Government reaches agreement on fourth supplementary budget proposal for 2020

The coronavirus (COVID-19) crisis has had a considerable impact on people’s livelihoods and everyday lives, the ability of businesses to operate viably, and the shape and direction of the Finnish economy. This fourth supplementary budget proposal for 2020 is part of the Government's coronavirus crisis follow-up package, which focuses on ensuring an economically, ecologically and socially sustainable emergence from the crisis. The supplementary budget proposal contains a package of measures amounting to EUR 5.5 billion for supporting the recovery and revitalisation of the economy.

The coronavirus (COVID-19) crisis has had a considerable impact on people’s livelihoods and everyday lives, the ability of businesses to operate viably, and the shape and direction of the Finnish economy. This fourth supplementary budget proposal for 2020 is part of the Government's coronavirus crisis follow-up package, which focuses on ensuring an economically, ecologically and socially sustainable emergence from the crisis. The supplementary budget proposal contains a package of measures amounting to EUR 5.5 billion for supporting the recovery and revitalisation of the economy. 

The Government’s stimulus package is aimed at boosting demand, improving Finland’s long-term growth prospects, combating climate change, promoting biodiversity, and reinforcing the entire country’s capabilities, resilience, self-sufficiency, and skills and competences. The package also includes measures supporting local government that are intended to secure basic services and alleviate the challenges for local government finances resulting from the virus crisis. The supplementary budget proposal also includes a set of measures to support the wellbeing of children and young people.

Helping people cope and recover

The restrictive measures adopted to slow the spread of the virus have had a detrimental effect on learning outcomes and wellbeing for many children and young people, and on equality among children and young people. To mitigate these effects the Government has decided to introduce a wide-ranging package of measures worth approximately EUR 320 million for promoting the wellbeing of children and young people. The wellbeing package covers the administrative branches of three ministries: the Ministry of Education and Culture, the Ministry of Social Affairs and Health, and the Ministry of Economic Affairs and Employment.

A total of EUR 159 million is proposed for the Ministry of Education and Culture’s administrative branch, for promoting wellbeing among children and young people. The proposed financial support for local government also includes an increase in central government transfers to municipalities for basic public services in connection with provision of support for children, young people and families.

In early childhood education and care and in primary and lower secondary education, the aim is to support the learning and wellbeing of children, and therefore to offset the impact of the coronavirus crisis. An appropriation of EUR 70 million is proposed for balancing up the learning deficit created in primary and lower secondary education during the distance learning period. An allocation of EUR 14 million is proposed in support for the learning, development and wellbeing of children in early childhood education and care.

Funding of EUR 17 million is proposed for the study revision and review needs of pupils in general upper secondary schools and for support measures. In vocational education and training, a sum of EUR 30 million is proposed for study supervision aimed at students who have discontinued their studies or are in danger of doing so, and for study guidance for students who are about to complete their studies, as well as for enabling competence demonstrations.

As part of the wellbeing package for children and young people, an allocation of EUR 10 million is proposed for the piloting of a model supporting the uptake of leisure activities among young people. The purpose of the model is to provide more free-of-charge after-school clubs. An increase of EUR 12 million is proposed for strengthening youth work with schools and educational institutions and for outreach youth work.

In addition, more resources are proposed for higher education institutions and the Finnish Student Health Service, for example for more guidance and more support for the student wellbeing services. 

The Government also proposes that EUR 112.3 million be provided as increases in central government transfers to local government for basic public services to support children, young people and families during the coronavirus crisis. These funds would be allocated to social services for children, young people and families and to mental health services for children and young people. This would enable social problems caused by the coronavirus pandemic to be tackled and would ensure effective operation of support services for children, young people and families. 

Young people at risk of social exclusion will be offered education, training and services that support their path towards a qualification or a job. A total increase of EUR 60 million is proposed for public employment and business services. Of this sum, EUR 45 million is proposed for initial training needs, labour market training for the under 25s, creating more summer jobs, and purchasing services for young people, among other things. 

The Government is concerned about the livelihood of every individual, and will secure the funding for unemployment security. An increase of EUR 20 million is proposed for the operating expenses of the Employment and Economic Development Offices (TE Offices) to be used, for instance, in client assistance. 

