This presentation was made by Joonas Pärenson, Ministry of Finance, Estonia, at the 14th Annual Meeting of the OECD Senior Budget Officials Performance & Results network held at the OECD, Paris, on 26-27 November 2018

1. Spending Review in Estonia
Joonas Pärenson
14th Annual Meeting of the OECD Senior Budget Officials Performance & Results Network
Paris, 26th-27th November 2018

2. I Context
II Spending review instrument in Estonia
III Practice and lessons learned
Spending review in Estonia

3. Some background notes about Estonia
1.3 million
inhabitants
lowest
government debt
8,3% (IIQ 2018)
GDP per capita in
PPS 77% (2017) EU28
basic education is
the best in Europe
and in the top 3
globally
most
entrepreneurial
country in Europe
80% of GDP is
export of goods and
services
Future challenges: ageing and decreasing population, long term sustainability of social security
3 digital impossibilities
Estonia offers more than 2500
digital services. Those we don’t:
marriage, divorce, real estate
transactions

4. Structural budget set in balance
Source: Ministry of Finance
-5,0%
1,0% 0,9%
0,2% 0,1%
-0,4%
0,4% 0,7%
-0,1%
-0,7%
0,0% 0,0% 0,0% 0,0%
0,1%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
-500
-400
-300
-200
-100
0
100
200
300
400
500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* 2019* 2020* 2021* 2022*
% of GDPmln €
Central gov SSF Local gov Structural balance (right sc)

5. Why do we need to change?
If we look at higher spending areas in the 2019 State Budget, the overwhelming
majority of the extra money goes to social welfare and social security. These are
mostly expenses that have been prescribed by the law. Inside these expenses,
there are also increases in parental benefits and pensions, which are largely
automatic and moving along with wage growth.
The Minister of Finance Toomas Tõniste
in his speech to the Parliament during
the first reading of the State Budget for
2019 Bill 17. October 2018
65%
70%
75%
80%
85%
How to enhance „fiscal space“?
* 2012/2013 methodology change

6. Spending Review in Estonia
▪ New policy instrument (2016 - … ). Still finding it’s true nature and place in the system.
▪ In Coalition Agreement 2015-2019 and 2016-2019.
▪ In Estonian „Tõhustamiskava“; direct translation efficiency (implementation) plan
▪ Attention is to implementation / structural changes and their impact.
▪ Regulated by State Budget Act (slide 15). Based on the Cabinet’s decision and aligned
with the state budgeting process.
▪ A common task of line ministries and the Ministry of Finance.

7. Implementation of spending review in Estonia 2016-2019
2016 2017 2018
The concept „Spending
review framework in
Estonia“
Efficiency review (first pilot)
„The use of government vehicles“
ca 0,3% of the State Budget
Strategic review
Performance area „Enterprise, innovation“
ca 2,7% of the State Budget
Amendments in the State
Budget Act about spending
reviews (passed 19.06.2017)
14th OECD SBO
seminar 
2019+
*legislation
*methodology
*new topics (Apr. 19)
2019

8. Objective and challenges
In Estonia the objective is to scale up the use of the spending reviews as a standard pre-budgeting
instrument in order to have wider impact on sustainable budget decisions.
Need to improve the process of conducting spending review analyses and increase competences.
• How to scale up?
• How to foster ownership by the administration under review?
• How to design detailed reform options and implementation roadmaps?
Performance areas are defined in State Budget Strategy
Public Finance
Entrepreneurship
and Innovation
Transport
Information
Society
Governance
Regional Planning
and Rural Areas
Safety and
Defence
Foreign Policy and
EU
EnergeticsLaw and Order
Internal Security
Research and
Development
Education
Culture
Sports
Estonian
Language
Citizenship and
Integration
Environment
Agriculture and
Fishery
Development of
Civil Society
Family Policy
Employment
Social Security
Health

9. Spending review „Enterprise,
innovation“ (2017/18)
• Performance area (~ 2,7% of State Budget)
• Specific objectives:
• How to enhance productivity (cooperation
between academia and enterprises)? What can
be reprioritised to leverage companies’ investments
into R&D?
• How to reduce the fragmentation of the support system and duplication between authorities?
• What activities are needed to gradually move beyond the support measures of EU structural funds?
• How to reduce government bureaucracy in this policy field?
• Practical proposals.
• Almost all ministries were involved.

10. Our experience. Analysis!
• Use of existing knowledge (>13 studies, analyses etc.)
• 283 public services mapped.
• Broad picture of services provided for enterprises
• Grants 150
• Financial instruments 33
• Consultations, trainings etc. 92
• Scientists and experts from universities
and enterprises.
• Implementing agencies.
• Design thinking tools.
171 proposals - several of them controversial. 10

11. Our experience. Selecting proposals for change
Working group estimations of existing
services
• 12% of the services / functions are similar.
• 16% of the services compete at least partially with the private
market.
• 17% of the services could be centralized (at least partially).
• 26% of the services need a switch to another source of
funding.
Surprise: most of these changes do not need the decision of the
government!
Decision:
• Do not make proposals in spending review report that can be
solved within the governance area and do not need
government’s decision.
• Such proposals will be proposed directly to the specific
ministry or institution.
Changes in political environment caused
delays
• Spending review was not presented to the cabinet on time.
Delay due to the change of responsible minister.
• Proposal for redirecting funds was made independently from
the spending review report. 20% (49,4 MEUR) decision made
already in April with State Budget Strategy 2019-2022.
Decision:
Do not repeat the proposals already made in spending review
report.

