Government agrees General Government Fiscal Plan for 2017−2020

Government Communications Department 5.4.2016 21.30
Press release 135/2016

On 5 April, the Government has agreed on the General Government Fiscal Plan for 2017−2020. The General Government Fiscal Plan is at the same time Finland’s Stability Programme, which is delivered to the EU Commission. The Government has also agreed on updates to key projects and reforms. The Government Programme’s strategic action plan has been reconciled with the General Government Fiscal Plan.

The objective of Prime Minister Juha Sipilä’s Government is to raise the Finnish economy on to a path of sustainable growth and rising employment, and to secure the funding of public services and social security. A further objective is to halt growth of public debt and bridge the sustainability gap. In accordance with the Government Programme, this will be achieved through savings and reforms as well as measures to support growth and enhance public service provision.

Government Programme’s economic policy line maintained, growth of public indebtedness halted

The spending limits decision agreed by the Government is in line with the expenditure ceiling stated in the Government Programme. The Government is committed to making savings and reforms necessary to cover the entire EUR 10 billion sustainability gap. The Government maintains its EUR 4 billion savings target, such that growth of general government gross debt to GDP would be halted by the end of the parliamentary term.

In addition to the EUR 4 billion consolidation target, the Government aims to strengthen public finances through employment-promoting measures (including the competitiveness pact), the social and healthcare reform package, and by cutting the costs of the municipalities, the regions and the public sector as a whole.

Growth and employment the key themes of the spending limits discussion                    

Boosting employment is a key issue from the perspective of the Government’s fiscal targets. The Government aims to raise the employment rate from 68% to 72%, i.e. creating 110,000 new jobs. When the competitiveness pact is implemented, on the basis of projected growth and the measures already decided by the Government, just over half of the employment target will be achieved.

The Government decided on new measures to boost employment. The Government will remove incentive traps and expand the active use of unemployment benefits. The decisions are aimed at accelerating acceptance of work, shortening periods of unemployment, improving employment opportunities and reducing structural unemployment.

The Government will expand the use of unemployment benefits to finance mobility grants, start-up grants and wage subsidies. Financing of activation measures will become more flexible, thereby better fulfilling the service needs of the unemployed. The Government will expand opportunities to use start-up grants. For example, an unemployed jobseeker intending to become an entrepreneur will be granted for a maximum of 12 months a start-up grant equivalent to the basic daily allowance, and this can be financed from unemployment benefit appropriations.

At the same time, the Government will strengthen the conditionality of unemployment security, tighten the unemployed’s obligation to accept work, and reform Employment and Economic Development Centre service processes. In addition, the Government will complement efforts to promote entrepreneurship with a package of measures, led by Minister of Economic Affairs Olli Rehn. A more detailed list and an implementation timetable for measures to boost employment and entrepreneurship will be published on 12 April.

The Government has also resolved that the autumn 2016 budget session will agree further new measures to boost employment, which will be prepared by Minister of Justice and Employment Jari Lindström.

To improve the competitiveness of Finnish industry, a compensation system for indirect costs of emissions trading will be introduced in 2017, amounting to 50% of the maximum level of support under EU state aid rules. To this will be allocated EUR 43 million in 2017–2019 and EUR 46 million in 2020.

The Government will launch the following transport projects in the spending limits period, a total investment of around EUR 700 million in the period:

  • Luumäki–Imatra,
  • Highway Oulu–Kemi, phases 1 and 2
  • Highway 5 Mikkeli–Juva, phases 1 and 2
  • Highway 12 Lahti southern by-pass
  • Raide–Jokeri light rail link
  • Tampere tramway, phase 1 (Hervanta, Central Hospital, depot)
  • Tampere tramway, phase 2 (Lentävänniemi)
  • Helsinki–Turku, further planning of fast rail link

In 2017–2018, the Government will implement an investment package totalling approximately EUR 105 million to enhance tertiary education digital learning environments, to improve opportunities for all-year-round learning, and to promote scientific work by young researchers.

Government maintains its savings target

The Government maintains its EUR 4 billion savings target at the 2019 level agreed in the Government Programme. To achieve this, supplementary consolidation measures have been decided on.

The Government Programme’s savings directed at local government are not being implemented in full. The shortfall will be replaced in the spring 2017 by, for example, prescribing minimum fee limits for local government social and healthcare services or by deciding on other budgetary savings or revenue increases, such as raising the lower limit of the real estate tax, to achieve the desired total balancing effect of EUR 130 million.

