Scope to continue good employment trend and strong growth
Minister of Finance Petteri Orpo’s budget proposal is aimed at continuing economic growth improving employment. The proposal will be published in full on the Ministry of Finance’s website on Thursday, 9 August.
The Ministry of Finance estimated in June that the strong growth of Finland’s economy will continue this year, after which economic growth is expected to slow. In the next few years, the economy will be supported by foreign trade and domestic demand. The Government will receive the latest forecast figures at the budget session at the end of August, and the ministry will publish an economic survey on 17 September.
The employment situation has improved more quickly that anticipated over recent months. The Government has already achieved its target of increasing the number of people in employment by 110,000.
The seasonally-adjusted trend employment rate rose in June to 71.8%. The trend unemployment rate has declined in a few months from just over 8% to 7.2%.
Budget proposal total falls to EUR 55.1 billion
The Ministry of Finance proposes that the budget proposal’s appropriations will total EUR 55.1 billion. This is just over EUR 1 billion less than budgeted for this year.
The proposal of the Ministry of Finance is based on decisions made by the Government in April in the General Government Fiscal Plan.
In the proposal, strict spending discipline has been adhered to. In addition, the total sum is reduced by, among other things, consolidation measures in accordance with the Government Programme, the ending of Government key projects, and a decline in unemployment benefit expenditure. The level of appropriations is increased by, among other things, a growth in pension expenditure, statutory and agreement-based price increases, and additional investments decided upon.
Budget deficit will remain at EUR 1.7 billion
The budget proposal of the Ministry of Finance for next year is EUR 1.7 billion in deficit, which is the same as budgeted for this year. When the Government began its term, the budget deficit for 2014 was EUR 6.6 billion.
This year’s budget deficit is reduced by the fact that Finnish Export Credit Ltd will pay back prematurely refinancing credits it has received. Without these premature repayments, this year’s budget deficit would be estimated to be EUR 3.2 billion.
Central government revenue is estimated to be EUR 53.4 billion, of which EUR 45.7 billion is tax revenue. The ministry estimated in its June forecast that tax revenue will grow by approximately 3% from the figure budgeted for this year.
Central government debt will rise next year to an estimated EUR 109 billion. General government indebtedness has levelled off, and it is expected to fall below 60% of GDP.
Employment and growth will be strengthened
Unemployment benefit expenditure is expected to decline by EUR 308 million, because employment will grow and unemployment will fall.
Despite the measures already taken, unemployment is still very high. Continued growth in employment will be restricted by problems in the availability of labour, among other things, so additional measures will still be required.
The budget proposal promotes the realisation of the right to earnings-related unemployment benefit for family members of entrepreneurs. If a family member of an entrepreneur has mistakenly insured him/herself in an employee fund, he/she may in future transfer membership retrospectively to an unemployment fund that insures entrepreneurs. It is proposed that EUR 10 million be allocated for this.
A sum of EUR 20 million is proposed for improving incentives to accept work.
An increase of EUR 10.3 million is proposed for the operating expenditure of Employment and Economic Development Centres to support active jobseeking and improve services for jobseekers.
A Permanent Secretary working group will review the implemented employment measures and prepare by the time of the budget session additional measures to ensure that growth of the economy and employment continues.
Support will be given to skills
An appropriation of EUR 10 million will be allocated to promoting equality and participation in early childhood education. This assistance is aimed at reducing group sizes and at hiring additional personnel for day-care centres operating in challenging areas. The trial of free early childhood education for five year-olds will be continued and an appropriation of EUR 5 million allocated to this.
The implementation of the reform of vocational education and training will be continued, and it will be further supported by additional funding of EUR 15 million.
To promote educational equality, a learning materials allowance for upper secondary education students will be introduced. The allowance is EUR 46.80 per month and it will be directed at vocational education or general upper secondary education students under 20 years old from low-income families.
Security will be strengthened
Next year, the operational activities of the Police as well as the number of police will be maintained at the current level, i.e. approximately 7,200 police (excluding the Finnish Security Intelligence Service). The proposal includes additional funding of EUR 18 million for this purpose.
In the budget proposal, additional funding of EUR 10 million is allocated to the implementation of civilian intelligence legislation, provided that the legislative reform enters into force next year. In addition, the Finnish Security Intelligence Service will receive EUR 2.5 million in additional funding to safeguard its core operations and functional capacity.
An increase of EUR 1.85 million is proposed for the operating expenditure of the Border Guard, because external border traffic has grown more quickly than anticipated at Helsinki-Vantaa Airport.
Criminal sanctions system will be developed
Ancillary sanctions for conditional imprisonment will be enhanced, and EUR 1.1 million allocated to this. An increase of EUR 670,000 will be allocated to assessing the recidivism risk of those convicted for violence as well as for reviewing the imposition of parole supervision.
Planning will be launched for the construction of new prisons in Oulu and Vaala.
