring imbalances on
the housing and mortgage markets remains desirable, and the tax system can have
effects in this respect. In June 2011, the Estonian
authorities fully implemented their national reform programme and Euro Plus Pact commitment
to lower the ceiling for the
total income tax exemption (see
section 3.1.),[10] including the tax
deductibility of mortgage interest payments, thereby
reducing the fiscal incentives to borrow and limiting the risk of recurring
real estate-related overheating and overall instability. However, in parallel, the Estonian
authorities reduced the base of the land tax (see section 3.1.), which could
have a limited, but opposite, effect. Moreover, there is no further talk at
this stage of a revaluation of the theoretical land prices used as a basis for
the existing land tax which date back to 2001. Nevertheless, as
reflected in the national reform programme, depending on the impact of the measures that will enter
into force in 2012, the Estonian authorities are expected to continue
withdrawing the remaining incentives to borrow: partial deductibility of
mortgage interest payments and loan guarantees.[11] Given the remaining challenge with respect to medium-term
macrofinancial stability, further formal commitments in this area will be
welcome. Households’
limited level of financial education and the predominantly adjustable-rate
mortgages remain causes for concern, as they expose households to risks of
excessive leverage and over-indebtedness. These can also generate systemic
risks related to more volatile house prices, excessive house price levels and
overall instability. Access to
finance The access
of small and medium-sized enterprises to financing could remain
problematic, especially as market failures were identified in this area in the
past. While credit remains tight, banks complain that strong
industrial/business projects to be financed are scarce. This is partly due to
the lack of innovation, as a result of relatively poor cooperation between
universities and enterprises and also to a persistent lack of highly qualified
engineers and of information and communication technology (ICT) specialists.
Moreover, a substantial number of companies are likely
to be currently involved in the informal economy and tax evasion and,
consequently, are unable to secure traditional financing.[12] At the same time, small companies and start-ups complain that banks
are becoming stricter about the collateral required,[13] hence the need to design real support for microenterprises, which
in general have a much harder time gaining access to financial support schemes. Nevertheless, Estonia has made some progress to improve credit financing and access to venture capital
through programmes receiving structural funding and state support. In
particular, Enterprise Estonia has been offering start-up and development grants
and is launching a new ‘Start-up Estonia’ scheme (Euro Plus Pact) with the aim
of training fast-growing start-ups on how to secure funding from the market. In
addition, Kredex has been providing business and start-up loan guarantees and
export guarantees and is launching a new technology loan. In terms of venture
capital, the Estonian Development Fund is specialised in early-stage venture
capital investments. Furthermore, a totally new venture capital fund[14] targeting seed and start-up financing is being set up, with the
support of the governments of the three Baltic countries (Euro Plus Pact). Finally,
a 2012 Pact commitment aims to simplify and target existing assistance schemes better
as well as to switch from grants to loans to reach a larger number of enterprises.
Overall, given
the problems with gaining access to both credit financing and equity capital
and the need to increase knowledge transfer and limit debt-exposure, there is room
for further improvement in promoting Estonian small and medium-sized
enterprises among potential foreign investors. In
particular, contacts with foreign ‘business angels’ associations
could be developed and their activities within Estonia coordinated.