12. Recommendations
Less strategic documents and governance
bodies
One stop shop
Real-time monitoring of the policy
area (KPIs)
More customer-centric
approach (e-services)
Delegate services to private sector
Protection of rights of minority
shareholders
Less development plans / strategies,
better focus
Increase international competitiveness of
business environment
One customer journey for the enterprises
Link to spending review report
(only in Estonian)

13. Key factors for success
The spending review process is aligned with state budgeting process – direct
input to budget negotiations.
Special attention to clear and simple communication – ensure political support
during the whole process. Report is made public.
The process of spending review exercise is as important as the report. The
change is about people – process should shift mindsets and create
collaboration.

14. THANK YOU
Joonas Pärenson
Joonas.Parenson@fin.ee

15. Legal Basis in State Budget Act
(passed 19.06.2017)
§ 342. Spending review
(1) For the productive and efficient use of public funds and enhancing the flexibility
of the functioning of the state, the Government of the Republic may prepare the
spending review in planning the state budget funds.
(2) The spending review shall make specific proposals for more influential, efficient
and economical use of the state budget funds.
(3) The conditions and procedure for preparation of the spending review shall be
established by a regulation of the Government of the Republic.
[RT I, 07.07.2017, 4 - entry into force 01.01.2020]

16. Spending Review process timeline
n n+1
Government approves State
Budget Strategy in April (n + 3Y)
Government approves State
Budget Strategy in April (n1 + 3Y)
Spending review report to the
Cabinet in March (discussed with
other budget proposals)
Spending review terms of
reference (December – April)
Cabinet agrees to conduct
spending review with the State
Budget Strategy in April
New Spending review term of
reference (December – April)
10 months
Cabinet agrees to conduct
spending review with the State
Budget Strategy in April
Year

17. Governance
CABINET
Ministers
STEERING COMMITTEE
Deputy Secretary Generals;
chaired by line ministry
WORKING GROUP
chaired by line ministry
(1) Cabinet agrees on terms of
reference (incl. participants)
(2) Steering Committee
assigns working group,
monitors progress of work.
Meets 3-4 times in a year
(3) Does the required analyses,
involves important
stakeholders.
Meets once a month
(4) Conducts the first draft
of the spending review
(5) Policy discussions and
selection on topics /
recommendations which
will be presented to the
cabinet
(6) Final decision
MoF plays a key role during the process.
Mainly as the secretariat, competence
center, quality control etc.

18. (0) Topic selection process
• All line ministries can make their proposals for topics
(call for action under the budget letter)
• Negotiations with responsible line ministry and Government
Office
• Topic selection is a tough exercise („who wants to have extra work“?)
• Cabinet decides on terms of reference
• Line ministry is responsible for conducting the spending review on time
Discussion
Should there be a longer-term (four years?) list of topics agreed by the Cabinet ? Cabinet oversees the list
every year and renews it during the Budget Strategy negotiations (March / April)?
Paul Keres in play against Bobby Fischer in 1959

19. (1) Terms of reference
• Objective
• Description of problem(s)
• Planned methodology
• Scope
• Composition of the participants / involved line ministries
• Deadline for the report
Learnings:
• Take time for preparation of the terms of reference. It matters!
• It is a right time to find the right person for implementation!
• Political support for the topic is essential!
Discussion
Should there be a concrete objective for budget reduction?

20. (2-5) Analysis, first draft of spending review, policy
discussion
Final report
Reform options
Analyses, evaluations,
studies etc.
Mapping public
services, costs
Stakeholders
opinions,
recommendations
Reform options
Mid term report /
discussion paper
Strategic view
Detailed view
Impact assessment

21. (6) Final decision
Cabinet makes the final decision.
Communication – strong, clear and simple message
• You will not be able to get others to do what you want unless your message is simple and clearly
stated (already in terms of reference).
• What is improving? Get to the point.
• Estonian example: „We find simple ways to cut costs for 16 million euros. We can use the
taxpayers’ money more efficiently“.
• Communication needs attention and is crucial for the political commitment.
• Simplify your message.

22. Public finance reforms in Estonia
2004 accrual accounting (IPSAS)
2006 use of performance information
2011 harmonization of budgeting and accounting
2011 local government data are open
2016 whole government data are open (look riigiraha.fin.ee)
2017 centralizing support services (100%), using one
accounting IT system
2017 accrual based state budget
2020 activity based state budget