A budget focusing on employment, caring, skills and security
The Government has agreed on its budget proposal for 2018. As agreed in the Government spending limits discussion, the 2018 budget proposal emphasises employment, caring, skills and security. Additional resources have been allocated to these. The economy is growing at a brisk pace. The ratio of general government debt to GDP will level off in line with the Government’s objectives during the parliamentary term. The tax rate will not rise. The Government will be nearing its targeted 72 per cent employment rate and be close to ending the reliance on debt. The measures taken are also moving Finland closer to a situation of sustainable public finances, but achievement of this aim still requires systematic implementation of the agreed reforms.
The budget proposal will be submitted to Parliament at the government plenary session on Tuesday 19 September, when it will also be made public. The budget proposal will kept up to date on the tutkibudjettia.fi online service, which visualises government revenues and expenditure, during September. The Ministry of Finance’s macroeconomic forecast, which was used during the government budget session, will also be published on 19 September.
Economy growing – responsible fiscal policy continues
Finland’s economy is currently experiencing a pronounced upswing. Forecasts have been revised to reflect higher growth. After a long wait, growth in the Finnish economy is now outperforming that of the euro area. Growth and the improving employment rate will boost tax revenues and reduce unemployment expenditure. The general government deficit is shrinking, and the debt-to-GDP ratio is levelling off.
Closing the sustainability gap will, however, require systematic implementation of the agreed reforms.
Budget deficit reduced
The budget proposal for 2018 presents a deficit of EUR 2.96 billion, which will be covered by additional borrowing. In the spring supplementary budget, the 2017 deficit was an estimated EUR 5.4 billion. Central government debt (including off-budget debt) is estimated to be around EUR 110 billion by the end of 2018, which is about 47% of GDP.
Budget proposal totals EUR 55.7 billion
It is proposed that EUR 55.7 billion be allocated for the budget proposal, which is about the same as in 2017. The allocation includes higher expenditure on the Government's key projects and increased pension expenditure. The figure also incorporates fiscal adjustment measures previously agreed in the Government Programme, and lower immigration-related spending and reduced spending on unemployment.
Revenue from the government’s on-budget entities in 2018, excluding net borrowing, is estimated at around EUR 52.7 billion. Revenue estimates have been increased during the year, as a consequence of the higher-than-expected level of economic activity.
Labour taxation almost unchanged
In its budget session the Government decided to introduce a EUR 270 million package of income tax cuts affecting all income categories. In the Government’s view, this means that during its current term it will have fulfilled the tax concession pledge given in the Competitiveness Pact. The so-called solidarity tax on high income earners will remain unchanged. An adjustment for inflation and the change in the general level of earnings will be made to the earned income tax parameters. In addition, the structure of the public broadcasting tax will be revised to ensure that those on the lowest incomes will be exempt from the tax, as agreed in the parliamentary working group.
To finance the reduced burden of labour taxation, the Government decided to raise the tax on alcoholic beverages by EUR 100 million and the energy taxes on heating, mobile machinery and power plant fuels by a net EUR 45 million. In line with the Government Programme, the tax increases on tobacco products will continue in 2018–2019, rising by EUR 68 million in 2018.
The impact of a reduction in the fees for early childhood education and care on municipal finances will be compensated by increasing central government transfers to municipalities for basic public services by EUR 25 million, raising the municipalities’ proportion of corporation tax proceeds by EUR 60 million and increasing real estate tax by EUR 25 million. In accordance with the Government Programme, the municipalities will be compensated for the tax revenue impact of changes made by the Government to tax parameters.
The Government will make decisions about taxes for 2019 after examining growth trends in the economy at large and taking stock of the overall state of general government finances. The tax decisions will be consistent with the objectives of the Government Programme.
The Government will begin preparation of a long-term plan for taxation. This will include a search for solutions to the challenges posed to the tax system as a result of developments in digitalisation, robotics, the sharing economy, the platform economy and tax competition internationally.
Employment measures strengthened
New ways of tackling youth unemployment
The Government has continued the work to reduce social exclusion among young people that it began in its mid-term policy review session. The focus of the new measures is on cutting the level of youth unemployment.
The provision of vocational training will be increased by 1,000 student-years in order to ease youth unemployment and to address skills needs. The additional study places will be targeted especially at young people who are unemployed and at risk of being unemployed. The increase in appropriations for this is EUR 9.4 million.