3.3. Labour market, education and social policy
Labour market and social policy In response to the recommendation on taking steps to support labour
demand and to reduce the risk of poverty and to the Euro Plus Pact commitments,
the government has undertaken reforms that are relevant and effective in the
Estonian context and that can have both short- and medium-term effects. Measures
have already been approved by Parliament or by the government and are therefore
highly credible in terms of expected follow-up. In particular, as indicated in
section 3.1, Estonia has decided to lower the personal income tax rate from
2015 and has abolished the fringe-benefit tax on
work–related studies as of 2012. It is also progressing
on guaranteeing the sustainability and adequacy of pensions: in 2011, it took
the first decisions on the reform of special and old-age pensions under
favourable conditions, during the first half of 2012 it will work out the
principles and timetable for further reforms and from 2012 it has fully
restored payments to the compulsory funded pension scheme. In a new Euro Plus
Pact commitment, the government has committed itself to lowering unemployment
insurance contribution rates from 2013, which will reduce the tax burden on
both employers and employees. On this basis, and in anticipation of the
lowering of the unemployment insurance contribution rates, the part of the
recommendation related to ‘tax reduction’ is considered as partly
implemented. In parallel, the government is making efforts to reduce the high
unemployment, especially youth and long-term unemployment, by regularly
assessing the situation and updating measures accordingly, e.g. adopting a new
Employment Programme for 2012-2013 supported by new national
reform programme commitments. Active labour market
policy measures have worked for general unemployment, especially youth
unemployment, which has almost halved from its peak in 2010, while the
employment rate for those aged 20-64 already exceeds 70 %, showing good
progress towards the headline target of 76 % by 2020. However, the
measures have not been particularly effective for the long-term unemployed, nor
has the up-skilling in regions with high unemployment. Further attention is
needed in order to lower youth, low-skilled and/or long-term unemployment further
and to improve cooperation between local governments and unemployment service
providers. Developing regional career centres to provide stronger career
counselling and career information could also improve the situation. Therefore,
the part of the recommendation on labour market policies is also considered as
only partly implemented, even though new national
reform programme and Euro Plus Pact commitments in 2012
are expected to bring positive developments in this respect. Given the
persistently high long-term unemployment, the poverty risk of children in
jobless households is starting to increase, while the number of children
needing social assistance has more than doubled over the last five years.[15] The Children’s and Families’ Development Plan for 2012–2020,
together with implementing measures, has the general
purpose of improving the welfare and living standards of children and families.
However, the existing additional basic income tax exemption for families,
starting from second child is largely inefficient in reducing child poverty, as
it depends on taxable income and, therefore, it is less available for families
with low revenue. Moreover, the fragmented local
governments are inefficient in providing access to social services to contain
the spread of poverty. In all, emphasis could
be put on extending access to services for households and children,
particularly those with low work-intensity. Regarding the national
Europe 2020 targets, two areas require further attention: employment and reduction
of poverty/social exclusion. Estonia’s target for employment of those aged
20-64 is set at 76 %, which means bringing some 38 000
more people onto the labour market in comparison with 2009. This could be
achieved with well-targeted measures for the young unemployed, the low-skilled,
the long-term unemployed and elderly workers, combined with measures addressing
regions with high unemployment and others aimed at improving childcare provision
for children aged under three (see also under
‘Education policies’). Considering the recent
developments and the new measures envisaged in the 2012-2013 Programme for
Employment, the target remains ambitious, but achievable. The targets set for reduction
of poverty and social exclusion will pose a serious challenge, but are also
achievable if social services, including family services, are made more
efficient and targeted and if the plans for raising education and skills levels
are implemented in full. As for the Annual Growth Survey 2012 priorities, since
the economy is emerging from a deep recession with high long-term unemployment,
the efficiency and coverage of labour market policies require particular
attention. Skills mismatches pose a risk that the currently high
long-term unemployment could become structural. Also, there is scope for
reducing the unemployment and inactivity traps, which are especially dangerous
for the low-skilled and persons on low wages, but also for families with
children. Social benefits targeted on the unemployed (unemployment insurance
benefits, unemployment allowances and subsistence benefits) lack the
flexibility necessary to promote labour supply from those currently unemployed
and facilitate their return to working life. Furthermore, the parental benefit system in Estonia is relatively costly
(1.1 % of GDP in 2011), being one of the most generous in Europe in terms of both duration and amounts. This puts disproportionally high emphasis on
the first 18 months of age,[16] while the supply of childcare services for children under three is
insufficient (see above). In particular, the high benefit level[17] creates
distortionary labour market effects. Less generous and redesigned parental
