Estonia: ER retains margin, but EKRE not to be underestimated ahead of Mar 5 election

• Balance of power between top parties is fragile despite current lead of Reform Party
• Conservative People's Party follows in second place, narrows ER's margin in most recent polls
• Opinion polls indicate total of six parties are likely to pass 5% parliamentary threshold
• Not any one single party to secure majority in 101-seat legislature
• ER says it is ready to form coalition with any party save for EKRE given big differences of opinion
• Outgoing junior coalition partners SDE and Isamaa poll dangerously close to 5% threshold

Estonia is going to the polls on Sunday, March 5 this year to elect 101 parliamentary deputies for a period of four years. Recent party ratings indicate that six parties currently stand a chance to enter parliament. PM Kallas' senior ruling Reform Party (ER) has convincingly held the lead in the past year and we expect the ER is likely to win the election. Despite security a victory, however, the Reform Party is unlikely to secure a parliamentary majority, hence we expect a party coalition of two to four parties to be established.

The final date for candidates to be registered for participation in parliamentary elections was January 19 and most parties presented their electoral campaigns and candidate lists in the second weekend of January. Any current expectations should be considered preliminary as the election campaign is to yet gain momentum now that the election programmes of the political parties have been made public, with the highpoint of the campaign expected later in February.

We expect that security and defence will be among the key pre-election topics amid Russia's war in Ukraine, while the topic of Ukrainian refugees in Estonia is also to be touched upon. The cost of living crisis, with a focus on consumer price growth, is the other topic expected to dominate the political agenda in the run up to the election. Meanwhile, it is not ruled out that EKRE once again raises the topic of the so-called marriage referendum.

LEGISLATIVE BACKGROUND:

A total of nine parties and 11 independent candidates will contest Estonia's 2023 parliamentary election. Estonia has a proportional voting system and parties must pass the 5% electoral threshold to secure parliamentary representation. The country is divided into 12 electoral districts reflecting population distribution, subdivided into voting districts. Each electoral district carries a set number of mandates up for grabs, which add up to 101 parliamentary seats. Parliamentary seat distribution is based on a modified D'Hondt method and includes three rounds of counting.

Only Estonian citizens can vote in the parliamentary election, unlike the local elections at which Estonian residents can also participate. Voting will take place both in person and online, with advance voting starting the preceding Monday, February 27. E-voting results will be announced shortly after voting closes on March 5, while total preliminary results should be clear by the morning of Monday, March 6.

MAIN POLITICAL PARTIES:

Reform Party (ER)

The ER is a centre-right political party, which describes itself as liberal and sits in the Renew Europe group in the European Parliament. The party has been headed by Kaja Kallas since 2018. Kaja Kallas, ER's leader and current Estonian PM, has seen her political profile rise both in Europe and globally, with the start of Russia's war in Ukraine. Under the leadership of Kallas, Estonia established a leading role in the EU and NATO in pushing for solidarity with Ukraine and sanctions on Moscow. Kallas has been critical of French President Macron's efforts to retain communication with Russia's Putin and argued Russian tourists need to be banned from the EU, calling Russia's war in Ukraine "genocidal". Her firm position has secured her a convincing lead in domestic opinion polls.

Reform Party leader Kallas argued at the party's general assembly in mid-January that security is an existential notion for Estonia, stressing on the need to strengthen the country's air defence, coastal defence and the need for greater physical presence of NATO in the country. The party's promise for the next four years is to keep defence spending at 3% of GDP. ER's leadership also stressed Ukraine needs to remain supported at all levels in its fight against Russia. The party will also aim to fully implement the transition to Estonian-language education over the next four years, arguing a single information space is a key cornerstone of security.

Kallas also reminded the issue of Estonian-language schooling was among the reasons KESK ministers were dismissed from Kallas' previous government model. Still, she informed the ER is ready to form a coalition with any party that exceeds the election threshold except for EKRE, with which the ER has the biggest differences of opinion. Kallas stressed if EKRE comes to power after the March election, it will betray both Ukraine and the future of Estonia.