Young people with a significantly reduced functional capacity will in future be able to obtain the vocational rehabilitation services they require without having to have a diagnosed illness. This change will support those young people who are in a difficult position and wish to study and progress along a path to employment. The services will also be reorientated so as to focus more on personal support and coaching.
At its mid-term policy review session, the Government decided on additional appropriations for the Ohjaamo low threshold services for young people, and to give these services a more established position. The Government is also allocating EUR 3 million for building psychosocial support services for young people in association with the Ohjaamo facilities.
The availability of pay subsidies for people below the age of 30 will be broadened in connection with regular interviews. Young people will also be directed from the Employment and Economic Development Offices to services offered by, for instance, private service providers. Service providers will be paid on a results basis, which means payment will be based on the extent to which young people progress towards training or work. The target for this performance-based procurement is set at 10,000 young people below the age of 30, which will bring the estimated costs to EUR 15 million.
Fees reduced for early childhood education and care
To improve the employment rate and remove incentive traps, the Government will reduce the fees for early childhood education and care by EUR 70 million from 1 January 2018. These reductions will be targeted at those on low and middle incomes. The sibling reduction for a second child will be raised to 50 per cent. An additional 6,700 families will be brought within the scope of free early childhood education and care. The municipalities will be compensated for the decrease in fee income.
Active use of unemployment security
An appropriation increase of EUR 25 million is proposed for public employment services and it is to be used to develop services for the unemployed, such as interviews conducted at three-monthly intervals.
The activation model for unemployment security will encourage people to seek work and employment services at all stages of unemployment. At the same time, the qualifying period at the beginning of unemployment will be reduced from seven days to five days.
The use of unemployment security for the start-up of new businesses will become possible. The Unemployment Security Act will be amended so that the full time and part time nature of business operations would not be assessed during the first four months of setting up a business. Due to these changes, unemployment security appropriations will be increased by EUR 10 million in the 2018 budget proposal.
Ensuring access to skilled labour
The opportunities available to the unemployed to update their skills will be enhanced by enabling the use of unemployment security for short-term studying. The Unemployment Security Act will be amended to allow jobseekers to use unemployment security for full-time studying without consideration by an Employment and Economic Development Office when the duration of the studies does not exceed six months. EUR 3.5 million will be reserved for this purpose.
Study places in vocational education and training will be increased especially in sectors where there is a labour need. The Government has also decided to make the pilot scheme for retraining and upgrading the qualifications of higher education graduates an established practice.
In line with the decision made at the government discussion on spending limits, the tax exemption of training provided by employers will be clarified and extended as of the beginning of 2018.
Esko Aho has put forward measures with which to meet the positive structural changes taking place in South-West Finland. The Government commits itself to the bridging agreement proposed by Aho which brings together issues relating to availability of labour, regional accessibility, skills and training, and research and development activities. The agreement will be drawn up by the end of the year and implemented within the scope of the spending limits.
Focus on the wellbeing of children, young people and families
The Government will reform the family leave system by examining how to improve the system and looking at a vast array of related questions concerning family policy, early childhood education and care. The reform will be prepared with the best interests of children and families in mind. Equality in working life and parenthood will be increased. The support system will be simplified and further developed. The possibility to take care of a child at home until the age of three will be retained. The objective of the reform is to find measures to encourage parents to return to work after family leave and to introduce more flexibility in this, as well as to put into practice the models for family-friendly workplaces in accordance with the Government Programme. Participation in early childhood education and care will also be increased.
The benefits and allowances of the family leave system will be reformed within the framework of general government finances defined in the Government Programme. The reform must have an employment-boosting impact according to an estimate verified by the Ministry of Finance.
The Government will appoint a working group consisting of ministers to prepare the details of the new model for the family leave system by the end of 2017. Ministers Saarikko (chair), Mattila and Grahn-Laasonen will be in charge of the preparation. Ministers Orpo, Lindström and Vehviläinen will also participate in the preparation. A working group consisting of public officials from the Ministry of Social Affairs and Health (chair), Ministry of Finance, Ministry of Education and Culture and Ministry of Economic Affairs and Employment will also be appointed.
The Government will prepare the family leave reform in cooperation with the social partners. Child and family organisations will also be consulted in the course of the work. A monitoring group will be established for the reform. The reform will enter into force on 1 January 2019.
An appropriation of EUR 9.5 million will be allocated for raising the amount of the single-parent supplement of the child benefit, which means an increase of approximately EUR 5 per month. The amount of maternity grant will be raised by approximately EUR 30, which means a need for an additional appropriation of EUR 1.65 million. These funds enable the contents of the maternity package to be developed. The amount of parental allowance payable to families with small children will rise as the minimum allowances will be increased.