benefits could contribute to increasing labour supply without having a negative
impact on birth rates, while improving the quality of public spending. Finally,
there is scope for bringing disabled people back onto the labour market, and
keeping them there, in order to contain the rising take-up of
disability benefits and incapacity-for-work pensions. Indeed, the labour market
exits for long-term
health-related absences in Estonia are 10 pps
higher than the EU average and the number of people receiving
incapacity-for-work pensions has almost doubled within ten years. This, over
and above well-being aspects, puts pressure on public finances. New national reform programme measures and a Euro
Plus Pact commitment in 2012 aim to reform the insurance scheme for incapacity for
work and to establish an occupational and professional health insurance scheme,
while a ‘Green Paper on family benefits and services’ has been announced. Education policies As regards the recommendation on the reform of the education
system, participation in early education has increased over the last decade
and Estonia is performing better than the EU average, but a gap exists in early
childcare (for 1.5- to 3-year olds), with an adverse effect on the
employability of young parents and a negative impact on an already high gender
pay gap. However, as reflected in the 2012 national
reform programme, a recent draft reform of the
Pre-School Act presented by the Ministry of Education and Research proposes to
establish day-care facilities at public primary schools throughout the country
and make them more accessible for families. Local authorities would be given financial support for
creating new places and new facilities. The government’s plans appear
relevant and ambitious, but the necessary changes to the Law on Pre-School Child Institutions are not expected
to be adopted before mid-2012 to 2013. Therefore, the
part of the recommendation on pre-school education is only partly fulfilled. As for the part
of the recommendation calling for enhancing the quality and availability of
vocational education, Estonia has a dual objective:
increase the adult participation rate in lifelong learning (25-64 year
group) to 20 % and reduce the share of adults without professional
education or vocational training to below 30 % by 2020. Both of these
objectives are in line with the recommendation.[18] Moreover, the ongoing revision of the Adult
Training Act could improve the system in general and give adults greater access
to lifelong learning, which is a major challenge for Estonia. The lifelong learning objective is far from being attained. However,
there has been a continuous increase in participation rates over the years,
with the adult participation rate above the EU average in 2011. Nevertheless,
participation by low-skilled persons in education and training remains low (3.5 %
in 2011). Around 32 %
of the labour force has no professional education. Reaching the 30 %
target by 2020 appears ambitious but attainable. In 2011, the opportunities for
participating in vocational education and training were extended to persons
with no prior qualifications and to older workers. Also, the government has decided
to plan the number of available study places in both general and vocational
tuition. Other measures include the adoption and implementation of the revised Vocational Education Institutions Act (VET Act), raising the quality of vocational
education through further teacher training and more relevant vocational
curricula, with further attention to more work-based
schemes. Another high priority is the increase already
planned in the financing of vocational education. However,
the revision of the VET Act will not come into force until June 2013, supported
by commitments in the 2012 national reform programme and the Euro Plus Pact. Further new commitments
aim to improve the quality of the education system, notably through
reorganising the upper-secondary schools network as required by demographic trends
in Estonia, thereby ensuring higher efficiency in public spending. Nevertheless,
given the mixed progress on lifelong learning and on the vocational
education and training reform so far, this part of the recommendation is considered as
partly fulfilled. At tertiary
education level, which is covered by the last part of the recommendation,
performance agreements to be signed with higher education institutions under
the latest reform could help steer study outcomes towards fields required by
the economy. Further stress will be laid on turning out more graduates in
mathematics, science and technology, in particular in information and
communication technologies, where there is strong labour market demand.
Measures planned by the authorities are expected to be effective, showing a
certain degree of ambition, and supported by a specific commitment in the 2012 national reform programme. Pilot projects
have already started and their continuity may be supported under the next European
Social Fund programme. However, at this stage, specific target groups, such as
low-skilled workers, do not seem to be a priority. Therefore, the part of
the recommendation on bringing the education outcomes closer to labour market
needs can be considered as partly fulfilled. In relation to
the 2011 Euro Plus Pact commitments, the fringe-benefit tax on work-related
studies has been abolished (see section 3.1.) and, in early 2012, the Estonian
Parliament adopted a comprehensive reform of higher education (Euro Plus Pact)
(see above).[19]-[20] The reform is, however, pending, subject to scrutiny on
constitutional grounds. Regarding the
national Europe 2020 targets, early school leaving is perceived as one of the major challenges
in education,[21] even though the rate is slightly lower than the EU average. Therefore,
the government recently updated its general education
development plan (2007-2013) with a view to improving the quality and
efficiency of the education system and reducing the number of school drop-outs.
