Juri Ratas, the new leader of the Estonian Centre Party,  was on November 20 formally tasked by President Kersti Kaljulaid with forming a new coalition government. The appointment seals a turnaround for the centrist party, which is now likely to call the shots in government after 17 years in opposition.

It is fatigue with the liberal Reform Party, which has dominated Estonian politics since the country left the Soviet Union, that has elevated the Centre Party, the key electorate for which is the country's ethnic Russian minority. A generational change in leadership was the key to unlocking that potential, claim analysts and Ratas' coalition partners.

The Centre Party will form the new coalition with the left-leaning Social Democratic Party of Estonia (SDE) and the conservative Pro Patria/Res Publica (IRL). The partners have pledged already they will stick to Estonia’s general course, bounded by membership of the European Union and Nato, but some changes have already been announced.

The new coalition has promised reform that will increase the income tax threshold from the current €170 to €500 per month. The rationale behind the change is to keep Estonia business-friendly, the coalition parties say, but also allow the less well-to-do to take home more pay. The coalition has also pledged to introduce a bank tax.

The SDE and the Centre Party are also close to one another in their views on improving health care and education. The coalition has promised to boost teachers’ wages to 120% of the national average from 2019. The more rightwing IRL said it was happy with the coalition’s plans to reduce taxation of dividend payments as well as push the privatization of state companies via the Tallinn Stock Exchange.

The basics of the tax system, which relies on a flat income tax rate of 20%, will remain unchanged, with the coalition stressing it would like to maintain Estonia’s fiscal strengths. The country has run budget surpluses or tiny deficits at worst in recent years; Estonia’s state debt is by far the lowest in the EU at around 10%.

Gridlocked

It seems that over a decade and a half of leadership by the liberal Reform Party simply proved too much for its former coalition partners, the SDE in particular.

“The outgoing coalition with the Reform Party had been pretty much gridlocked for some time,” the incoming SDE minister of foreign affairs, Sven Mikser, tells bne IntelliNews.

That logjam was illustrated during the presidential election, which dragged through September and October because parties could not overcome divisions, Mikser suggests. Eventually, the non-partisan Kaljulaid was elected as a compromise to escape an embarrassing mess.

However, the real key was the change at the helm of the alternative to Reform. “After the Centre Party voted previous leader Edgar Savisaar out of office and Juri Ratas took over, an obstacle to working with the Centre Party was removed,” Mikser admits.

Savisaar, claims Allan Sikk, senior lecturer in comparative politics at University College London’s School of Slavonic and Eastern European Studies, had long been persona non grata in Estonian politics for what were seen as too close ties to Russia. The main charge against Savisaar was an old Centre Party cooperation agreement with One Russia – the party of President Vladimir Putin – signed in 2004, though largely dormant since.

SDE had grown particularly wary of Reform Party’s liberal economic dogmatism, says Vassilis Petsinis, a political scientist from the Johan Skytte Institute of Political Studies at the University of Tartu in Estonia.

“The Centre Party will have less of an issue with the economic polices SDE would like to favour,” Petsinis tells bne IntelliNews. “Replacing Savisaar with Ratas of course helped as well,” he adds.

“Ratas belongs to a wholly new generation of Centre Party politicians. Savisaar was seen as someone belonging to the post-Soviet era of the early years of Estonian independence,” Petsinis says.

Estonian media claim each coalition member will get five ministries, with the Centre Party claiming the post of the Prime Minister for Ratas, a 38-year old economist with a stint as a mayor of Tallinn, the Centre Party’s stronghold. Ratas was elected chairman of the Centre Party on November 5, a few days before the fall of the Reform Party’s government led by Taavi Roivas.

The Centre Party is also set to get the ministries of economic affairs and infrastructure, rural affairs, education and research, as well as public administration, ERR reported.

SDE will receive the health and labour ministry, culture, foreign affairs, interior, and entrepreneurship and development. IRL will get remaining ministries of defence, finance, social protection, environment, and justice.