The Reform Party promised to create the post of Minister of Green Reform, to replace the current post of Minister of Public Administration. PM Kallas argued at its general assembly in January that Estonia must use the opportunity to be on the side of the winners in the green transition. She argued innovation in green economy increases the competitiveness of the Estonian economy, improves the investment environment and increases the prosperity of the people and their well-being.

Centre Party (KESK)

The Estonian Centre Party has been considered a left-of-centre political party, historically popular with the Russian minority in Estonia, also belongs to the Renew Europe European Parliament family and is currently led by former PM Juri Ratas. The party used to be part of a grand coalition with the ER between early 2021 and June 2022 when PM Kallas ousted all KESK ministers from the Cabinet. KESK has been sitting in opposition since the ER formed a new coalition without KESK in July.

KESK's leadership announced at their council meeting in January 2023 that they will be trying for the first or second place at this year's March election, noting their key fight is with the Reform Party and that they will be certainly aiming to overtake EKRE. Livelihood of Estonian people, coping with energy prices and inflation, along with the security of Estonia's independence and security in the region have been the key topics touched upon by KESK so far in the election campaign. Out of those, people's livelihood has taken most focus, along with the competitiveness of companies. While security is important, this does not only mean the international situation, foreign and defence policy, but also considering how Estonian people and companies can cope, party chair Ratas said.

Increasing the average old-age pension to EUR 1000 per month within four years, supporting companies facing difficulties amid the energy crisis, reducing treatment queues and building rental housing have been among the key promises of the party ahead of this year's election.

Support for the party from Russian-speaking voters has increased in recent weeks, after reaching a historic low in summer. The recovery is mostly attributed to the party's opposition to switching entirely to Estonian-language education. Performance of the party on March 5 is seen as heavily dependent on turnout of Russian-speaking citizens.

Conservative People's Party (EKRE)

The Conservative People's Party of Estonia is a right-wing political party, with nationalist conservative views, which aims to limit immigration and is largely Eurosceptic. The party describes itself as "a principled and patriotic Estonian party with an unshakable mission to protect Estonian national values and interests". Party representatives have previously expressed their willingness to gain parliamentary majority and become the sole governing party, instead of Estonia's traditional coalition governments. The party has been pushing for referendum on the constitutional definition of marriage and previously aimed to initiate a referendum asking "Shall marriage remain a union between a man and a woman in Estonia?". The referendum draft was eventually voted out of parliament in early 2021, but the plan for this referendum seems to still be on the party's agenda. The party has been often involved in both internal and external political scandals, including controversial comments from party representatives on the LGBT community and their place in Estonian society,?comments?on Finnish PM Sanna Marin and the government of Finland,?comments?regarding the US Presidential Election in 2020 and a number of resignations during its most recent term in office in between 2019-2021.

Social Democratic Party (SDE)

The Social Democratic Party is a centre-left political party, member of the European Party of Socialists, currently led by Lauri Laanemets. The party has been in government since July 2022 as a junior coalition partner to the Reform Party, along with Isamaa.

The focus of SDE's programme is raising wages and pensions, economic development and education that supports it, energy and security. The party argued that given rapid consumer price growth, incomes must also rise, including salaries, pensions and child benefits. The party promises to raise the minimum monthly wage and old-age pension to EUR 1,200 each by 2026, raise child allowances, and increase research funding to 3% of GDP.

The party promises the creation of a Climate Council, which would consist of scientists whose task would be to provide the government with the latest scientific information and to monitor the adequacy of the measures implemented to achieve the climate goals. The party also promised to ensure the country's transition to renewable energy by 2030.

Isamaa (Fatherland)

Isamaa is a junior ruling coalition partner in the outgoing government of PM Kallas since the summer of 2022 when KESK was expelled from the government coalition with ER and after negotiations, a new coalition between the ER, SDE and Isamaa was formed. Isamaa is a national conservative political party, positioned between centre-right and far-right on the political spectrum, and economically liberal. It was founded back in 2006 by the merger of two conservative parties - Pro Patria Union and Res Publica Party and is a member of the European People's Party in the European Parliament.