It has also started implementing the national early
school leaving tracking mechanism and is preparing further measures, including adaptation
of the VET Act (see above and new national reform programme commitments). Finally,
the tertiary education target (40 %) was reached in 2010 already, but
further efforts will be needed to maintain the level attained.
3.4. Structural measures promoting growth and competitiveness
Energy,
transport, infrastructure and the environment To implement
the recommendation on energy, Estonia has taken several measures to
reduce energy intensity and increase energy efficiency, including investments
in the building and transport sectors, and has started a reform of the legislation
governing the energy market.[22] However, because of the ongoing shift of passenger transport from
public transport to private cars and of freight transport from rail to road, the
energy intensity of the transport sector and the ensuing greenhouse gas
emissions are expected to grow. Consequently, the measures proposed by the
National Energy Efficiency Action Plan,[23] although fully
relevant, are insufficient.[24] Moreover, in 2010, the fleet of new cars in
Estonia was one of the most energy-intensive in the EU. Finally, the fuel
excise duties, which are considered the primary instrument for influencing
energy use in the transport sector, have been ineffective in shifting consumer
patterns. At the same time, Estonia has no energy consumption-linked taxes on
ownership or registration of motor vehicles (except for heavy goods vehicles). As
a result, the implementation of the recommendation can be considered as only
partial, even though a number of new measures in the 2012 national reform programme and two new Euro Plus Pact commitments, one on buildings
and another one on transport, reflect solid political determination. In particular, the country still lacks an ambitious
transport and spatial planning strategy, with a particular focus on effective
enhancement of public transport and an upgrade of rail infrastructure. Energy
consumption-based taxation of vehicles could also be considered. As a result,
the challenges identified by the 2011 recommendation still apply. Estonia still suffers from the relative isolation of its energy networks,
notably from those of the EU (gas) and/or Finland (electricity). In this
respect, Estonia’s energy supply could be diversified by participation in a
regional liquefied natural gas terminal, completion of an electricity
interconnection with Finland and a stronger connection with Latvia. The electricity infrastructure within Estonia could also be upgraded to integrate increasing
amounts of wind energy. Finally, transposition of several energy-related EU directives
has not yet been completed nor has the necessary specific legislation[25] been adopted and implemented, while the powers of the national
energy regulator(s) could be strengthened. Maintaining a coherent, stable and
predictable renewable energy support framework is also important. In
particular, avoiding possible retroactive changes to the existing support
schemes prevents a negative effect on overall investor confidence. Finally, the
benefits arising from Estonia’s energy efficiency investments could be
increased by additional enabling measures to improve the legal and fiscal
framework for the provision of energy services and energy performance
contracting and to introduce market-based instruments (e.g. an energy-saving
obligation scheme). As regards climate
policy, Estonia is expected to over-achieve its emission target by
2020.[26] However, as long
as the trends in modal split remain unfavourable, there is no assurance that
the energy intensity of the transport sector has actually improved. Therefore,
while the Estonian authorities have to be commended for the efforts made so far
in the energy area, close monitoring of the emissions trend is still required,
in particular — given their weight in national emissions and the current trend
— in the road transport and agriculture sectors. One of the main
environmental challenges is waste management, with more than 70 % of the total waste generated by the oil shale and energy
industries. The importance of oil shale as an energy
source adds to the need to reduce the waste which it generates and develop an
economic incentive to use the waste accumulated from the oil shale already mined.
