October 9, 2020

Estonia’s 2021 Defence Budget: The Result of a Heated Political Debate

Estonian Army preparing for the military parade.
Estonian Army preparing for the military parade.

On 30 September, the Estonian Government submitted its draft 2021 state budget to the Estonian Parliament (Riigikogu). For once, the allocation for national defence was the result of a heated political row between coalition partners.

The Minister of Finance, Martin Helme, who is chairman of the Conservative People’s Party of Estonia (EKRE), initially proposed a “baseline budget” equivalent to 2% of GDP but, since GDP in 2021 is estimated to be smaller than forecast a year ago due to the Covid-19 pandemic, this would effectively have resulted in a cut. The defence minister, Jüri Luik, a member of the Pro Patria party, rejected this proposal on the grounds that it would undermine agreed and already launched defence development programmes.

Helme, supported by prominent party colleagues who are members of the Parliament’s National Defence Committee, countered by maintaining the need for a cut in the “baseline budget” but proposing to add 300 million euros to fund new initiatives. These can hardly be described as capability development programmes as they focus on hardware: ground-based air-defence missile systems, coastal-defence missile systems and main battle tanks. According to criticism by, among others, defence minister Luik, the Commander of the Defence Forces, Major General Martin Herem, and the Director General of the Centre for Defence Investment, Kusti Salm, such a simplistic approach would neglect other critical aspects needed to produce meaningful military capabilities including personnel, training, infrastructure, maintenance and ammunition. General Herem argued that, where possible, capability development should be coordinated with Estonia’s closest allies and neighbours to create synergies.

The outcome of this political dispute seems to have benefited the defence budget, the Estonian Defence Forces and, to a certain extent, also both parties involved in the row.

Despite a GDP that is estimated to decline by 5.6% in 2020 and grow by 6.4% in 2021 in nominal terms, the 2021 defence budget will increase by 5% as originally agreed in the spring of 2019 when the previous State Budget Strategy for 2020–23 was agreed. The baseline defence budget of 2% of GDP will, as in previous years, be supplemented by funds devoted to Host Nation Support of the NATO eFP battlegroup and NATO’s Baltic Air Policing mission in Estonia and a defence investment programme aimed at speeding up important procurement projects. All in all, the 2021 defence budget will therefore total 2.3% of GDP. As a consequence of the short but intense political dispute between the two ministers, extra funding earmarked for coastal defence was agreed and added to the 2022 defence budget, which will reach 2.4% of GDP.

Defence minister Luik can now claim that a proposed budget cut was turned into an increase. Finance minister Helme can take credit for having initiated a new capability programme. In many countries it is rather unusual for a finance minister to propose more spending on defence than the defence minister but, in addition to being a reflection of party politics, this is testimony to the current security environment.