Government proposal
New fiscal framework strengthens public finances
A government proposal includes a new national fiscal rule. The new fiscal legislation will also implement the new EU fiscal rules in Finland.
The government proposal is based on a Ministry of Finance working group’s proposal and the Parliamentary Pact for Fiscal Policy.
“This new legislation will strengthen public finances and may help curb Finland’s dangerous indebtedness trend. However, bringing down the debt ratio will require separate decisions on cutting public expenditure. These decisions will not automatically arise from the fiscal framework but will require the political will of future governments. The Parliamentary Pact for Fiscal Policy provides a strong foundation for the demanding but necessary work that must be done over the next couple of parliamentary terms,” said Minister of Finance Riikka Purra.
Targets to be set for the government term and for an inter-parliamentary term
The Parliamentary Working Group on Fiscal Policy will prepare the targets for the government term and for the inter-parliamentary period. Both targets will be set for the combined nominal budgetary position of central and local government, in other words for the deficit of debt-accumulating sectors. Local government includes municipalities and wellbeing services counties.
The targets will be set as follows:
- The targets must promote compliance with the EU reference values for general government deficit and debt as well as the net expenditure path.
- The target for the government term is set for the final year of the term. The target setting takes place at the beginning of the term. This target must facilitate the achievement of the target for the inter-parliamentary period.
- The target for the inter-parliamentary period is set by the midpoint of the government term as an average budgetary position for the next eight years, so that the ratio of general government debt to GDP declines by an average of at least 0.75 percentage points per year during the eight-year reference period.
The target for the government term serves as the new national fiscal rule required by EU legislation and is subject to a correction mechanism. Formally, the Government sets the budgetary position targets in the General Government Fiscal Plan. The first General Government Fiscal Plan of the government term must include the measures to achieve the target.
Surveillance by the Finnish Economic Policy Council
The Government proposes that the Finnish Economic Policy Council (FEPC) would serve as Finland’s Independent Fiscal Institution (IFI).
The FEPC would draw up an overall assessment of whether the target for the government term will be achieved. The FEPC would also assess whether the measures presented in the General Government Fiscal Plan are sufficient to achieve the target and whether the general government deficit would exceed 2.5 per cent in the current or following year. The overall assessment by the FEPC would also take into account possible EU national escape clauses in force and the cyclical situation.
If the assessment indicates that the budgetary position target for the government term will not be achieved and there are no acceptable justifications for deviating from the target, the FEPC would submit a proposal for the scale and timetable for corrective measures to the Government. The Government would then have to decide on corrective measures or publicly explain within two months why no measures are being taken (the comply-or-explain principle). This process is called the correction mechanism.
Proposal includes transition periods
The Government proposes that the new act would enter into force at the start of next year, as required by EU legislation. The proposal includes a number of transition periods. The first target for the government term in line with all the requirements of the new legislation will be set for the government term beginning in 2035.
Inquiries:
Marketta Henriksson, Director, Head of the Secretariat for EU and International Affairs, tel. +358 295 530 441, marketta.henriksson(at)gov.fi
Niko Ijäs, Director, Head of Unit, tel. +358 295 530 170, niko.ijas(at)gov.fi
Jussi Lindgren, Economic Policy Adviser to the Minister of Finance, tel. +358 295 530 514, jussi.lindgren(at)gov.fi