Estonian President Alar Karis has appointed the country’s new government into office. Led by former Climate Minister Kristen Michal, a longtime MP of the senior ruling Estonian Reform Party, the new cabinet was appointed after Michal’s predecessor, Kaja Kallas, stepped down following her nomination to serve as EU High Representative for Foreign Affairs and Security Policy.

The new cabinet is largely a continuation of the third Kallas Government, both in terms of political composition and policy objectives. Under a revised coalition deal between Michal’s centrist Reform, the centre-left Social Democrats and the liberal Estonia 200 movement, the new cabinet is based on gender balance and consists of 14 members.

While most members of the Kallas Cabinet will keep their position, new additions to the government include Finance Minister Jürgen Ligi, Climate Minister Yoko Alender and Justice and Digital Affairs Minister Lisa-Ly Pakosta. A surprise addition is opposition figure Vladimir Svet, who recently joined the Social Democrats to be appointed for the newly created position of Infrastructure Minister.

Security will be high on the new government’s agenda, which will include the introduction of several tax changes to raise €3 billion for defence spending by 2028. The coalition deal foresees VAT and income tax increases, as well as a 2% tax on corporate profits.

The formation of the new government comes a year after Estonia’s last parliamentary elections (which produced a strong majority for the current ruling bloc) and shortly after the EU parliamentary elections (won by the lead opposition Isamaa party). While Aretera’s baseline scenario assumes that the governing coalition will remain stable, policy differences may hinder its stability in the long run.