Students with children will be supported. EUR 10 million will be allocated for introducing a parent supplement to student financial aid.
An appropriation of EUR 3 million will be allocated for the treatment of mothers with substance abuse problems.
Combating inequality and offering care
As Finland’s economy continues to grow, attention must also be paid to measures improving the position of low income earners. The Government acknowledges the situation of those in a particularly weak financial position by improving basic security and investing in services.
The amounts of minimum allowances, i.e. sickness allowance, parental allowance, rehabilitation allowance and special care allowance, have not risen in line with the basic amount of social assistance. EUR 8 million a year will be allocated for raising these allowances.
Another EUR 8 million will be allocated for increasing the guarantee pension in addition to the EUR 10 million already allocated for this purpose in the spending limits. The amount of guarantee pension will increase by approximately EUR 15 per month. The increase applies also to the rehabilitation allowance for young people and the minimum allowance paid during vocational rehabilitation. EUR 10 million will be allocated for increasing the basic rate of the care allowance for pensioners. After the increase, the amount of the allowance will be approximately EUR 70 per month.
In order to implement the harmonised principles of care, EUR 1 million will be allocated for the development of terminal care.
The activities of the centres of excellence in social welfare will be allocated a one-off supplement of EUR 1 million.
To improve the position of over-indebted individuals, the Government will prepare a package of measures assessing needs for legislative amendments related to over-indebtedness, such as the establishment of a positive credit data register, regulation of payday loans, and a second chance for entrepreneurs. As decided earlier, the financial and debt counselling services will be transferred to legal aid offices as of the beginning of 2019. One million euros will be allocated next year for the development of electronic service channels for financial and debt counselling in order to improve the accessibility of these services. Another one million euros will be allocated next year for the prevention of economic problems of people living in rental housing.
Solid competence base for taking Finland forward
The Government will increase the funding allocated for enhancing equality in comprehensive schools by a total of EUR 25 million. Equality funding allocated to support schools operating in challenging areas will be increased by EUR 15 million. Furthermore, the Government will allocate EUR 10 million to schools which for various reasons are at risk of being left outside the scope of development activities or which have very scarce resources for these.
An appropriation of EUR 23 million will be allocated for updating teachers’ basic and continuing education as part of the key project for knowledge and education. An action plan concerning the need to develop the legislation on comprehensive school education will be drawn up. Instruction in natural sciences and mathematics will be strengthened by allocating EUR 5 million for it.
In 2018–2019, the Government will launch an extensive pilot project on free early childhood education and care for five-year-olds together with municipalities that are willing to participate in the project. EUR 5 million of state funding will be used for the pilot scheme.
In 2018, EUR 5 million will be allocated for increasing the number of university students admitted in kindergarten teacher education.
The Government will take a number of measures to address the demand for skilled labour and the changes occurring in working life. Within vocational education and training, an additional appropriation of EUR 15 million will be allocated to support the creation of new study and career paths and to prevent discontinuation of studies. This supports the implementation of the reform of vocational education and training that will enter into force on 1 January 2018.
A new appropriation of EUR 5 million will be allocated for the research, development and innovation activities of the universities of applied sciences. The FITech university network will be allocated a supplementary sum of EUR 2 million for the purpose of extending its activities. The budget authority of the Academy of Finland will be increased by EUR 25 million. The capacity of data management and high-performance computing will be increased with an allocation of EUR 12 million.
In order to strengthen high-level expertise and research, the budget authority of the Academy of Finland will be increased to enable the implementation of flagship research centres requiring EUR 25 million. The flagships will be established in connection with universities and research institutes.
The Government has decided to make the pilot scheme for retraining and upgrading the qualifications of higher education graduates an established practice. The Act on Public Employment and Business Service has been temporarily amended so that studies leading to a new academic degree can be acquired as labour policy education for a person already holding a previous academic degree. The objective of the pilot is to promote employment and secure the availability of skilled labour especially in the growth sectors. Studies accepted in the pilot scheme must be started by the end of 2017, and they should be completed by the end of 2019. Measures required to make the pilot an established practice will be prepared by the Ministry of Economic Affairs and Employment and the Ministry of Education and Culture.
Support for innovation, renewal and internationalisation in the business sector
In accordance with the government discussion on spending limits last spring, additional allocations will be made in support of growth, internationalisation and innovation policy.
