Support package of about EUR 1.4 billion for municipalities in Government’s fourth supplementary budget proposal

The Government’s fourth supplementary budget proposal for 2020 contains a substantial support package for local government. The aim is to ensure that basic public services can continue to be provided and to alleviate the financial challenges faced by municipalities as a result of the coronavirus (COViD-19) crisis.

All municipalities are different, and the impact of the crisis also varies from one municipality to another. There are also considerable differences in the current financial positions of municipalities. With this in mind, the support package for municipalities is made up of a variety of different measures. The measures proposed are temporary.

The Ministry of Finance will continue to closely monitor developments in the virus crisis and in local government finances so that decisions can later be made on any further support measures. In putting together the support package, the Government also assessed the outlook for the municipalities and for local government finances, and the overall duties and obligations of municipalities, among other things.

Support package for municipalities contains range of measures

The Government is proposing that this year the municipalities should receive a larger than normal share of corporation tax revenue. On this exceptional basis, the municipalities’ share would be 42.13 per cent of the revenue, compared with the normal level of 32.13 per cent. Central government’s share would be correspondingly reduced by 10 percentage points to 57.87 per cent.

This would boost municipalities’ corporation tax revenues by altogether EUR 520 million, of which EUR 410 million would accrue this year and the rest in subsequent years.

The supplementary budget proposal also includes a discretionary government grant of EUR 200 million for hospital districts. This would offset the costs incurred in preparing for the coronavirus pandemic and in treating COVID-19 patients, and any financial deficits experienced by hospital districts.

An additional appropriation of EUR 550 million is proposed in central government transfers to local government for basic public services. Of this, one third would be allocated equally to municipalities on a per capita basis, and two thirds on the basis of the local income tax apportionment applied this year.

In addition, a further EUR 112 million in central government transfers for basic public services is proposed for services supporting the wellbeing of children, young people and families. An increase of EUR 60 million is proposed for ensuring that services for older people can operate effectively.

Discretionary government grants for advancing digitalisation in local government would be reduced by EUR 30 million and this sum would be returned to the central government transfers for basic public services.

An additional EUR 50 million is proposed for the discretionary increase in central government transfers to local government. EUR 10 million was already reserved for this in the 2020 Budget, and so the total available for discretionary increases in central government transfers would be EUR 60 million. A municipality could, on application, receive an increase in the central government transfer if the municipality is in need of additional support due to exceptional and temporary financial difficulties.

The supplementary budget proposal also includes various other items affecting municipalities, consisting of proposals for mitigating the impact of the virus crisis and for supporting economic growth.

VAT exemption proposed for coronavirus protective equipment in healthcare and social welfare

The Government proposes that the sale of necessary protective equipment to the social and healthcare sector due to the coronavirus pandemic would, in specific respects, be temporarily exempted from value-added tax (VAT). This temporary arrangement would be applied to the period 30 January to 31 July. The exemption would apply to protective equipment used in coronavirus-related prevention, testing and care.

Government preparing for possible financing needs of Deposit Guarantee Fund

The Government is seeking prior consent from Parliament for a possible borrowing need for the purposes of the Deposit Guarantee Fund. The Government is proposing that Parliament authorise borrowing of up to EUR 2 billion. The loan could be used to pay any deposit guarantee compensation to depositors.

As the financial status of Finnish banks is stable, activation of the deposit guarantee scheme is currently unlikely. The proposal concerns advance preparedness for a possible future need to finance the Deposit Guarantee Fund.

Accelerated launch of Senate Properties’ premises projects

The Government also reached agreement on an accelerated launch of premises projects totalling approximately EUR 200 million in the administrative branches of the Ministry of the Interior, the Ministry of Social Affairs and Health and the Ministry of Agriculture and Forestry. The annual rental expenditure resulting from these would be taken into account as an increase in the operating expenditure appropriations of the agencies concerned and in Senate Properties’ annual investment and borrowing authorisations for 2021–2024.

Inquiries:

Minna Salminen, Special Adviser to the Minister of Local Government, tel. +358 50 445 5350, minna.salminen(at)vm.fi
Minna-Marja Jokinen, Senior Ministerial Adviser (hospital district support), tel. +358 2955 30018, minna-marja.jokinen(at)vm.fi
Jussi Lammassaari, Senior Specialist (central government transfers), tel. +358 2955 30060, jussi.lammassaari(at)vm.fi
Jani Pitkäniemi, Director General, tel. +358 2955 30494, jani.pitkaniemi(at)vm.fi
Risto Sakki, Ministerial Adviser (coronavirus protective equipment), tel. +358 2955 30294, risto.sakki(at)vm.fi
Nina Santaharju, Senior Specialist (deposit guarantee), tel. +358 2955 30042, nina.santaharju(at)vm.fi