The national film agency, the Estonian Film Foundation, has been told to reduce the 2008 budget of €4.1 million by €20,700 or 0.5% this year and is facing further cuts in 2009. Similar cuts are expected in the two other main financing sources: the Ministry of Culture and the Cultural Endowmnent, which is directly dependent on excise taxes.

The move came as part of a bundle to reduce Estonia's public sector spending in 2008 as the economy has come to a virtual standstill due to a bust in the housing sector and grim prognosis for the coming years. Government financing for film in Estonia has grown steadily in the last decade and has nearly tripled since 2000. The total public financing for film in Estonia was budgeted at €6.75 million for 2008.

Although the cuts appear marginal, the real effect on the emerging film industry is significant as the expected inflation of 10% slashes deep into the pockets of Estonia's film production and sends a worrying signal for larger film projects already in the pipelines.