Riigikogu debate focused on sustainable financing of national defence

Today, the Riigikogu discussed the longer-term perspective of national defence funding as a matter of significant national importance at the initiative of the National Defence Committee. Chairman of the National Defence Committee Raimond Kaljulaid, Minister of Defence Hanno Pevkur and Head of the Economic Policy and Forecasting Division of Eesti Pank Rasmus Kattai made reports.

Chairman of the National Defence Committee Raimond Kaljulaid started his report by saying that, in a certain sense, the war had already extended beyond the borders of Ukraine. “It is not a short-term problem or a crisis where you can hope that, at some point, life will go on as before. The threat Russia poses to its neighbouring countries will not grow less and in that connection the need for long-term and large-scale defence spending will remain with us for decades to come. It is no good hoping that anything will change in Russia any time soon,” Kaljulaid said.

Kaljulaid underlined that the euro directed at national defence came from the pockets of taxpayers and had to be put to the best use. “Since we will also have to manage to discuss and approve a new national security concept within the current parliamentary term, we could also aim to fix a new potential target level for defence spending in this document. Thanks to the decisions on additional funding made this year, defence spending will amount to 2.8 per cent of GDP in the next few years,” he said. Kaljulaid pointed out that many countries in our region were aiming to increase their defence spending. “Estonia’s new target level could mean that defence spending in a longer-term view will account for at least three per cent of our GDP. I am of the opinion that Estonia could also lead the way in NATO to encourage all allies to strive for a higher defence spending level,” Kaljulaid said.

In the words of the Chairman of the National Defence Committee, it will be necessary to draw up crisis plans at both national and local government level, to test exercise them with partners and to ensure the funding necessary to ensure crisis readiness. “Of course, every person in Estonia will also have to think how they will ensure that they themselves and their families will cope during crisis. In a crisis, be it military or not, every person who can help themselves is directly of help to the state. A person who can also help others besides themselves helps the state by several times,” Kaljulaid said.

Kaljulaid also pointed out that Estonia was very strongly contributing to launching the new Defence Innovation Accelerator for the North Atlantic or DIANA, which aimed among other things to identify areas of cooperation between the national defence sector and innovative businesses that developed technologies and whose solutions were usable in both the civil and military sectors. “It will be necessary to bring more investments to the defence industry in order that the Western countries could proceed as soon as possible with their armament procurements and plans to replenish their ammunition supplies,” Kaljulaid said.

Minister of Defence Hanno Pevkur said that Russia’s war in Ukraine was currently the most serious challenge to European security since the Second World War and Ukrainians with their immense courage had already shown that it was not only necessary but also possible to confront aggressor.

“It is necessary to spend on national defence as much as is needed to defend the country. And therefore we all have the task of doing everything possible and in our power to uphold the Estonian state. In my opinion, the first pillar in this is the defence capability of our own country,” Pevkur said. He said that this also meant that every euro the taxpayers had contributed to building up defence capability would have to produce as much defence capability as possible. “Every link, starting from early warning to every unit on the field, will have to function seamlessly,” the minister said.

In Pevkur’s words, the second pillar to uphold the state is cooperation with allies. “If we contribute sufficiently ourselves, we will also be sending a message to our allies that they can help us if we have a need for that,” Pevkur said. He noted that Estonia was hosting around 2400 allied troops at the moment. “It is also a part of the deterrence directed at our opponents,” he added.

“While next year our defence spending will for the first time exceed one billion euro and amount to 2.85 per cent of GDP, in 2024 the defence spending will exceed the three per cent limit,” the Minister of Defence said. He said that it would also be necessary to contribute to defence capability at such a level over a longer-term perspective. “We will need to fix our defence spending at the level of three per cent for a long term, in order to strengthen and uphold and preserve our defence capability,” he said. “We have done a lot of work in national defence over the years, and we have very many important capability developments underway now as well, but the changed security situation simply does not give us other choices.”

In the minister’s words, in the last three years, equipment procurements, investments and economic costs have been totalling around a billion euro, of which 562 million, that is, 56 per cent, has gone to Estonian suppliers.

Head of the Economic Policy and Forecasting Division of Eesti Pank (Bank of Estonia) Rasmus Kattai said that the central bank was following closely the developments in public finances, above all from the point of view of the stability of macroeconomy. He spoke of three aspects: the situation and perspectives of the Estonian economy, its impact on the state budget and the impact of the state budget on the economic situation.

In Kattai’s words, the economy is going through worse times than we have been expecting. “In the second quarter, the Estonian economy took a downward turn. The volume of the economy decreased. Unfortunately, in terms of projections, it is to be expected that the last months of this year will be even worse than the first half of this year. The rapid price rise will start to show its true colours more and more,” he said. The representative of Eesti Pank said that the economic growth like before would no longer be restored. “The average economic growth in the next ten years is going to be about four per cent and this is in current price, which means a growth in the volume of economy both in units produced and the impact of price rise added to this. This is more or less twice less than in earlier decades,” Kattai said.

According to Kattai, when the economy is growing more slowly revenues are also accruing more slowly and there are smaller opportunities to raise expenditure and narrower opportunities to exit budget deficit. At the same time he added that although the wellbeing of the economy affected the budget position the budget policy choices had much more significant weight. Kattai said that if the budget policy course did not change and the budget continued to be in a deficit of about three per cent every year during the next decade, the government sector debt would increase from the current seven billion euro and 19 per cent of GDP to more than 20 billion euro and 38 per cent of GDP by 2032.

In Kattai’s words, there are two options to reduce the deficit or to exit it: either to restrain the increase in expenditure or to increase the share of revenue. In conclusion, Kattai noted that the number one concern in the economy was the rapid price rise. “If the state channels additional funds into the economy by way of budget deficit, this will also accelerate the price rise,” he said.

The reports were followed by questions to the speakers and remarks by the representatives of political groups and members of the Riigikogu.

During the debate, Kalle Laanet (Reform Party), Marko Šorin (Centre Party), Leo Kunnas (Estonian Conservative People’s Party), Jaak Juske (Social Democratic Party), Heiki Hepner (Isamaa), Alar Laneman (Estonian Conservative People’s Party), Raimond Kaljulaid (Social Democratic Party) and Peeter Ernits (Estonian Conservative People’s Party) took the floor.

A Bill passed the first reading

The Bill on the Ratification of the Agreement for the Termination of the Agreement between the Government of the Kingdom of Norway and the Republic of Estonia on the Mutual Promotion and Protection of Investments (646 SE), initiated by the Government, passed the first reading.

The purpose of the agreement is to terminate the bilateral agreement with Norway on the mutual promotion and protection of investments. The termination of the agreement is necessary in order to ensure that investors from all European Union Member States and Norway are accorded equal treatment based on European Union legislation and the agreement on the European Economic Area.

Photos of the sitting (Author: Erik Peinar, Chancellery of the Riigikogu)

Verbatim record of the sitting (in Estonian)

The video recording of the sitting will be available to watch later on the Riigikogu YouTube channel.
(Please note that the recording will be uploaded with a delay.)

Source: Parliament of Estonia