Executive summary

The fiscal space to support growth-enhancing policies is large: the fiscal rule targets a balanced structural budget, even though gross public debt, at 13% of GDP, is the lowest in the OECD and is projected to decline in the medium term.

Increase spending on measures that boost growth potential and welfare. Consider allowing a small deficit in the government budget rule in the longer term.

Social programmes do not provide adequate protection and assistance to the jobless.

The coverage of unemployment benefit schemes is low, making the unemployed less reachable for the public employment services.

Increase subsistence benefits.

Relax eligibility conditions for unemployment benefits, not least to improve participation in active labour market measures.

Labour market participation of mothers is low and the gender pay gap the second highest in the OECD. To tackle these issues, the provision of childcare is being expanded considerably, but the long parental leave remains an important obstacle to gender equality.

Extend the share of parental leave reserved for fathers.

Many workers, especially the low-skilled, are exposed to physical health risks.

Increase sanctions for breaches of health and safety regulations.

Require that employers purchase occupational accident and disease insurance.

Financial incentives to prevent or reduce environmental damage are too low.

Set tax rates on oil shale, vehicle and energy use at a level that better reflects the environmental damage they generate.

The business environment is good, but room for simplifying trade administrative procedures exists.

Complete a one-stop shop for administrative formalities.

Improve access to information on trade regulation (e.g. agreements with third countries and appeal procedures).

Innovative capacity of Estonian firms is limited, and collaboration between academia and businesses is too low.

Give more weight to co-operation with the private sector when allocating funds to public R&D institutions.

Migration can open up new trade links and ease the adoption of foreign technologies. Policies to attract skilled migrants have had limited success.

Relax annual quotas, and simplify conditions for work permits of skilled workers.

There is no institution in charge of a regular assessment of productivity challenges and of monitoring policies in the field of competitiveness. The European Council advised to set up a national productivity board.

Establish an independent body to advise on policies to raise productivity.

Insolvency procedures are long and costly. Possibilities of early intervention are limited.

Allow creditors to initiate restructuring.

Introduce early warning mechanisms, such as one-line insolvency tests.

Develop options for out-of-court settlements.

Businesses have difficulty finding suitable skilled labour, and a large share of the population does not have a professional qualification. Participation in lifelong learning is relatively high but its effectiveness questioned.

Strengthen the monitoring of training courses, by using ex post evaluation of training including labour market outcomes of participants.

Extend the accreditation system to all publicly funded learning programmes to signal and improve their quality.

Competition in the banking sector seems low, and few financing alternatives exist.

Create a centralised credit bureau that will collect both positive and negative information on creditors.

Varying approaches to ex ante project evaluation pose the challenge of identifying the most productive infrastructure investments.

Carry out ex ante cost-benefit analyses for all large-scale infrastructure projects based on a uniform methodology.