Speech of Auditor General Alar Karis to the Riigikogu regarding problems in Estonia’s public finance, economy and development, 12 November 2014

11/12/2014 | 9:00 AM

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Dear Chairman, members of the Riigikogu,

A year has passed and once again I stand before you with the annual report of the National Audit Office, which gives a concise and comprehensive overview of our state accountancy, public finance and other problems generalised as a result of the auditing. No, this report does not consist of one sentence: “Everything is fine and the future is bright!” The report of the National Audit Office does not say this now and probably will not say it in the future either.

The reason for this is the universal role of supreme audit institutions in the state and the nature of our activities – we represent an unbiased and independent view. Above all, our task is to point out to decision-makers problems that need solutions. Nevertheless, in the interests of balance, I will start with the good things.

State accountancy is good, public finance is good, tax revenue is coming in well and figures indicate that people have more work – all of this is good. People are buying more things, which is also good. Prices are increasing slowly or not at all, and this is good for those who buy things, but… this is not the whole picture. When we take a closer look at these topics, we must admit that the picture is no longer as clear. Instead, it is becoming quite a bit more complicated.

In summary – state accountancy and the associated reports are in order in terms of figures, but we know little about what has been done for the money. More precisely, we only know what we have been shown.

Our public finance, which in terms of most benchmark indicators is a frontrunner in Europe and perhaps the world, is starting to become an object of discussion. Can we give the European Commission a convincing explanation as to why the budget calculated the Estonian way is in structural balance while this is not the case in the opinion of the European Commission?
The increase in the number of working people and the remuneration received for work is certainly very positive. However, is this trend a permanent one and does it meet our economic policy expectations? We could be certain this was a trend if the increase in jobs and wages were created by smart and export-oriented companies that generated higher-than-average added value and whose innovative organisation of work guaranteed the best productivity in Europe.
Unfortunately, Estonia has not made much progress in terms of added value and innovation in recent years. The new Finance Minister of the government also wrote about the outlooks of the Estonian economy in her blog half a year ago and admitted with concern that, and I quote: “Estonia’s economic outlooks for the near future are poor. There are several reasons for this.” End quote. I have no reason to doubt the words of the minister.
In light of the above, it is important to acknowledge that the way we spend must be wise and such that it allows the state to make life better for all of the people in Estonia.

Checking the use and preservation of state assets has meant more than counting the cash in the state treasury for a long time. The main task of the National Audit Office is to honestly highlight the ‘buts’ and risks in governance. Many people may not like this, but liking it or not liking it cannot be a criterion used to measure the quality of the reports and work of the National Audit Office.

That is why I am telling you that the speed of Estonia’s economic development is slowing down and coming to a standstill, and indecisiveness is an obstacle to our development. Of course, selecting a reference base for assessing what is going on in society is extremely difficult. That is why the National Audit Office tries to make as few such choices as possible beyond the criteria that the government has established for itself.

When we say that Estonia did not manage to get much closer to the average indicators of Europe in 2013, we are referring to convergence or the understanding of catching up with Europe which the government included in the competitiveness plan ‘Estonia 2020’.

Dear members of the Riigikogu,

Let us not forget that rankings and comparison with others are not the be-all and end-all, even if we are comparing ourselves to similar countries like Latvia and Lithuania. What really matters is what our present situation is like, whether we can carry on successfully and how can we do so. This is an extremely important question when we look at the development of the Estonian economy and the resulting improvements in the well-being of us all.
Taking a look back to the early 1990s, we can of course admit that we have achieved growth in the gross domestic product per person with breakneck speed. Income has also increased considerably since independence was regained. And yet we are only halfway to where we would like to be.
These bursts of acceleration have not been without losses, be it the mental and physical health of people, social relations, the environment or elsewhere. Are we ready for further acceleration, which should be even more forceful than before if we want to get to the top, or would being smart suffice? I do not know the answer to this, but I do know that we have spent remarkable amounts of European Union support on developing our economy, including promotion of innovation and exports. Sometimes successfully and sometimes not, but that is as it normally is. However, it is not normal that we have failed to take the most important thing from this experience – the knowledge of how to be successful in the future. How can we be successful more efficiently?
Our previous Finance Minister also pointed out this problem. He recently said that investments, i.e. the distribution of money, are not a substitute for reforms and that it was only smart investing activities that would provide us with the economic growth and jobs we expect. I quote: “We should start with an honest assessment of our economic situation and make decisions that can sometimes be painful, but that must be made.” End quote.

