Regional and Agricultural Minister Hendrik Johannes Terras issued a warning to Tallinn regarding the suspension of income tax transfers and equalization fund allocations until the city council adopts a budgetary strategy for the years 2026-2029. The minister's directive emphasizes compliance with the Local Government Organization Act (KOKS), which requires municipalities to have a development plan and budgetary strategy covering at least the next four budgetary years prior to the approval of the upcoming year's budget, and by November 30 at the latest.

The warning comes in the wake of Tallinn's city council passing the 2026 budget on February 5, 2023, without previously approving the required budgetary strategy, which violates local legislative requirements. The directive indicates that such financial management practices must adhere to the stipulations outlined in the Local Government Financial Management Act (KOFS), implying potential financial repercussions for the city if it fails to align with the statutory obligations.

This situation highlights the tensions between local governance and financial compliance, illustrating the challenges Tallinn faces in strategic financial planning. It raises concerns over the city's budgetary oversight and the implications of failing to adhere to state laws, which could impact public services that rely on these tax revenues.