Yevgeny Osinovsky: Tallinn will build a hospital if the state returns taxes Opinion

The development of Tallinn Hospital has reached the point where a fundamental decision must be made. We are moving forward with the design of the hospital, but there is no point in drawing such beautiful pictures if we are not sure whether there will be money for its construction. The corresponding decision needs to be made in the coming months – either build the most modern medical campus in Estonia or freeze the entire project. I believe that a positive decision is not only necessary, but also possible.

The €850 million question

According to current forecasts, the total price tag for the Tallinn Hospital project is 850 million euros. This amount is greater than the total state budget investment for this year. It is 85% of the city of Tallinn’s budget for this year. Of course, the cost will be spread over several years, but it is the most expensive construction investment in Estonia and Tallinn itself cannot fully bear the cost.

Of course, we cannot forget how the Reform Party-only government in 2022 took away 280 million euros of funds that were planned for Tallinn hospitals. However, we can’t do anything about this memory – this decision cannot be reversed, and we have to look for new financing opportunities. The City of Tallinn has seriously struggled with this, looking for internal resources, assessing its credit capacity, so we can offer the government a worthwhile deal.

The deal is simple – Tallinn will build the hospital itself if the state reimburses the state taxes received on the investment. Recognizing that the state budget is in a poor state and that it is currently unrealistic to receive investment support from the state (which would be entirely appropriate), we can at least agree that the state budget will not receive revenue from the project. What does this mean financially?

First, after the project is implemented, the state budget will receive 150 million euros in VAT. Second, nearly 100 million euros in labor taxes (the portion of social and income taxes that goes to the state budget). Third, a total of 180 million euros will be paid to workers during construction. If half of this is spent on consumption in Estonia, the second-round effect will be 20 million euros in VAT. A total of 270 million euros.

Taking into account that the defense tax base will be either income tax, sales tax or both in the future, the above amount will increase by almost ten percent. As a result, the realization of the Tallinn Hospital project will increase the state budget revenue by 300 million euros.

Tallinn is trying to raise the remaining 550 million euros from three sources. First, the credit capacity of the existing hospital and the results of its core activities will allow the Tallinn Hospital project to be financed with nearly 200 million euros. Secondly, the partial sale of the existing building will provide another 50 million euros. The remaining 300 million euros can be financed through a loan from the City Treasury, which will significantly increase the city’s debt burden during construction, but when the new hospital becomes operational it will be able to repay this loan with cash flow.

If the city of Tallinn succeeds in concluding a memorandum of cooperation with the state in the coming months, according to which the state will reimburse the 300 million euros of state taxes received for the project, we will be fully prepared to start building the new medical campus in a few years. Dear Toompea colleagues, let’s act together!

PS Of course, my proposal is good in itself and additional inspirational stories may be superfluous. However, I would like to remind everyone that the provision of specialized medical services is not a mandatory task for local governments. As stated in the recent Supreme Court ruling on nursing reform, the municipality must first ensure the financing of mandatory services. If the Tallinn Hospital project does not come to fruition, Tallinn will be forced to consider returning the task of providing specialized medical services to the health institutions. Maybe for the state. We enclose flowers and a postcard in the hope that the next few governments will be able to find nearly a billion euros from the state budget to build a new hospital.