A significant part of the shortfall in the savings target stems from the fact that inflation has been lower than was projected when the Government Programme was prepared. As a result, the index saving agreed in the Government Programme has yielded a smaller than desired saving. The Government proposes a 0.85% across the board reduction in expenditure corresponding to the same expenditure affected by the index savings agreed earlier. The net saving of the decision in general government finances will be approximately EUR 195 million.

In addition, a new EUR 25 million saving will be directed at development aid expenditure from 2018. After this change, development cooperation appropriations will average 0.39% of GNI during the spending limits period. A new saving of EUR 25 million will be directed at basic transport infrastructure maintenance from 2018. The saving will rise to EUR 35 million from 2019. A EUR 22 million saving will be directed at sickness allowances by changing the upper income limits from 2017. A EUR 47 million permanent saving will be directed at independent education expense compensation funded by the Ministry of Employment and the Economy.

The Government has decided on the implementation of the saving in financial aid for students. The Government will moderate the tightening of conditions for financial aid for students and the cut in financial aid for students proposed by rapporteur Roope Uusitalo, such that the long-term savings impact is approximately EUR 122 million.

The levels of tertiary education study grants will be standardised with the levels of second education study grants, such that the maximum amount of study grant is EUR 250.28 per month.  The maximum amount of financial aid for students in tertiary education will, as of 1 August 2017, be EUR 1,101.88 per month for studies in Finland and EUR 1,260.28 per month for studies abroad. 

To improve equality between the different education levels, the reducing effect of parents’ incomes on the study grant will be abolished for 18 and 19 year-old secondary education students who live independently.

The period of aid intended for all tertiary education studies will be shortened by 10 months from 64 months to 54 months. The degree-specific period of aid will be shortened by two months. The performance requirement used in monitoring progress will be maintained as before at 5 study credits per month of aid.

The amount of the government guarantee for student loans will increase to EUR 650 per month for studies in Finland and to EUR 800 per month for studies abroad. Student loan compensation will be maintained within the framework of financial constraints.

A student’s own income limits will be linked to the Index of Wage and Salary Earnings and they will be reviewed at regular intervals, but so that the income limits do not fall. The increase in the amount of study grant and housing supplement recoverable on the basis of a student’s own income will be moderated from 15% to 7.5%.

By the autumn 2016 budget session, the Government will prepare a proposal on the transfer of secondary and tertiary education students to within the scope of the general housing allowance. If the proposal increases housing allowance expenditure, it will be covered within the spending limits of the administrative branch of the Ministry of Social Affairs and Health. Those studying abroad would remain within the scope of the housing supplement according to the system of financial aid for students.

Government decided on new investments

The Government will compensate in full the effects of the spending limits decision’s new index saving on the Ministry of Education and Culture’s central government transfer index and on the universities and universities of applied sciences appropriations index with an additional annual appropriation of EUR 37 million.

An annual expenditure increase of EUR 7 million will be allocated to young people’s job try-out expenses compensation. An annual expenditure increase of EUR 30 million will be allocated to financing wage subsidies and start-up grants.

To safeguard the operational capacity of the Criminal Sanctions Agency and to maintain the prison network, it has been decided to allocate additional funding totalling EUR 34.9 million in 2017–2020.

To ease the income and profitability situation of agriculture, an annual EUR 6.7 million will be allocated to national aid for agriculture and horticulture in 2017 and 2018, and EUR 20.3 million to compensatory allowances in 2017.

A Genome Centre will be established in Finland, aimed at developing Finland into a pioneer and internationally desired partner in healthcare, high-level research and global business utilising genome data. Public biobank activity will be enhanced by standardising operating methods and ensuring effective cooperation with the Genome Centre. A National Cancer Centre will be established. A total of EUR 17 million will be allocated in the period 2017–2020 to the establishment costs of these centres.

Police operating appropriations will be increased by EUR 5 million and in the latter years of the spending limits period by EUR 10 million. An annual additional appropriation of EUR 2 million will be allocated in the spending limits period to safeguard the activities of the Finnish Security Intelligence Service.

The guaranteed pension will be increased by EUR 10 million from 2018. The increase amounts to approximately EUR 8 per month per guaranteed pension recipient.