An total increase of EUR 812 million is proposed for central government’s share of unemployment security. Of this, EUR 600 million is connected with the temporary amendment of the Act on Financing of Unemployment Benefits, which means that this year central government is funding the portion of earnings related unemployment allowance in a lay-off period that corresponds to basic unemployment allowance, and EUR 40 million is for the temporary reduction in the element financed by the unemployment funds. Continuation of the temporary changes made earlier to unemployment security and to labour legislation until the end of the year will generate a need for additional appropriations totalling EUR 123.5 million.  

To alleviate the financial distress caused by the coronavirus crisis, the Government proposes a fixed-term improvement in basic social assistance between 1 August and 31 December 2020. An appropriation of EUR 60 million has been allocated for the improvement.

Funding is also proposed for underpinning the ability of workplaces to support the health of employees, especially their mental health, and for avoiding unnecessarily prolonged sickness absences and enhancing unemployed people’s working abilities and scope for finding work.

The Government has decided to add a total of EUR 60 million to central government transfers to municipalities for services for older people. The objective is to promote health and functional capacity as well as inclusion and therefore to address the impact of the emergency situation and to prevent social problems. The additional resources are to ensure the sufficiency, impact and timeliness of services during the virus crisis and its aftermath.

As part of the package, support will be directed to families with informal care arrangements and, in particular, to informal carers. For many informal carers, care responsibilities have increased and will continue to increase more than usual because of the quarantine arrangements and the closing of day activities and short-term care units.

Investment in skills and growth

Investment in infrastructure and in renovation and repair work will support the economy by stimulating demand in the short term and boosting productivity and the performance of the economy in the longer run.  Increases in appropriations for strengthening skills and competences and for promoting research and innovation are essential for enhancing the future performance of the Finnish economy.

The stimulus package includes a number of infrastructure network projects, with budget authority totalling approximately EUR 404 million. These include a total budget authority of EUR 156 million for infrastructure projects associated with a Metsä Group bioproduct mill investment, and the investment decision is conditional upon this. The stimulus package also includes a proposed EUR 30 million for basic transport infrastructure management to cover road surface repairs. 

The Government proposes a further EUR 340 million in budget authority for interest subsidies for state-subsidised housing production as a way of increasing the amount of affordable housing. 

For renewing the Border Guard's technical surveillance system for land and sea borders, an increase of EUR 10 million is proposed. EUR 5 million is proposed for vessel design work in a project to replace three present offshore patrol vessels with two new multi-purpose vessels capable of responding to oil and chemical spills. In addition, certain Defence Forces procurements will be brought forward.

A total of EUR 124 million is proposed for a one-off increase in student intake in higher education institutions, with the aim of increasing the number of available student places by 4,800. An additional investment of EUR 10 million is proposed for open higher education studies to support an increase in open learning and to enable a fixed-term exemption from tuition fees for those not in employment, education or training.

Additional funding of around EUR 20 million is proposed for rapid-action skills development measures for people of working age and for the planning of a digital service package for continuous learning.

As part of the RDI Roadmap, the piloting of partnership models will be launched, with a proposed budget authority of EUR 20 million for RDI grants to Business Finland. Budget authority of EUR 10 million is proposed for the Academy of Finland for funding cooperation networks under the new partnership model, and EUR 25 million for a new flagship application procedure. In addition, further budget authority of EUR 26 million is proposed for strengthening the expertise of the EuroHPC ecosystem and for scientific research related to crisis preparedness and security of supply. A one-off additional budget authority of EUR 20 million is proposed for strengthening the research infrastructure.

An authorisation to grant EUR 60 million is proposed for continuing the business campaign for large, leading companies launched early this year. An authorisation to grant EUR 20 million is proposed for accelerating the development of platforms needed for capital loans in business ecosystems. A total of EUR 11 million is proposed for VTT Technical Research Centre and Business Finland for development measures supporting manufacturing industry and for making the smart grid more reliable. Funding is also proposed to VTT Technical Research Centre for the procurement costs of a quantum computer and to the Geological Research Centre for the development of the Mintec Mineral Processing Pilot Plant complex.

Ecological reconstruction

Although the coronavirus epidemic has temporarily led to a reduction in emissions, it will not be enough to stop climate change in the long term. The Government is committed to choosing economic stimulus measures that also support its objective of making Finland the world's first carbon-neutral welfare state and halting the decline in biodiversity. Being a frontrunner in climate solutions will support job creation and exports.

