SGI 2022 | Estonia | Executive Summary

Executive Summary

Recent Governments Experts

SGI experts on Estonia

Triin Lauri

Triin Lauri is an associate professor of public policy at Tallinn University School of Governance, Law and Society. She holds a PhD in Government and Politics. From 2020 to 2023, Triin was a postdoctoral fellow at the University of Konstanz, and in 2019/2021, she was a departmental lecturer in Comparative Social Policy at the Department of Social Policy and Intervention at the University of Oxford. Triin’s research is mainly focused on comparative social policy, with a particular interest in education policy and social investment policies. She has an extensive teaching portfolio and publishing record and is actively involved as an expert to facilitate knowledge transfer between academia and policy-making.

Anu Toots

Anu Toots is professor of comparative public policy and director of the Institute of Politics and of Governance at Tallinn University, Estonia. Her research interests include governance of the welfare state, transformations of the post communist welfare regimes, public policy analysis, and educational reforms around the world. She has been extensively engaged in comparative educational research and consulted several national educational reforms. Her research articles have appeared in Journal of Baltic Studies, International, Journal of Social Science Education, Studies of Transition States and Societies and many others.

Allan Sikk

Allan Sikk studied political science at the University of Tartu where he later managed national post-election surveys and taught various subjects in comparative politics. After defending his PhD in 2006, he applied his academic expertise for the benefit of the research service of the Riigikogu, the Estonian parliament. Sikk joined the University College London in 2007. His main research interests are the political impact of country size and electoral and party politics - encompassing subjects such as electoral systems, new political parties, party system change, voting behaviour and cabinet stability.

Daunis Auers (Coordinator)

Dr Daunis Auers is Associate Professor of Comparative Politics at the University of Latvia. He defended his PhD at University College London (UCL) and his MSc. at the London School of Economics (LSE). He has been a Fulbright Scholar at the University of California-Berkeley (2005-2006) and a Baltic-American Freedom Foundation Scholar at Wayne State University in Detroit (2014). He has widely published on Baltic and European politics. His most recent book – The Comparative Government and Politics of the Baltic States: Estonia, Latvia and Lithuania in the 21st Century – was published by Palgrave Macmillan in 2015.

In many respects, Estonia has successfully established a sustainable democracy. Civil rights and the rule of law are strong, the plurality of opinion in politics and civil society is effective, and both national and household wealth are increasing over the long term. At the same time, political polarization is increasing, leading to more volatile and less predictable policies. The tense international climate – the Russian war in Ukraine, the popularity of the radical right in Europe and the U.S. – has negatively affected the stability of the political and economic situation in Estonia.

Between January 2022 and January 2024, Estonia had three governments, all led by Kaja Kallas of the neoliberal Reform Party. Although the coalition partners varied, the neoliberal policy orientation remained consistent. The far-right EKRE party performed worse than expected in the 2023 Riigikogu elections, but emerged as the largest opposition force in parliament. While the elections demonstrated strong voter support for openness, equality and liberal values, support for political parties fluctuated after the March 2023 elections. The conservative Pro Patria and EKRE steadily gained support. The Center Party, which had previously played a crucial role in stabilizing the party landscape and integrating Russian-speaking voters, experienced a significant decline due to internal tensions.

The strong dominance of the coalition and the reluctance of EKRE to accept the election results have damaged parliamentary culture and legislative efficiency. Opposition obstruction has led to massive legislative delays, and the tradition of summoning ministers before parliamentary committees has been broken. To overcome obstruction, the government resorted to tying bills to a vote of confidence, which precludes parliamentary debate. Attempts by the president, the chancellor of justice and the speaker of the Riigikogu to resolve the situation have failed. As a result, democratic government is institutionally weaker than in previous decades. The confrontation in parliament has had little effect on the situation in the public sphere, which remains resilient. Independent courts and freedom of speech continue to function; ethnic tensions are very limited, despite the war in Ukraine and the significant number of Ukrainian refugees in Estonia.

With regard to governance, the national strategy Estonia 2035 serves as a road map for strategic and coherent policymaking. However, the long-debated state reform has stalled, and the plethora of action plans that are not integrated into Estonia 2035 creates bureaucratic overload and inefficiency. The central government’s cooperation with local municipalities has not improved as hoped following the 2017 municipal mergers. Municipalities are de jure responsible for providing many public services, but de facto lack the financial and human resources to do so. The division of competencies between the central and local levels of government are still blurred, municipalities’ fiscal autonomy is weak, and the quality of public services and sustainability varies widely across municipalities.

The Estonian economy has been significantly affected by rising inflation rates and the weak performance of Estonia’s main export partners. Despite a high employment rate, labor shortages and high taxes on labor continue to undermine economic development, especially productivity. Responsibility for employment policy has been transferred from the Ministry of Social Affairs to the Ministry of Economic Affairs to better address the needs of enterprises, particularly in the area of upskilling.

The overall orientation of active labor market policies has shifted from nudging tools to stricter obligations in training and job acceptance. In a challenging international economic environment, the government is attempting to maintain fiscal orthodoxy, though not as firmly as in previous decades. Public debt levels, although among Europe’s lowest, have increased significantly, and the government lacks a clear vision on how to finance growing budgetary needs while complying with euro zone fiscal rules. This lack of strategic vision has led to erratic tax debates and some changes in the tax system. Corporate and capital taxes remain very low, while VAT increased in 2024.

In 2023, tax debates focused on the planned car tax, while areas of greater concern, such as labor taxes, were not discussed. Estonia’s welfare system is largely based on the Bismarckian principle of social insurance, and faces significant sustainability challenges. Poverty among the elderly remains a concern, and the degree of health inequality is Europe’s highest. The rising cost of living has increased the proportion of people living in poverty in both absolute and relative terms.