The level of lending compensation payable for lending from public libraries will be raised by EUR 2 million to EUR 11.25 million in 2017 (including value-added tax).

To strengthen the scientific basis for the bioeconomy and international climate policy, the basic funding of the European Forest Institute will be boosted by EUR 1 million per year.

No premises saving will be directed at Finland’s foreign mission network.

Total tax rate will not rise

The Government adheres to its programme whereby the total tax rate will not rise.

The Government has earlier made the decision to abolish the excise duty on sweets and ice cream due to related state-aid problems. Taxes on transport fuels will be increased to cover the lowering impact on tax revenue of removing the excise duty. The increase of EUR 100 million means petrol and diesel prices will rise by just over 2 cents per litre. For the average passenger car driver, this means additional expenditure of EUR 30–35 per year. The Government will monitor the development of the world market price of oil and if the price rises above USD 80 per barrel the Government will look again at the tax increase.

Central government on-budget revenue, expenditure and balance

2016,

budgeted

2017,

GGFP

2018,

GGFP

2019,

GGFP

2020,

GGFP

Revenue (EUR billion)

49.1

49.3

50.6

51.4

52.4

Expenditure (EUR billion)

55.4

55.1

55.4

55.1

55.7

Deficit (EUR billion)

5.4

5.9

4.8

3.7

3.2

 (at current prices)

Actual on-budget revenue is expected to grow in the spending limits period 2017–2020 by an average of around 1½% per year and tax revenue by around 2% per year.

Compared with the autumn 2015 General Government Fiscal Plan, on-budget expenditure is on average around EUR 0.1 billion higher. The increase number of asylum seekers, in particular, has contributed to the increase in expenditure. Lower estimated interest expenditure as well as new consolidation measures have had a lowering impact on the level of expenditure.

The assumption in calculating the General Government Fiscal Plan appropriation estimates is 10,000 annual asylum seekers, whereas in the autumn spending limits decision the figure was 15,000 annual asylum seekers. The asylum seeker forecast has been prepared on a cross-administrative basis, led by the Ministry of the Interior. The expenditure resulting from the increased number of asylum seekers is a total of around EUR 700 million at the 2019 level.

Local government finances will remain tight

The Government Programme’s measures to strengthen local government finances as well as municipalities’ and joint municipal authorities’ own consolidation measures will prevent a weakening of local government finances in the current year. Local government debt will continue to grow, however. The growth pressure on local government expenditure is great, because service needs are increased by the change in the population age structure change, the weak labour market situation and higher immigration. Due to slow economic growth, growth of local government revenue, in turn, will be sluggish.

Slight pick-up in Finland’s economy – even so, growth outlook subdued

Based on preliminary data from Statistics Finland, Finland’s economy grew last year by 0.5% after three years of recession. In the current year, growth is expected to strengthen to nearly 1%, and at the end of the parliamentary term the economy is projected to grow at just over 1%. The development of exports will remain more sluggish than world trade, and therefore the loss of market shares in international trade will continue. In the next few years, economic activity will be supported by private investment, and private demand will also grow.

The difficult times for the economy in recent years have been strongly reflected in Finland’s public finances. The general government budgetary position has deteriorated and debt has grown quickly. The general government deficit exceeded 3% in ratio to GDP in 2014. According to provisional data, the deficit ratio was brought below the 3% limit last year and it is expected to remain below the reference value throughout the parliamentary term. According to the current estimate, growth of general government gross debt to GDP will be brought to a halt at the end of the parliamentary term.

Economic assessments presented above are preliminary. The Ministry of Finance’s Economic Survey will be published on 14 April 2016.

The General Government Fiscal Plan will be approved in a Government plenary session on 14 April 2016, after which it will be published in its entirety. In the same context, the Government Programme’s revised action plan will be published.

The Government has also reviewed its policy outlines on the social welfare and healthcare reform and the regional administration reform. The policy outlines will be discussed in more detail on Wednesday, 6 April at 9.30 a.m in the Government Press Room. Legislative proposals on the reforms will circulated for consultation in early May at the latest.

Inquiries: Markus Lahtinen, Special Adviser to the Prime Minister (Economic Policy), tel. +358 295 160 404, and Juha Halttunen, Special Adviser to the Minister of Justice and Employment, tel. +358 50 574 0236, and Suvi Aherto, Special Adviser to the Minister of Finance, tel. +358 50 349 6121

Translation updated on 6 April at 15.30