Budget appropriations are proposed for grants to phase out oil heating in both households and municipal buildings, EUR 45 million in total for 2020. Budget authority of EUR 20 million will be allocated to major energy-subsidy pilot projects.

EUR 13.1 million is proposed for Metsähallitus, the state-run enterprise, for the rehabilitation of nature sites and the development of nature tourism. A sum of EUR 53 million is proposed for projects involving green areas, water services and forest conservation, of which EUR 20 million would be an additional appropriation for voluntary forest conservation. Funding is also proposed for the rehabilitation of local recreation areas.  

Use of timber in the construction process would be promoted with grants in government-supported housing production and with increased funding for the wood construction programme. The wood construction programme promotes the use of timber by enhancing industry expertise, developing legislation and the building regulations, and providing factual information.

To support public transport, EUR 100 million is proposed to compensate for the loss of fare revenue in public transport. The amount of government support for walking and cycling will be increased by EUR 18 million in 2020.

The previously agreed national climate fund will be capitalised by EUR 300 million. In addition, the fund will have access for investment purposes to the income it has earned from its share investments in the Finnish State Business Development Company (Vake). The fund will focus on combatting climate change, promoting digitalisation and boosting low-carbon operations in manufacturing industries. Transition to a carbon neutral technology requires sufficient investments in developing a circular economy, clean technology solutions and energy efficiency.

Continuing the urgent measures to combat the crisis

The coronavirus epidemic and the restrictions imposed to curb it have weakened many businesses and affected the employment rate. The support measures aim to help companies in the acute phase of the epidemic, to preserve jobs and to prevent longer-term damage and harm. The measures proposed here will complement the previously agreed package of business support.

The proposed package includes new financial support for business costs, amounting to a proposed EUR 300 million, to be introduced in the business sector. Business Finland’s authorisation to provide grants will be increased by EUR 180 million. These funds, allocated to measures to remedy disruptions in the production chain caused by the coronavirus epidemic, would increase the need for appropriations by EUR 120 million in 2020. A new budget authority sum of EUR 25 million is proposed to support business development projects, which would result in an appropriation increase of EUR 10 million for 2020. 

Further capital funding of EUR 250 million is proposed for Tesi (Finnish Industry Investment Ltd), to increase equity financing for companies. Capital funding of EUR 150 million is proposed for strengthening the balance sheet of Finnish Minerals Group, and budget authority of EUR 300 million for developing the battery cluster. 

EUR 70 million is proposed for the additional capitalisation of the Development Fund of Agriculture and Forestry to ensure continued investment in agriculture. 

The package of business support also includes an addition of EUR 20 million to support sustainable growth in the regions and budget authority of EUR 20.75 million for innovation support for shipbuilding. Support will be provided for domestic tourism and domestic film and drama series production. 

In order to support businesses, the Government proposes as a temporary measure that VAT payers could apply for a payment arrangement for the VAT already paid in January–March 2020. In addition, the interest rate of the adjusted payment arrangement would be reduced from 4 per cent to 3 per cent and the use of tax refunds for payment of instalments would be changed for a fixed period. 

For the adjusted tax payment arrangement, interest on late payments has already been temporarily reduced from the original 7 per cent. These business support measures, included in the government proposal of 20 May 2020 (74/2020 vp), will reduce the central government’s tax revenue by an estimated EUR 753 million in 2020. Of this, about EUR 678 million would be entered as central government revenue next year.

EUR 9.6 million will be provided in grants to organisers of cultural events, enabling them to continue their activities despite losses and to prepare for organising 2021 events.

Supporting local government finances

The COVID-19 crisis has repercussions on local government finances, not only in terms of lower tax revenue but also in terms of lower income from sales and contributions, and due to an increase in healthcare and social welfare expenditure. The central government will contribute towards compensating local government for expenditure caused by the coronavirus epidemic. The purpose of the transfers to local government is to secure the prerequisites or the provision of basic public services and to alleviate the economic challenges faced by local government as a result of the exceptional situation.

In the supplementary budget proposal, altogether approximately EUR 1.4 billion is proposed for supporting local government and hospital districts.