Here, the introduction of a royalty on the production of oil shale from 2013
(see 2012 national reform programme) can be noted. In parallel, Estonia is unlikely to meet the 2020
recycling targets for municipal waste without creating the infrastructure required
for waste management. Finally, the producer responsibility in place is not able to cover the full costs
of separate collection, sorting and recycling of the main waste streams, while the
pay-as-you-throw scheme covers only a limited part of the country. Given Estonia’s geographical position, transport and transit are key factors in the
country’s economy. Although the coverage of infrastructure networks is generally
adequate, their quality is often not satisfactory.[27] While infrastructure investments have
been a priority for Estonia, as reflected in a number of new commitments in the
2012 national reform programme, the availability of intermodal connection
points (especially linking ports and railways), the interoperability of
transport systems and infrastructure/logistics hubs remain concerns. At a time of
scarce public funds, careful planning and prioritisation of projects is crucial
to maximise their economic outcome. Public transport in regions and small
cities faces several problems such as the fragmented market/approach,
inadequate quality of service and ineffective subsidisation system. Research
and innovation The R&D
intensity target (3 % with a milestone of 2 %
in 2015) is ambitious and achievable, but only if business R&D grows
significantly and Estonia is able to attract more R&D-intensive foreign
direct investment. The next multi-annual budget and, especially, cohesion
funds, are expected to play an important role as well. The government should
aim to sustain the long-term benefits of the investment. In general, the
R&I system is too fragmented and its governance[28]
could be improved. Moreover, Estonia lacks a comprehensive research and
innovation strategy that would identify knowledge-intensive sectors that could
push the country up on the international value chain and give access to wider
markets. A research and innovation strategy for smart specialisation could
concentrate public resources on a more limited number of fields of science and
technology that reflect Estonia’s strengths, as identified by international
benchmarking. This could ensure that the EU cohesion funds are used more
efficiently, creating synergies between public and private investments and EU,
national and regional policies.[29] Such a strategy for smart specialisation could address the
following major weaknesses for business R&I: first, as the
knowledge-intensive private sector is underdeveloped, additional measures
appear necessary to support the creation and development of fast-growing
innovative firms.[30] Second, cooperation between businesses and academia continues to be
weak: enterprises could be encouraged to take up research output, particularly
for boosting the productivity of existing industries, and universities could be
given incentives to promote an efficient knowledge transfer to the market. Third,
as there is an insufficient supply of highly skilled human capital (e.g.
engineers and ICT professionals), there is a pressing
need to create the right incentives and training schemes and to develop an
academic culture that nurtures innovation and skills. Internal market and competition As regards the business
environment, the administrative burden for enterprises, especially
permits and licences, but also costs to start up a company, could be further
reduced. Also, municipalities have no clear rules for issuing
construction permits and/or protecting
the public interest when needed. The e-bookkeeping
platform, when operational, will put Estonia at the forefront of e-government
use. Companies, especially smaller ones, still encounter difficulties in
dealing with insolvency processes. Finally, Estonia would benefit from
extending transposition of the late payments directive to all transactions
involving public authorities, businesses, banks and individuals. As regards public
procurement, the tendering procedure is relatively slow and not fully
transparent. To address this, the Law on Public Procurement has
been amended to make e-procurement mandatory as from 2013, including submission
of documents online. However, participation by companies in public procurement
continues to be low, due to the fact that even slightly indebted companies are
rejected under the tendering procedure, while the frequent changes to the
procedure have not encouraged companies to build up procurement capability. The overall
efficiency of state aid enforcement in Estonia shows two
weaknesses: there is no external vetting of domestic State aid, while the
country also lacks a central State aid registry. Stronger internal scrutiny and
compliance mechanisms would therefore be needed to prevent a weakening of the public
expenditure monitoring and to avoid lengthy State aid cases and also
incompatible aid cases.
3.5. Modernisation
of public administration
The provision
and use of e-government services in Estonia is more advanced than in the EU on
average: public services are available online for 90 % of the citizens,
while the figure for businesses is 100 %. More importantly, the Estonian
public administration has demonstrated its capacity to respond rapidly and successfully
to the global financial and economic crisis by proceeding with the necessary
budget consolidation and fostering structural reforms. In order to maintain and
improve this capacity in the changing socio-economic context, further reforms
are, however, necessary.[31] The new
Civil Service Law modernising public administration was approved by the government
on 1 March 2012 and is expected to be adopted by
Parliament by June. The new law will decrease the
number of civil servants, make the salary system more comprehensible and
transparent and launch the rotation system in public administration.
