Government approved the 2026 state budget

Government approved the 2026 state budget
Photo: Jürgen Randma

In order to strengthen the defence capabilities of Estonia, at least 5% of the GDP will be allocated to national defence in 2026 in accordance with NATO criteria – that is €844.5 million more than this year. Investments in air and missile defence, drone capabilities, as well as long-range and precision strikes are increasing. An air defence brigade and new engineer battalions will be established, C-RAM systems will be developed to protect critical infrastructure, and training and exercise areas will be expanded. The development of defence industry parks will also continue. Approximately 50 million euros is planned for the design and preparation of the park in Pärnu County.

Estonia will also continue supporting Ukraine at the level of 0.25% of the GDP, amounting to 110.7 million euros, most of which will be directed to orders from the Estonian defence industry.

The planned income tax increase will not be included in the budget. The income tax rate for both companies and individuals will remain at 22%. Together with the increase in the tax-free minimum, the tax burden will decrease by 1.4 percentage points, leaving nearly 780 million euros in the economy.

At the same time, public sector spending will be kept under control – the 5% cuts in labour and administrative costs that came into force this year will be supplemented by a further 3% in 2026 and 2% in 2027. Ministries will reduce labour and operational expenses by an additional 20 million euros in 2026.

Investments will be directed towards projects that support economic growth. For example, Estonia will launch the largest four-lane highway construction programme since the restoration of independence, with 276.8 million euros allocated for 2026. A total of 684.2 million euros will be directed toward the development of Rail Baltica and railway transport, with the goal of completing construction by 2030.