The Council of the European Union has issued a recommendation on the economic, social, employment, structural and budgetary policies of Estonia, urging the country to adhere to net expenditure growth limits and address identified challenges. The recommendation, published on 3 July 2026, sets maximum net expenditure growth rates for Estonia at 7.1% in 2025, 5.1% in 2026, 3.6% in 2027, and 3.2% in 2028, based on its medium-term fiscal-structural plan covering 2025-2028. The Council activated the national escape clause for Estonia on 8 July 2025, allowing deviation from those rates to increase defence spending, which is projected to reach 5.0% of GDP in 2026. Estonia's general government deficit is projected at 4.5% of GDP in 2026 and 4.8% in 2027, while debt is projected to rise to 26.9% of GDP by end-2026 and 30.5% by end-2027. The Commission concluded on 3 June 2026 that the deficit criterion is not fulfilled but did not propose opening an excessive deficit procedure, as the 2026 deficit above 3% of GDP is explained by increased defence expenditure. The Council recommends that Estonia broaden its tax base, for example by phasing in a tax on vacant residential property, and strengthen the link between spending reviews and resource reallocation. It also calls on Estonia to address persistent regional disparities, especially in Ida-Viru county, and improve business R&D commercialisation, SMEs' access to finance, and energy efficiency.
the Estonian government must balance fiscal consolidation with defence spending and social needs; Estonian taxpayers may face a broader tax base, including a new property tax; SMEs could benefit from improved access to finance but may face higher compliance costs; and regions like Ida-Viru county may see targeted support to reduce disparities. The Council's recommendation is non-binding but carries political weight as part of the European Semester process. The European Parliament is expected to discuss the recommendation in its relevant committees, and the Commission will monitor Estonia's progress in its next country report.