Independent of the reform, the salary funds for civil
servants are frozen up to 2014. In parallel, new
national reform programme and Euro Plus Pact commitments in 2012 aim to increase the quality of the financial
reporting by the state, while another aims to improve the systems for managing
EU structural funds. To fight fraud and corruption, a new Anti-corruption
Act is currently before Parliament. A Public Service Code of Ethics
is in the making as well. There is also a
longer-term need to pursue the reform of local government to ensure
better provision of public services and make optimum use of the relatively fragmented
resources. Currently, assessments conclude that most of the local governments are
finding it difficult to deliver to everyone the social, health and education
services they need.[32]-[33] Local governments appear to be too small
to meet the obligations placed on them by law. However, there is no political
support in Estonia for an overall reform that would reduce the number of local
governments, but which could allow more efficient provision of services.[34] Nevertheless, as recommended by the OECD in 2010, Estonia is planning to look at reforms in different sectors (education, social services, health, waste
management and public transport) and to consider the best measures to take in
order to provide these services more efficiently at local level.
4. Overview table
2011 commitments || Summary assessment Country-specific recommendations (CSRs) CSR 1: Achieve structural surplus by 2013 at the latest, while limiting the deficit in 2012 to at most 2.1 % of GDP, keeping tight control over expenditure and enhancing the efficiency of public spending. || Estonia has partly implemented the CSR: the 2012 programme forecasts a deficit of 2.6 % of GDP in 2012, which is bigger than projected both in the 2011 stability programme and in the Commission spring forecast. However, the deterioration is a result of weaker revenue related to the worsened growth outlook, but also of higher-than-expected expenditure on the one-off investment projects back-loaded from 2011 (1.7 % of GDP according to the national projections). The structural balance is expected to improve by 0.3 % of GDP in 2013 reaching a balanced position according to the programme. CSR 2: Take steps to support labour demand and to reduce the risk of poverty, by reducing the tax and social security burden in a budgetary neutral way, as well as through improving the effectiveness of active labour market policies, including by targeting measures on young people and the long-term unemployed, especially in areas of high unemployment. || Estonia has partly implemented the CSR: a number of steps have been taken in the area of labour taxation. However, the rising take-up of disability and incapacity-for-work benefits has not been addressed. There is a need to put more disabled people back on the labour market. Efforts are being made to reduce the high unemployment, but long-term and youth unemployment are still high and skills levels are expected to become a bottleneck to growth. The CSR needs to be repeated and the part on poverty risk needs to focus on groups particularly exposed. CSR 3: Ensure implementation of planned incentives to reduce energy intensity and improve the energy efficiency of the economy, targeted on the buildings and transport sectors, including by ensuring better market functioning. || Estonia has partly implemented the CSR: the measures in the National Energy Efficiency Action Plan are fully relevant, but are insufficient given the modal shift away from public transport. Also, the new cars fleet is the most energy-intensive in the EU. Finally, fuel excise duties are insufficient to shift consumer patterns. Therefore, the challenge still applies and the CSR needs to be repeated. CSR 4: While implementing the education system reform, give priority to measures improving the availability of pre-school education, and enhance the quality and availability of professional education. Focus education outcomes more on labour market needs, and provide opportunities for low-skilled workers to take part in lifelong learning. || Estonia has partly implemented the CSR: the quality and availability of vocational education have improved and more measures are planned. Participation in lifelong learning is picking up, but with insufficient focus on low-skilled workers. Problems with matching education outcomes to labour market needs are continuing. There is an urgent need to reform the upper-secondary education/school system. Further attention needs to be paid to provision of public services by local authorities. Overall, the CSR needs to be repeated and adjusted. Euro Plus Pact (national commitments and progress) Commitments related to public finance: lower the annual upper limit for income tax exemptions to EUR 1 