Sound familiar? I believe this is exactly the issue I emphasised in the overview last year – what kind of state can we afford? I must say that six months has passed and this question has still not been answered.

However, our new acceleration must proceed from smarter and more efficient actions.

In this year’s report I have in many areas drawn attention to problems associated with a lack of knowledge. For example, the reorganisation of the education system has in some sense started, but where exactly it should lead us, what should be accomplished as a result and when – we still do not know. Activities surrounding the development of the oil shale sector and the environmental charges can be characterised in the same manner.
The deadlines by which decisions must be made have been politically determined, but many of the comprehensive health, environmental and socioeconomic impacts necessary for making decisions are unclear, as are the circumstances that influence energy independence.

The reorganisation of the field of education and the oil shale sector described in the report of the National Audit Office are also linked by a problematic common feature that may remain hidden at first glance – there is no cooperation in state governance.
In the case of the oil shale sector, this means poor cooperation between the Finance Minister and Environment Minister in the development of the model for receiving fair revenue from oil shale. In the area of education, cooperation between the Ministry of Education and Research, the Ministry of Finance and local authorities is insufficient to guarantee that the model for streamlining the school network and funding the area of education will guarantee in the end that teachers are well paid, valued and motivated, and that there are enough teachers to educate our younger generations.
The problems faced by a state that is small, with an open economy and sparsely populated are neatly summed up in the ‘Governments of the Future’ study of the Finnish Innovation Fund Sitra. It concludes that the present ‘tower silo-based’ organisation of governance can no longer cope with the problems faced by the state – be it guaranteeing social security, organisation of health services or education.
I would like to speak some more about education and teachers. There is no doubt in this hall or in Estonia as a whole that the key to our future success lies in education. I will start with the positives.

The efforts being made to increase the salaries of teachers deserve to be mentioned. Agreement on substantive trends in the lifelong learning strategy is very welcome. However, when we take a closer look at the strategy, we are left facing an elementary problem: how do we measure and describe the income of teachers?

The data obtained from both official and publicly accessible sources suggest that a teacher must be equated with an education worker, i.e. a much larger quantity, which covers more than a teacher standing in front of a class.
When we add the different sources of data about calculated or actually paid remuneration, we obtain disputable results that cause confusion and arguments. The real problem here is that we do not have an indicator that clearly characterises the changes in the salaries of teachers.

Although the government has recently made efforts to increase the salaries of teachers, which has also increased average wages, the big picture – e.g. a comparison of OECD countries for which the most recent data can be obtained – indicates that Estonian teachers are unfortunately firmly in last place in terms of their income.

When we audit the area of education, we see that another sad fact in addition to the financial side is that our brightest young people do not choose the profession and career of a teacher, and our teaching staff are slowly but surely aging.
If we add the mess that the streamlining of the school network has become, which in real life is evident in the unequal accessibility and variable quality of education, we cannot help but ask why the central government has decided to sit on the fence when it comes to solving the problems in our education system. Is it a political choice or indecisiveness? Or is indecisiveness a political choice? In any case, such behaviour comes at a price and its impact is far-reaching.
The is no doubt that evolutionary development has its advantages and we all know from natural science that it guarantees the survival of the strongest and most adaptable. Unfortunately, this is not the most reasonable approach to governing one’s state. We do not have to look far to find an example. This example, which we had to bring up again in our report, is of course local government reform.

I previously spoke about the lack of knowledge in the areas of the economy, education and oil shale, but when it comes to local government reform we have gathered more than enough knowledge about the subject over the years. What we do not have is a decision about active intervention by the state. Coming back to the need to increase Estonia’s development at its present rate, or an even faster rate, we must realise that regional development which is reasonable and considers the unique features of different places in Estonia is a precondition to success as well as a contribution to improving the well-being of Estonian people. Without local government reform, access to public services will become increasingly unequal for Estonian people and their quality will be even more uneven.

