Estonia has a government limited in scope. Government expenditures stood at 39% of GDP in 2015, lower than in most EU countries. Public debt is among the lowest in the world, below 10% of GDP, mostly due to a strong fiscal consolidation package implemented in 2009 to eliminate government borrowing. Public finances have been recording minor budget surpluses in recent years. Robust economic growth and a sharp fall of the unemployment rate that followed these reforms came to a still. Current sluggish growth is mostly the result of a slowdown among Estonia’s main economic partners, but growth rates are expected to pick up. Estonia was the first country in Eastern Europe to adopt flat tax system, but minor progressive characteristics such as non-taxable exemption of 2040 EMU make Estonian
tax system stand in between proportional and progressive. Personal income tax has been steadily decreasing during the previous decade, from 26% in 2004 to 20% in 2015. The overall tax wedge is slightly above the OECD average, due to high social security contributions for pensions and healthcare (standing at 33%). Estonian privatization program is now considered as completed, with only a small number of companies in state ownership, such as the lottery, power plants, the main port and the national air carrier. Subsidies are very low, below the EU average. However, the debate on the national air company has exposed the state aid provided it by the government after 2010, which was illegal according to the EU rules. Instead of repaying the sum, Estonian Air went bankrupt and was replaced with Nordica air company, also owned by the government.