An increase of more than EUR 770 million is proposed in central government transfers to local government for the provision of basic public services. Of this, EUR 112 million would be allocated to support children, young people and families, and it would be distributed to local government under the system of central government transfers on the basis of the number of children. In addition, EUR 60 million would be allocated to ensuring the functioning of services for the elderly. EUR 50 million would be allocated to increase discretionary government transfers, and altogether EUR 550 million would be allocated to all municipalities, partly on a per capita basis and partly in proportion to local income tax in 2020.

A grant of EUR 200 million is proposed for hospital districts to offset the costs and potential financial deficits caused by COVID-19. 

It is proposed that the corporate tax apportionment in local government tax revenue be increased by 10 percentage points and that the apportionment in central government be reduced correspondingly for 2020. This would reduce central government tax revenue by EUR 410 million this year and increase local government tax revenue by an equivalent sum.

Many other proposed measures mentioned above are also targeted at supporting local government finances.

Other changes included in the fourth supplementary budget proposal for 2020

In addition to the recovery package, the fourth supplementary budget proposal for 2020 also includes ordinary changes to the supplementary budget. EUR 110 million is proposed to make provision for procuring a COVID-19 vaccine. Due to COVID-19, an increase in the operating costs is proposed for a number of government agencies, such as the police, the Finnish Border Guard, courts, the State Treasury and the Finnish Institute for Health and Welfare. Within the budget finances for development cooperation, an additional EUR 5.2 million will be allocated to humanitarian aid. Assistance is urgently needed to slow down the spread of coronavirus, for example in crisis areas and refugee camps.

Consensus reached on land use, housing and transport agreements

Negotiations have concluded on land use, housing and transport agreements with the urban regions of Helsinki, Turku, Tampere and Oulu. The agreements promote sustainable transport projects and affordable housing production, especially in areas that have good public transport links. The Government undertakes to reserve EUR 755.8 million for measures in the transport sector. The costs of the projects would be divided over several years (2020–2031). This means it would be necessary to make financial provision for implementing the projects for example in the general government fiscal plans and in the preparation of the national transport system plan. In addition, the government undertakes to finance grants for municipal engineering and start-up grants related to housing production with a sum of EUR 180 million in the period 2020–2023. Government funding for the package of land use, housing and transport in big cities is implemented within the framework of the general government fiscal plan.

Sustainability of public finances

The Government has made a decision on the first phase of the roadmap for strengthening the sustainability of public finances and set a scheduled target for the consolidation of public debt. The government position paper is in an appendix.

The Government's objective is to stabilise the general government debt-to-GDP ratio by the end of the decade. The Government recognises that this is a demanding objective and involves extensive measures. This requires strengthening public finances by several billion euros.

One of the key elements in the roadmap consists of measures to boost employment. The Government aims to reach a position where poor labour demand does not restrict growth in employment. For this reason, reforms that strengthen labour supply are also needed.

The Government will continue to prepare employment measures in accordance with the Government Programme. The objective is to raise the level of ambition and take account of the impact of the coronavirus crisis on the operating environment. The Ministry of Finance is responsible for assessing employment measures, and is conducting science-based dialogue with an independent group of researchers appointed by the Ministry of Economic Affairs and Employment.

It is more important than ever before to create new jobs. As part of the roadmap, the Government will set a new employment target in the government budget session, one that is higher than the current target of 60,000 new jobs. The Government is committed to gauging fiscal policy as required in the cyclical circumstances in accordance with the Government Programme.

Impact on central government debt and the balance of central government finances

The increase in appropriations in the fourth supplementary budget proposal for 2020 is approximately EUR 4.1 billion and the decrease in revenue is approximately EUR 1.2 billion. The need for central government net borrowing would increase by about EUR 5.3 billion. This means that overall central government net borrowing would be approximately EUR 18.8 billion in 2020.

The fourth supplementary budget proposal for 2020 will be submitted to Parliament on Friday 5 June, when it will also be published at budjetti.vm.fi.

Inquiries: Joonas Rahkola, Special Adviser to the Prime Minister in Economic Affairs, tel. +358 295 160 998, Markus Lahtinen, Special Adviser to the Minister of Finance in Economic Affairs, tel. +358 295 530 417, Jussi Pyykkönen, Special Adviser to the Minister of the Interior in Economic Affairs, tel. +358 50 477 8354, Lauri Holappa, Special Adviser to the Minister of Education in Economic Affairs, tel. +358 295 330 014, Camilla Mäkinen, Special Adviser to the Minister of Justice in Economic Affairs, tel. +358 295 150 119