Investment in health and alleviating inequality
The minimum daily allowances and the guaranteed pension will be increased to curb inequality. A total of EUR 30 million will be allocated for this.
A total of EUR 8 million will be allocated to improving the position of over-indebted people. This will be directed at, among other things, financial and debt counselling, counselling of debtors in connection with enforcement, and to accelerate court proceedings.
The status of adoptive and multiple-birth families will be improved. A sum of EUR 300,000 is proposed for adjusting the adoption grant for families adopting from abroad. Fathers of multiple-birth families will be granted an extended paternity allowance. Mothers caring for a child alone will be granted the right to parental allowance days corresponding to the paternity allowance, and the paternity allowance period for adoptive parents will be extended.
The influenza vaccine programme will be developed and expanded so that the vaccine is offered in future to children from six months to six years old. An increase of EUR 1 million is proposed to acquire the vaccines.
Timetable change taken into account in funding of health, social services and regional government reform
An appropriation of EUR 213 million is proposed for the preparation of the health, social services and regional government reform. The amount will become clearer when the ministries review the effects of the timetable change in their bilateral negotiations. These appropriations are intended for the launch of the counties’ administration, the establishment of service centres and support for ICT changes.
Digitalisation of the municipalities will be promoted
The municipalities’ central government transfer for basic public services will be EUR 8.4 billion next year. Of the central government transfer, EUR 40 million will be allocated to promote the digitalisation of the municipalities. In addition, EUR 10 million will be allocated to the discretionary increase of the municipalities’ central government transfer.
Helsinki Region housing construction and fast inter-city connections will be promoted
A sum of EUR 50 million from National Housing Fund resources can be used for the capitalisation of A-Kruunu Oy, which will facilitate an increase in construction within the Helsinki Region.
Future investment and repair needs of rail transport will be taken into account in allocating planning appropriations for basic transport infrastructure. In connection with the planning of the refurbishment of main lines, a prerequisite will be that the journey between Helsinki Main Railway Station and Tampere Railway Station can be travelled in less than an hour using traditional rolling stock. Planning funds are also intended to be used to accelerate the general planning of a fast Helsinki–Turku rail link and to launch track planning.
Sustainable development budgeting to be expanded
Finland is one of the first countries in the world to include the state budget proposal as part of sustainable development. The work has attracted widespread international attention. Finland has succeeded in launching a process in which other countries have shown interest.
The sustainable development budgeting initiated in this year’s budget will be developed and expanded in next year’s budget proposal. In addition to administrative branch reviews of sustainable development, the proposal will include a separate analysis that will focus, in particular, on the appropriation linkages of the carbon-neutral and resource-wise Finland priority area, in accordance with the Government’s sustainable development report.
The Ministry of Finance wishes to develop sustainable development budgeting further. Creating a suitable model for Finland will require progress on a step-by-step basis.
Tobacco tax higher, car tax lower
Led by the Ministry of Finance, tax measures will be prepared by the time of the Government’s budget session. In these, steps will be taken to ensure that taxation on labour is not tightened. The measures will be implemented neutrally in terms of the budget. In connection with the budget session, it is also intended to decide on the introduction of investment savings accounts.
Next year, the gradual entry into force of changes according to the Government Programme will continue: the tobacco tax will be tightened, the car tax will be eased and the deduction for interest paid on housing loans will be reduced. In accordance with the Government Programme, an index adjustment will be made to earned income tax criteria at all income levels.
The deduction for temporary quarters will be reformed so that it better supports moving for the sake of employment. The maximum amount of the deduction will be raised from the present EUR 250 to EUR 450.
The maximum amount of tax-free kilometre allowance payable to volunteer workers will be increased from the current EUR 2,000 to EUR 3,000 per calendar year. The area of application will be expanded to cover compensation received from public bodies.
The restriction of companies’ right to deduct interest will be tightened when Finland implements the EU’s Tax Evasion Directive.
The tax subsidy for combined electricity and heat production will be changed so that the halving of the carbon dioxide tax is replaced by a reduction in the energy content tax. In addition, the taxation of heating fuels will be changed: the carbon dioxide tax will take into account the life-cycle emissions of the fuel. The change will be made so that the taxation of heating fuels on average is not tightened. Electricity taxation will be adjusted to ensure that the double electricity taxation of large batteries is avoided.
In accordance with the Government Programme, municipalities will be compensated for the revenue impact of changes in tax criteria.
Government to consider budget at the end of August
The Minister of Finance will hold bilateral negotiations on the budget proposal with ministries on 15-16 August.
The Government will consider the budget proposal in its budget session on 28-29 August. The Government’s proposal will be published after the Government’s consideration on Monday 17 September.
Matias Marttinen, Special Adviser, tel. +358 44 269 3113, matias.marttinen(at)vm.fi
Mikko Kortelainen, Special Adviser, tel. +358 50 301 8334, mikko.kortelainen(at)vm.fi