Innovation and internationalisation services are being developed towards a one-stop-shop model, as Tekes and Finpro will be merged to form a new agency, Business Finland. Business Finland will gather under one roof all the services related to the promotion of innovation funding, exports, investments and tourism. Grant authorisations of Business Finland for research, development and innovation activities are proposed to be just under EUR 271 million, which is EUR 30 million more than in the current year’s Budget. Business Finland’s government aid authorisations for research, development and innovation activities will be raised by EUR 10 million, to EUR 157 million.
The Government decided to raise the core funding for VTT Technical Research Centre of Finland by EUR 2 million. This will support the reinforcement of the competence base in response to the needs of small and medium-sized enterprises and the growing export businesses, in particular.
An appropriation of EUR 7 million is proposed for circular economy investments, for developing growth ecosystems and for promoting innovative procurement.
In order to implement the health sector's growth strategy, a decision was made to fund the establishment of a neurology centre and a licencing authority for administering the use of health and social services data. The aim is that Finland would be at the forefront and would be a sought-after international partner in state-of-the-art research circles making use of neuroscientific research and health and social service data resources. In addition, the aim is to initiate new business activities benefiting the health and social services sector and to create jobs in Finland.
The Government is committed to supporting the initiative to establish a centre of excellence for neurosciences in Finland, launched by the University of Eastern Finland. The Ministry of Social Affairs and Health and the Ministry of Education and Culture will support the 18-month pilot project with EUR 1.8 million. The administrative branch of the Ministry of Economic Affairs and Employment will allocate funding for the project, because it supports the establishment of new business activities benefiting the health and social services sector and supports job creation in Finland.
The Government decided to continue the provision of regional transport subsidy for 2018–2019. EUR 5 million will be reserved for the purpose on an annual basis. The regional transport subsidy system will reduce the additional expenses for business activities in remote and sparsely populated areas, caused by long distances, and improve companies’ operating conditions and competitiveness in these areas.
Reform of business subsidies
The Ministry of Economic Affairs and Employment will set up a working group with invited representatives from all parliamentary groups. The working group will prepare a long-term plan and proposals for reforming the business subsidies system, including direct subsidies and tax subsidies. The position of different sectors participating in international competition will also be assessed in the course of the work.
ANNEX 2: Minutes of Government budget session
Improvements to the transport network
It is proposed that EUR 1.4 billion be allocated to basic transport infrastructure maintenance. New transport route projects to be initiated next year include Ring Road I at Laajalahti, the deepening of the Vuosaari and Kokkola fairways, and park & ride arrangements on the Western Metro extension.
The Government has decided to improve transport connections between Hailuoto and the mainland. The Hailuoto fixed link will be carried out under the public-private partnership scheme so that the link will, in the long term, be economically more advantageous and provide better capacity for users. The project will start in 2018. An annual fee will compensate the yearly operating costs of the ferry services.
The Government has also decided to make preparations for one transport network project, or two at most, with decisions concerning the project(s) being made in the government discussion on spending limits in spring 2018, and with the launch of the project(s) during the current electoral term.
During this government term, various measures improving Finland’s security have been carried out. The Government will continue to enhance counter-terrorism efforts. The objective of the counter-terrorism action plan is to be prepared for terrorist acts and to prevent them.
The Government allocated additional appropriations to the police and the Finnish Security Intelligence Service both in the government spending limits discussion and now in the government budget session. The total amounts of additional appropriations allocated to the police and the Finnish Security Intelligence Service for 2018 are EUR 44 million and EUR 6 million, respectively.
In the budget session, an additional appropriation of EUR 9 million was allocated to the police for the acquisition of equipment required for demanding situations and for improving the police’s operational capability and capacity to prevent cybercrime and EUR 0.5 million to devise models for preventive action. EUR 2.5 million will be allocated for improvement of the operational capability of the Finnish Security Intelligence Service.
The Border Guard was allocated EUR 7.9 million for the improvement of internal security already in the government spending limits discussion.
Emergency response centre operator training, including training in Swedish, will be increased. Appropriations for civilian crisis management will be increased to reinforce the national capacities.
To improve preparedness as required by the changes in the security environment, an additional appropriation of EUR 50 million will be allocated for defence.
