Janek Mäggi: In Estonia, the Government Has Decided It Likes Society to Be Totally Frayed at the Nerves

Shrinking the state (a euphemism for cutting, also used in veterinary medicine for dehorning) is proceeding slowly because government parties are not aligned. The mantra is the same: security, but the paths to it do not match.

Some parties feel that the wealthy in Estonia—whether individuals or companies—live too well and should fill all the gaps. However, others understand that if the rich and successful either stop working or move abroad, poverty in Estonia will grow significantly. Tax revenue sources are still entrepreneurship, not the state-paid public sector.

The government faces a puzzle that requires combination skills: how to distribute 100 euros among three children so that each child receives 50 euros? Naturally, a smart person can handle this: the two who are most dissatisfied each get 50 euros, and the polite child with healthy nerves gets nothing.

During the economic crises around 2000 and 2008, Western companies concluded that cutting salaries is generally a bad idea. Even if everyone agrees to a 10% pay cut, the entire organization will be stressed, everyone works worse, and the savings are small or non-existent.

It is far more effective to curb cost growth at all costs until revenues allow it. If payroll costs need to be reduced, it means not everyone has enough work, and those who don’t should be laid off. Such people aren’t just in the private sector; there are at least as many in the public sector. This doesn’t always mean they’re bad or lazy; sometimes the job simply disappears, and it’s game over.

In Estonia, the government has decided it greatly enjoys having everyone on edge simultaneously. Let them rant and rave—we need to balance the budget! There’s no arguing with the goal because mindless waste when there’s no money leads to a black hole. Understandable, the sudden rise in defense costs has already created this hole.

Increasing the efficiency of the state is also necessary; for example, instead of two state-paid employees, there could be one. Some savings come from the fact that not everything being done today needs to be done, and the other half from the fact that people, both in the public and private sectors, have to move faster, especially when times are tough. Right now, they’re unpleasantly tough.

An enormous opportunity for savings would come from ending indexation, which would be extremely unpopular (e.g., pensions and some salaries would not rise by a set percentage each year), but it would give the government the option to say, “They will rise, but by a smaller amount, or they won’t rise at all, or they may even decrease.”

A locked budget, where most of the budget funds itself (based on laws) and leaves no room for decision-making, is flawed and doesn’t allow for up-to-date fiscal policy. Sometimes, rules that have been in place for years no longer work, and new ones need to be created.

Although it’s not wise to mock the public with various ridiculous taxes under different names. Every new tax damages morale but does not improve the country’s finances. Today, the state is like a greedy doorman who only lets people into a restaurant for a very good tip, but the waiter tells the diners that not only is the chicken out of stock, but there’s also no water or bread, and nothing else to offer.

People with strong enough “horns” survive tough times and can protect themselves. A country that doesn’t fool people and isn’t rudely greedy motivates the enterprising to take more initiative. The rich are worth putting up with—they provide a significantly better quality of life for the entire society.

The government deserves credit, however, for wanting a balanced budget even during tough times. The way forward is to limit cost growth until revenue growth catches up, end unnecessary activities, and constantly question the necessity or extent of every single expense. Don’t assume there will definitely be war. Perhaps it won’t come after all.