Isamaa political party considers national defence, supporting families with children amid a low birth rate, Estonian-language education and helping people cope better with energy prices, as key pillars of their election programme. The party argued at its Council held in January that defence spending must be increased to more than 3% of GDP and that if necessary a national defence loan should be taken. It wants to implement a EUR 5,000 income tax exemption for each child in the family, along with an increase in the old-age pension. Increasing the minimum salary for teachers and establishing general education in Estonian was also among the party's promises.

Estonia 200

Estonia 200 is a political party that describes itself as liberal and progressive, argues in favour of reducing personal income tax for residents living outside capital Tallinn and focuses on topics such as green funding, introducing mental health to school curriculums. It was established in 2018 and contrary to initial expectations failed to pass the 5% electoral threshold at the 2019 election when it received some 4.4% of the vote. Estonia should look further than Eastern Europe, said Kristina Kallas, deputy chairman of Estonia 200, and stressed the upcoming election will determine whether Estonia goes forward or backward. Strengthening the country's defence capacity, raising teachers' salaries, a unified school reform, increasing production of clean energy, no raising of taxes to increase budget revenues and less bureaucracy were among the key promises in the party's electoral programme. Estonia 200 promised to create both a climate law and the post of a climate and energy minister and said it would take a loan to implement green goals. More specifically, it would issue a long-term green bond in 2024, its election programme said.

The party said the upcoming election is the most important one since 1992 because "the need for change is great", touching upon stalled projects such as road construction, construction of wind farms, creation of a proper internet connection in the countryside. The party, which is contesting a parliamentary election for the second time since its establishment, argued Estonian politics has been moving at idle speed for ten years, with important future-oriented decisions not having been made. The key pillars of the party's programme are education, security, governance, green transition and culture.

Estonia 200 noted it aims to secure 15 seats in the 101-legislature and ruled out any potential cooperation with EKRE. The party is ready to cooperate with forward-looking progressive parties, and has so far only ruled out cooperation with EKRE due to too different values, party leader Lauri Hussar said.

OPINION POLLS AND PRELIMINARY PREDICTIONS:

For reference, the outgoing government is comprised of senior coalition partner Reform (ER), junior co-ruling Isamaa (Fatherland) and the Social Democratic Party (SDE). The composition was the result of a Cabinet remodeling which took place in summer 2022. We remind that parliamentary-represented parties formed as many as three different coalitions during the past four years since the previous parliamentary election in 2019.

The most recent opinion polls suggest that six parties are likely to pass the 5% electoral threshold, including Reform, Centre, Conservative People's Party, Estonia 200, the Social Democrats and Isamaa.

Calculations based on average polling results of parties for the past year show similar results and indicate six parties are likely to secure parliamentary representation. The Reform Party stands a strong chance to win Estonia's upcoming parliamentary election and to receive a mandate to form the country's next government. Still, we rule out the possibility for any one party to secure a majority of 51 parliamentary seats, hence coalition formation negotiations will unfold after the election. Any potential coalition would need to secure a safe majority to be able to pass legislation during its term in office. Polling results show opposition EKRE is following the ER closely, and is expected to safely secure at least the position of a runner-up. This would mark a notable increase in support for far-right EKRE, after it came third at Estonia's latest general election in 2019.

Given that the ER will need support to form a coalition, we expect that it is likely to first launch negotiations with current ruling coalition partner SDE and potentially Isamaa, depending on results. We should note, however, that both SDE and Isamaa, have recently been polling rather close to the electoral threshold, hence a composition of Estonia's next government similar to the outgoing one is far from certain. Estonia 200, which is expected to this time pass the electoral threshold, after an unsuccessful attempt back in 2019, is also a very likely negotiation and coalition partner of the ER. We also do not rule out that the ER might face the difficult decision to launch negotiations with former ruling partner Centre. On the other hand, we reckon EKRE is likely to remain in opposition, given its Eurosceptic orientation in the context of elevated geopolitical tension. As noted above, ER's leader Kallas said the party is ready to form a coalition with any party that secures parliamentary representation save for EKRE, with which the ER has the biggest differences of opinion, while Estonia 200 has also ruled out any cooperation with EKRE.

We should note that currently it seems like even a marginal change in ratings, resulting in a minor change in seat distribution, can change the configuration of possible coalitions, making the upcoming election one at which every vote will count and turnout will be crucial.