920; first phase of the reform of special pension schemes; achieve a budget balance in 2013 and a budget surplus in 2014; include a public-sector budget balance requirement in the basic state budget law. || The new annual upper limit for income tax exemptions was approved by Parliament in mid-2011. The other three commitments are still pending: the first phase of the reform of special pension schemes is expected to be adopted by Parliament by summer 2012. The planned budget balance in 2013 and surplus in 2014 have been introduced into the State Budgetary Strategy. However, this strategy is revised annually, while an actual budget balance and surplus can be achieved only in 2013 and 2014. Commitments to foster employment: adopt the law to reduce the personal income tax rate from 21 % to 20 % (from 2015); abolish the fringe-benefits tax on work-related studies. || For these two Euro Plus Pact commitments, the necessary legislative amendments were adopted in mid-2011. Commitments to foster competitiveness: reform civil service benefits and increase the transparency of the wage system; implement the higher education reform; launch a start-up programme for innovative enterprises. || The first two Euro Plus Pact commitments aimed to foster competitiveness are expected to be fully implemented soon, with the necessary legislation expected to be adopted by Parliament by summer 2012. The third commitment has been fully implemented, with the new start-up programmes for innovative enterprises already approved by the government, and is operational. Europe 2020 (national targets and progress) Employment rate target set in the 2011 national reform programme: 76 % || 66.4 % in 2010 and 70.1 % in 2011. Challenging but achievable with well-targeted measures for the young unemployed, the low-skilled, the long-term unemployed and elderly workers combined with addressing regions with high unemployment and childcare provision for children under three. R&D target set in the 2011 national reform programme: 3.0 % || 1.42 % of GDP in 2009 and 1.63 % in 2010 (0.81 % public, 0.82 % private). Ambitious, but achievable, but only if business R&D grows significantly and Estonia is able to attract more R&D-intensive foreign direct investment. Greenhouse gas emissions target: -11 %[35] || -4 % greenhouse gas emissions, base year 1990. Overachievement possible, but close monitoring still required, in particular in road transport and agriculture. Renewable energy sources (RES) target set in the 2011 national reform programme: 25 % || 23 % in 2009 (EUROSTAT 2009) and 24 % in 2010 (national RES progress report). Well on track towards the overall RES target: Estonia has already achieved its 2011/2012 interim target, but is lagging behind on the 10 % binding RES target for transport. Energy efficiency — Reduction in [primary] energy consumption by 2020: medium-term objective 0.71 Mtoe || The energy efficiency objectives are based on national circumstances and national formulations. As the method to express the impact of these objectives on energy consumption in 2020 in the same format was agreed only recently, the Commission is not yet able to present this overview. Early school leaving (ESL) target: 9.5 % || 13.9 % (2009) and 11.6 % (2010). This is one of the biggest challenges in education and is being addressed through several initiatives (ESL tracking mechanism, etc.). Ambitious, but achievable. Tertiary education target: 40 % || 35.9 % (2009) and 40.0 % (2010). National target already reached, but may reflect a relative lack of ambition. Target on the reduction of population at risk of poverty or social exclusion in number of persons: reduce the at-risk-of-poverty rate (after social transfers) to 15 % (from 17.5 % in 2010) || 58 000 (2009). Reaching the adopted targets will constitute a serious challenge, but seems achievable if social services, including family services, are made more efficient and targeted, and if the plans on raising the education and skill levels are implemented in full.
5. Annex
Table I. Macroeconomic indicators Table II. Comparison
of macroeconomic developments and forecasts
Table III. Composition of the budgetary adjustment Table IV. Debt
dynamics Table V. Sustainability
indicators Figure. Medium-term
debt projection Table VI. Taxation indicators Table
VII. Financial market indicators Table VIII. Labour market and social indicators Table
VIII. Labour market and social indicators (continued) Table
IX. Product market performance and policy indicators Table
X. Green growth [1] The situation seems especially intense in the
services sector: Estonia showed the sixth highest average annual growth in unit
labour costs in services between 2000 and 2010 out of the 26 Member States for
which data are available. [3] An Assigned
Amount (or Kyoto) Unit (AAU) represents an allowance to emit greenhouse gases.