Dear listeners, in this year’s speech I will not focus on the big problems in financing the social sphere, incl. the health system, that we are all aware of. You can read about them in the report of the National Audit Office. You heard about the issues concerning the capacity for work reform in the debate held in this very place last week, as well as earlier today when you were working on drafts. You can also read about the problems concerning the accessibility of source data and the shortcomings in the audits that guarantee the security of information systems in the report. These topics of the area of information and communication technology highlighted in the report of the National Audit Office are just the introduction. The National Audit Office intends to take a broader look at the development trends of e-Estonia in the coming years.

Dear Riigikogu,

I have told you before that the representatives of the coalition parties of the Riigikogu in particular should be interested in the activities of the executive power being more knowledge-based. I do so once again and expand this thought to the composition of the Riigikogu as a whole. You are the ones who can demand knowledge-based behaviour from the executive power, e.g. by refusing to accept drafts with inadequate impact assessments or one-sided reports.

You are the ones who make the final decisions about massive reforms and you can therefore dictate the speed of these reforms. And the National Audit Office wants to continue as a useful partner to you in this work, including with this report.

But let us come back to partnership. The comparative study of the impact of performance audits carried out among Nordic supreme audit institutions was introduced to me recently. Approximately 120 Estonian officials who have been involved in the audits carried out by the National Audit Office gave their opinions in this study.

I would like to highlight two remarkable circumstances: firstly, the performance audits of the Estonian National Audit Office cause changes to a relatively large extent, especially in comparison to other Nordic countries; and secondly, Estonia clearly stands out for the fact that members of the Riigikogu do not use the information presented in the audits to bring about changes and to make the executive power take responsibility for its actions.

A shining example, and not in the good sense, is the discussion that took place at the session of the state budget review committee held in the conference hall of the Riigikogu this year. The focus was on the observations made and the problems highlighted by the National Audit Office in the e-health audit, and the session was attended by members of the committees of the Riigikogu as well as senior managers and senior officials from the Estonian health sector. The Ministry of Social Affairs sent the official who was performing the tasks of a head of department to the session as its representative. The official who was placed in this complicated situation did very well. However, no matter how well an official does, they cannot give any binding promises to change the situation to the Riigikogu on behalf of the minister. And this, honourable Riigikogu members, is not acceptable behaviour. You should not put accept it, and the National Audit Office cannot accept it.
This is why I invite you to have further discussions on the National Audit Office’s audits in the presence of the secretary general or the minister, because the majority of the recommendations made by the National Audit Office in its reports are aimed at the minister. I also expect the work of the Riigikogu and the National Audit Office to lead to more stringency regarding the information presented by the government. We must not accept empty reports or hollow explanations that do not give us a true overview of the situation and the preparation of which is a useless waste of time and taxpayers’ money.

I would like to assure you that we will continue developing the competencies of our auditors and improving the manner in which we inform of the results of the National Audit Office’s performance. I still find it important that the capability to audit the area of internal security and defence is established in the National Audit Office. Boosting capability in these areas depends largely on the decisions of the Finance Committee of the Riigikogu and the Riigikogu itself.

And last but not least, this year we have highlighted the specific recommendations more clearly in our report in addition to pointing out problems. Take them as reminders, inspiration or solutions from which to shape suitable drafts or opinions for decision-making. I can also assure you that the National Audit Office will continue to keep an eye on the development of important areas and highlight risks and problems so that all of you in this hall can do your jobs as well as possible.
I would like to remind you once again before the impending elections that all of the reports of the National Audit Office can be assessed easily and free of charge on its website. I urge you to read them in order to further government culture in Estonia and to make better decisions. Do so bravely, publicly and consistently – not like the peasants in the orchard of Rector Odja, so brilliantly described by August Gailit in his novel ‘Ekke Moor’.

Thank you for your time.

  • Posted: 11/12/2014 9:00 AM
  • Last Update: 12/11/2014 3:05 PM
  • Last Review: 12/11/2014 3:05 PM

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