The Government will allocate more funding to the Ministry of Justice for the prevention of radicalisation in prisons and for the work of the prosecution service in preventing terrorist offences. The prevention of radicalisation in prisons will be allocated approximately EUR 0.4 million, which will be used for preventing radicalisation and for identifying activities of extremist movements. With this funding, the experimental work in Vantaa Prison on preventing radicalisation in prisons can be made an established practice.
The ability of the prosecution service to prevent terrorist offences and to enforce criminal liability will be improved with an additional appropriation of EUR 0.4 million. This can be used for example to boost training for prosecutors in the handling of terrorist offences and serious crimes linked to these offences.
Additional resources for combating climate change and for biodiversity
The proposals to reduce traffic emissions put forward by the parliamentary working group assessing the funding of the transport network will be implemented. In addition to the group’s proposals, the Government will allocate EUR 8 million for continuing the scrapping incentive programme to help renew the stock of vehicles and to encourage low-emission transport.
Growth in low-emission passenger vehicles will be promoted through an annual allocation of EUR 6 million to support the acquisition of vehicles that operate solely on electricity and gas and flexifuel vehicle conversions.
An annual allocation of EUR 4 million will be used equitably across the regions to promote the construction of a recharging and distribution network and the process of electrification for logistics in built-up areas.
Public passenger transport in urban regions will be supported with an allocation of EUR 4 million annually. The support will be targeted particularly at digitalisation and electrification of public transport systems. An annual sum of EUR 2 million will be allocated to increase contractual rail transport services.
Investments in new energy technology will be expedited with a supplementary budget authority of EUR 20 million. Funds allocated to renewable energy can be used to expedite solar power, energy efficiency and biogas projects in transport.
An additional EUR 2 million will be allocated to climate-friendly wood construction with a view to making wood construction an easy and appealing alternative.
Climate efforts by companies, local authorities and citizens will be expedited with advisory services and controls by means of extra funding amounting to EUR 2 million.
The Government proposes additional funding of EUR 10 million to implement the forest biodiversity programme for Southern Finland, METSO. This increase in appropriations will significantly improve the forest conservation in Southern Finland and biodiversity.
More effective asylum processes
The level of immigration costs has been set according to a scenario of 7,000 new asylum seekers arriving in Finland, as was previously estimated. The reduction of expenditure is restricted by the fact that processing of asylum applications is taking longer. The judicial system will accordingly receive additional resources to accelerate the processing of appeals.
Implementation of the Government action plan on asylum policy, adopted in autumn 2015, will be expedited.
The Ministry of Justice will receive additional financing to accelerate the processing of asylum appeals. An additional EUR 1.49 million will be allocated to the Supreme Administrative Court and EUR 2.2 million to the Administrative Courts to reduce the backlog of asylum appeals. EUR 0.5 million in additional funds will be allocated to legal aid for asylum seekers to boost human resources in legal aid offices and for the training of public legal aid attorneys.
Preparations for the health, social services and regional government reform in progress, funds for freedom of choice experiments
It is proposed that an appropriation of EUR 180.5 million be allocated for the preparation and execution of the health, social services and regional government reform. EUR 130 million of the appropriation will be allocated to prepare for the counties’ ICT service centre and information management in the counties, regional support services and joint investments. Preliminary preparations and the interim preparatory bodies of the counties will receive EUR 40 million in funding. This will ensure the financing of the health, social services and regional government reform.
National ICT development investment for health and social services will be implemented by means of a SoteDigi company. Provision will be made to capitalise the company by funds from the State Business Development Company (VAKE).
An appropriation of EUR 100 million will be allocated in 2018 for the implementation of freedom of choice experiments in health and social services.
Provision is being made for an appropriation of EUR 15.9 million for the county elections that will be held in October 2018.
The impact of the health, social services and regional government reform on municipalities’ costs and on the division of costs between central and local government will be examined between 2020 and 2022 when the central government transfers will also be reviewed.
Additional funding of EUR 3 million will be allocated to the information systems of the Rescue Services, and the systems will be made interoperable with the information services of the health, social services and regional government reform.
Inquiries: Riina Nevamäki, Special Adviser to the Prime Minister, tel. +358 9 1602 2009, Markus Lahtinen, Special Adviser to the Prime Minister (Economic Affairs), tel. +358 295 160 404, Matias Marttinen, Special Adviser to the Minister of Finance, tel. +358 44 269 3113, Mikko Kortelainen, Special Adviser to the Minister of Finance, tel. +358 50 301 8334, Juha Halttunen, Special Adviser to the Minister of Employment, tel. + 358 50 574 0236