In 2010-12, the one-off revenue related to the AAU sales is expected to total
EUR 373 million, which will be invested in 2011-13. [4] Cyclically-adjusted balance net of
one-off and temporary measures, recalculated by the Commission services on the
basis of the information provided in the programme using the commonly agreed
methodology. [5] Compared with the recalculated structural balance,
the programme forecasts higher structural budgetary improvement by 0.6 %
of GDP in 2013 and by 0.3 % of GDP on average in 2014-16. The discrepancy
is mainly due to a different assessment of the starting cyclical position of
the economy between the common methodology and the approach taken in the
programme. Subsequently, the programme attributes a higher share of the
targeted nominal improvement to the structural component than in the
recalculated information. [6] Although the initial budgetary position adds to the
long-term costs due to conservative assumptions regarding potential growth
embedded in the common methodology. [7] Revenue including transfers but
excluding net revenue from sales of fixed assets, financial revenue and
earmarked grants for acquisition of fixed assets. [8] See, for example, European Commission (2011), Tax
reforms in EU Member States 2011, European Economy No 5. See also OECD (2011),
Economic Survey of Estonia, plus the earlier analysis by the Commission
(Commission Staff Working Paper SEC(2011) 715/final). [9] Schneider et al. (2010) ‘Shadow economies all over the
world: new estimates for 162 countries from 1999-2007’, World Bank policy
research working paper No 5356. [10] From EUR 3 196 to EUR 1 920. [11] Housing loan guarantees provided by the Credit and Export
Guarantee Fund (Kredex). [12] As banks rightly refuse any candidate
with ‘double accounting sheets’. [13] The loan rejection rate is approximately
30 %, in part due to the bad quality of business plans. [14] The Baltic Investment Fund. [15] From 858 children in 2005 to 2 000
in 2011. [16] Parental benefit expenditure accounts for 63 %
of the total family benefit expenditure. [17] For
example, duration of 18 months, ceilings equal to three times the average wage
and 100 % replacement rate based on previous wage. Disincentives to work are
aggravated by the high effective tax rates on additional labour income for
recipients of parental benefit. [18] The number of people with no vocational
education or training is highest in the youngest age group, among those aged 25-34
(35 % in 2010). [19] Under the law due to enter into force in January 2013, higher education
institutions will be allocated support from the state budget, which, as a rule,
will not be tied to specific student slots or the number of graduates. Students
must collect 30 credit points per semester in order to be entitled to free
tuition (see above for the assessment). [20] Future reforms in higher education may need to respond
to the challenge of making the tertiary education sector more cost-effective.
This would require a reduction in the number of tertiary education institutions
and a clearer division of labour between the different institutions, coupled
with a clearer definition of their competences. [21] Dropping-out of school usually concerns
boys and is most common among students in the final year of basic school (9th
year) and the first year of secondary school. The drop-out rate among men (15 %)
is twice as high as among women and is higher in vocational education with a
yearly rate of over 20 %. [22] Estonia’s recent investment efforts to
increase energy efficiency and reduce GHG emissions total about EUR 300 m.
In the road transport sector, 150 new trams and buses with higher energy
efficiency will be purchased. Also, electric cars are being purchased and
nationwide charging infrastructure is being developed. [23] Stricter public procurement criteria, support schemes
for electric cars and public awareness. [24] Although the Transport Development Plan for 2005-2013
set a target of increasing the number of trips made by public transport, in
reality the volume has decreased by more than 10 %. [25] On renewable energy, electricity and
gas. [26] In its 2011 report the European
Environment Agency concluded that Estonia might be one of the 11 Member States
on track to achieve its individual target for 2020. [27] The World Bank Global Logistics
Performance Index ranks Estonia 43rd, with its weakest point being
infrastructure. Finland, for example, is ranked 12th. [28] Notably, the role of the Research and
Development Council. [29] In particular, there is a need for
better coordination within the country and with neighbouring Member States, especially
in the context of the EU Strategy for the Baltic Sea Region. [30] Improvements in the existing competence centres,
knowledge transfer offices, incubators and cluster programmes, innovation
vouchers and support offered by Enterprise Estonia, Kredex and the Estonian
Development Fund. [31] Well-performing institutions have a
strong long-term effect on economic outcomes and the behaviour of businesses, whereas
a large informal economy is considered to be an indicator of poor public
institutions (see section 2.2.). [32] The local governments bear primary responsibility for
education up to secondary level (excluding vocational education), for organising
transport and social services and for cultural events. [33] In particular, the system of ownership of
upper-secondary schools (local governments) does not guarantee universal access
to quality education throughout the country and, thereby, creates inequalities
between students from cities and the regions with regard to access to higher
education. [34] Currently there are 226 municipalities for a population
of 1.3 million. [35] The national emissions target set in Decision
2009/406/EC (the ‘Effort-Sharing Decision’) concerns the emissions not covered
by the EU emissions trading system. It is expressed as the minimum relative
decrease (if negative) or the maximum relative increase (if positive) compared with
2005 levels.