General government finances
General government finances include the central government, the municipalities and joint municipal authorities, the Provincial Government of Åland, the statutory pension insurance companies and institutions, and other social security funds.
Central government finances consist of central government on-budget finances and central government off-budget funds. The State Pension Fund, however, is included in the social security funds. In the national accounts, the central government sector also includes, among others things, the universities, the state-owned investment company Solidium and the Finnish Broadcasting Company.
The management of central government monetary affairs is a task of the Ministry of Finance. Annually, the Ministry of Finance prepares a proposal for the following year’s Budget. If significant changes take place in central government revenue and expenditure during the budget year, one or more supplementary budgets may be prepared.
The Ministry of Finance is also responsible for preparing the central government spending limits for the coming years. The spending limits set a ceiling on central government on-budget expenditure and also bring predictability to economic policy. The spending limits are included in the annual General Government Fiscal Plan.
Local government finances cover the finances of the municipalities and joint municipal authorities. The Constitution guarantees the municipalities a large degree of autonomy, principally the right to levy taxes and the right to decide on their own spending. The municipalities independently decide on the municipal income tax rate as well as the real-estate tax rate within a range determined by Parliament. Economic disparities between municipalities are equalised using the system of central government transfers to local government. In addition, the municipalities receive a proportion of corporate income tax, as decided by Parliament.
A significant part of citizens’ social security is financed from social security and earnings-related pension funds. Benefits are financed through earnings-related social security and social insurance contributions and general tax revenue. The central government guarantees a sufficient level of funding for the national pension, health insurance and self-employed persons’ pension systems. The level of social security contributions, the employer’s and insured person’s health insurance contribution, and the employer’s national pension contribution is decided by law. The Ministry of Social Affairs and Health confirms the level of contributions annually. The unemployment security and pension system has in-built cyclical buffers that moderate growth of insurance contributions should economic development deteriorate.
Johanna von Knorring