TALLINN, Apr 17, BNS - On Tuesday, the council of the Association of Estonian Cities and Municipalities approved the association's proposals for the negotiations with the government on the state budget strategy for 2026-2029 and the state budget for 2026, noting that local governments expect long-term cooperation and greater financial security from the state.

The focus of the proposals is to secure the financing of local governments, remove legal barriers to development and strengthen investment capacity. The ultimate goal is to ensure that high quality public services are available throughout Estonia, both in cities and rural areas.

Jan Trei, the deputy director of the association, noted that the proposals to the government are primarily to do with legislative and funding-related reforms, as well as initiating key policy measures that would help local governments better fulfill their responsibilities.

"One of the biggest challenges for municipalities is the lack of a sufficient revenue base and financial autonomy -- especially in a situation where the state continues to assign them new responsibilities, yet the financial resources to carry them out remain limited," Trei said.

He pointed out that while municipalities do have the option to impose local taxes, their impact on municipal budgets is marginal. At the same time, increases in national taxes raise the cost of services and investments for municipalities, often without any corresponding increase in subsidies.

Andres Laisk, who chairs the association's working group on finance, added that for years the negotiations with the government have focused on the general shortcomings in local government funding, with the association seeking an increase in the portion of the personal income tax allocated to municipalities.

"This year, we tried to focus more on the autonomy of local government and to highlight new challenges arising from the changed world order or that had not been addressed before," Laisk said.

In a situation where the economy is not growing, the association considers it inevitable that municipalities will temporarily be allowed to continue to have a higher level of borrowing, meaning that the derogation introduced during the COVID crisis is extended for another four years. This would create room for the necessary investment, preserve jobs and support local economic recovery.

At the same time, municipalities also need an updated legal framework to deliver the vision of the digital state. Fragmented data systems and the lack of a legal basis for the processing of personal data hamper service efficiency and innovation. Therefore, clear mandates need to be established and data platforms need to be interconnected.

The association recommends amending the Land Tax Act to allow for the separate taxation of agricultural and forest land. This approach would better take into account regional differences and increase the financial capacity of rural areas.

To improve the stability of funding, the association proposes starting negotiations to find a suitable methodology for incorporating parts of the support fund into the income tax base. This would reduce dependence on annual negotiations and give local authorities greater planning freedom. At the same time, it must take into account the differences between municipalities.

The association draws particular attention to the situation of children with special needs. Although their numbers are growing, the existing funding does not cover the actual costs. An increase in the multiplier is necessary because there is a need for small classes. The current funding model does not account for the demand for small classes, while the increase in children with special needs has been continuous and the trend is persistent.

Additionally, it is emphasized that in the changed security situation, an additional portion of income tax should be allocated to municipalities fund new crisis preparedness tasks and internal security at the local government level. Without this, both the quality of preparedness and other public services may suffer.

Special attention is given to the renovation of public buildings and infrastructure. Achieving climate goals and energy efficiency requires investments that current funding does not cover. The association emphasizes that the state must create a feasible co-financing mechanism.

Municipalities expect a clear and comprehensive approach from the state regarding the organization of special care services. Currently, a situation has developed where local governments voluntarily cover the need for the service, although providing these services is the responsibility of the state. For the system to function sustainably, fundamental restructuring is needed -- both the distribution of responsibilities and roles must be clearly defined.

The application of artificial intelligence in the public sector must take place systematically and in cooperation with local governments. This is the only way to ensure that innovation does not just stay in the major population hubs, but also improves services in smaller communities.

Finally, the association highlights the need to raise the subsistence level, as the current rate fails to reflect changes in the actual cost of living. This jeopardizes social cohesion and increases the risk of poverty. An update is essential to keep vulnerable groups of society visible and protected.

Tallinn newsroom, +372 610 8832, sise@bns.ee

Baltic News Service