Government agrees on overall spending limits
The Government reached agreement on Tuesday 6 March on the overall spending limits for 2002-2005. The spending limit was agreed at 34,195 million euro (FIM 203.3 billion) for 2002, at 33,918 million euro (FIM 201.7 billion) for 2003, at 33,691 million euro (FIM 200.3 billion) for 2004 and at 33,377 million euro (FIM 198.5 billion) for 2005. These limits were drawn up using the price and cost level for 2002.
The outlook in the international economy has become uncertain. Economic growth in Finland is estimated to slacken to 4.2 per cent this year, having fetched a good 5.7 per cent last year. The volume of total output for 2002 is forecast to grow by just over 3 per cent. With economic growth slackening, the decrease in unemployment might also slow down.
Perked by robust economic growth and restrictive fiscal policy, central government finances went into a surplus in 2000 for the first time since the recession. The surplus in general government was exceptionally high, but was partly due to non-recurring factors.
The projected slowdown in economic growth in 2002 means that development in the tax base become more uncertain. The approach adopted in preparing the overall spending limits was in fact to maintain a restrictive fiscal policy stance. The objectives in the Government Programme also lend support to this approach.
In 2002, the surplus in central government finances is expected to remain close to the same level as this year. As a result of the overall spending limits agreed today and due to the tax orientations reached during the incomes policy settlements, fiscal policy is anticipated to be neutral next year.
The last portion included in the revision in the statutory cost sharing between central and local government was brought forward from 2003 to 2002 following the tax settlement made in connection with the collective bargaining agreement. Moreover, central government transfers to local government will be increased by one half of the whole index adjustment. Transfers in local government will increase by 270 million euro from this year's level as a result of these measures.
These spending limits do not make provision for termination of the system of VAT refund redemptions from local government or for the proposals made by Rapporteur Pekkarinen for a revision in the financial system for basic social services in local government. The Government intends to address these proposals this month.
The overall impact of actions already carried out aiming to prevent poverty and social exclusion amounts to around 157 million euro (FIM 935 million) in the Budget for 2002.
The effect on government spending limits of the new measures against poverty and marginalisation that have now been agreed on totals approximately 90 million euro (FIM 530 million) in 2002.
The lowest threshold for taxable income and the standard deduction for work-related expenses in state taxation were raised in tax assessment for this year. Furthermore, the planned tax settlement for 2002 that was reached in connection with the collective bargaining agreement includes a raise in the earned income deduction in local government taxation. These measures constitute an essential element in Government policy in the fight against poverty and social exclusion.
Appropriations for bolstering basic funding in universities and for enhancing climate policy were taken into account in the overall spending limits. Appropriations for innovation policy measures have been allocated for 2002.
EU structural funds sources and related national appropriations are included in the overall spending limits for a total of 637 million euro for 2002, comprising an increase of 60 million euro.
Calculations on development trends in the ageing of the population were handed to Government as background material for the negotiations over spending limits. Provision for these changes should be now.
Inquiries:
Mr Timo Viherkenttä, Budget Director, Ministry of Finance,
tel. +358 9 160 3105 or
Mr Hannu Mäkinen, Deputy Budget Director, Ministry of Finance,
tel. +358 9 160 3036