Government agrees 2017 Budget – main focus on employment and entrepreneurship

The Government has reached agreement on the content of the 2017 budget proposal. The proposal will be published in September following its full consideration by the Government. At the same time the Ministry of Finance’s latest economic forecast will be published. Employment and entrepreneurship were at the core of the government budget session. The Government agreed on new employment measures, which also include a number of measures to promote housing construction. The Government also agreed on a tax package to promote growth and entrepreneurship.

Revenue and expenditure in the 2017 budget proposal

It is proposed that EUR 55.2 billion be allocated for the budget proposal, which is 0.3 billion more than in 2016. The revenue from on-budget entities excluding net borrowing is estimated at EUR 49.7 billion in 2017 and tax revenue at EUR 41.6 billion. Slow economic growth will again limit the growth in the tax base in 2017, on top of which changes in the tax basis will also reduce the accrual of tax revenues. The net appropriation increases arising from the Competitiveness Pact and the increased investment in key projects during 2017 are among the factors raising the level of budget appropriations. However, the consolidation measures set out under the Government Programme serve to reduce the level of appropriations.

The 2017 budget proposal includes the retrenchment measures decided by the Government earlier in the Government Programme and in connection with the spring 2016 government discussion on spending limits, but new cuts have not been introduced.

ANNEX 1: Selections from the 2017 budget proposal (updated on 2 September at 16.45)

Central government debt

The budget proposal for 2017 presents a deficit of EUR 5.5 billion, which will be covered by additional borrowing. Central government debt (including off-budget debt) is estimated to be around EUR 111 billion by the end of 2017, which is about 51 % of GDP. The Ministry of Finance forecasts that the growth in the debt burden within general government finances will be halted in 2018.

Employment package

The objective of Prime Minister Juha Sipilä’s Government is to raise the Finnish economy on to a path of sustainable growth and rising employment, and to secure the funding of public services and social security. In the government budget session the Government looked for new ways of achieving the employment goal. In addition, the Government is to implement measures to promote employment and entrepreneurship that were decided earlier.

The tax concessions for employees will make it more financially attractive to engage in work. The new tax deduction for entrepreneurs will provide an incentive to engage in business activities. Related tax concessions will facilitate generational change in businesses. Further to this, the liquidity of small businesses will be enhanced through the introduction of cash-basis VAT accounting.

1. Boosting employment and shortening the duration of unemployment: dialogue with the labour market organisations. 

As part of the 2017 Budget process, the Government will begin, in dialogue with the labour market organisations and with due respect to the Competitiveness Pact,  preparations for increasing employment and shortening the duration of unemployment. The Government is ready to set up a tripartite working group for this preparatory work and has proposed this to the labour market organisations. 

The deadline for the tripartite working group proposal is the end of September. Changes required on the basis of the proposal will be issued by means of finance acts or in connection with such acts. Such changes must, in principle, enter into force on 1 January 2017. The aim of the work is to draw up a single unified proposal that boosts employment by at least 10,000 people, based on the assessment of the Ministry of Finance, and which consists of the following five elements:

• Reform of earnings-related unemployment security to encourage more rapid entry to employment so that the number of people in employment rises by 8,000 and the impact of this on central government finances is neutral.
• One-off pension subsidy for older people.
• Use of the earnings element of earnings-related unemployment security as a wage subsidy and start-up grant.
• Promotion of the employment of young people who are neither in work nor in training or education with the means of, for example, a competence programme for young adults, outreach youth work, and youth workshops.
• A new earnings model within the sphere of collective agreements and assistance to complement earnings for those who have been unemployed for long and for those with a weak employment history.  

2. The Government’s new decisions in support of employment

• An improvement in the effectiveness of the overall employment service package and an increase in the use of private service providers
• Acceptance of work will not in future delay the payment of unemployment benefits.
• Use of work trials will be expanded.
• Incentive traps related to debt enforcement will be removed to promote entry to employment.
• Promotion of housing construction through various measures. The appropriate allocation of  ARA-subsidised dwellings will be improved through a monthly income limit of EUR 3,000.
• A production incentive for the audiovisual sector will be introduced. The purpose of the incentive is to raise Finland’s competitiveness as a location for both domestic and international productions.

Fees for early childhood education will be reduced. As part of measures to increase incentives to work and dismantle incentive traps, the Government decided not to implement increases to early childhood education fees. However, the fee reductions targeted at low income families of 2–3 persons, included in the government proposal submitted to Parliament, will be implemented. This will improve the possibilities of single parents to accept work. It is estimated that early childhood education fees will be cut by a total of EUR 10 million. Based on this, the Ministry of Education and Culture will formulate a new government proposal for an act on client fees in early childhood education.

The Government is also to start preparations for its midterm review session in regard to removing incentive traps and promoting labour mobility.

3. The Government’s earlier-outlined employment-related decisions to be  implemented in the budget proposal

• Lump-sum payment of EUR 2,500 for employers of female workers, for balancing out the costs incurred to employers in connection with family leave.
• The extended use of unemployment benefits in e.g. wage subsidies and start-up grants, as decided in the spring.
• Tax concessions connected with the Competitiveness Pact
• Increase in tax credit for domestic help
• Alleviation of generational effects in businesses (gift and inheritance tax)
• Facilitation of generational change in forest holdings (forest gift deduction)
• Tax deduction for entrepreneur
• Cash-basis VAT accounting
• In line with a earlier made decision, earnings-related unemployment security will be reduced by 100 days
• Last spring’s entrepreneurship and employment package of the Ministry of Economic Affairs and Employment

One-off pension subsidy for older people

The Government will introduce a one-off pension subsidy for the long-term unemployed who are over the age of 60. The pension subsidy will be for people aged over 60 who have been unemployed for five years..

ANNEX 2: Government decision on measures to increase employment

Competitiveness Pact

The labour market organisations signed the Competitiveness Pact in June. The aim of the Pact is to improve the price-competitiveness of Finnish companies and to boost exports and employment. The Pact extends annual working time by 24 hours, cuts holiday bonuses in the public sector and reduces the employer's social security contributions while transferring part of this for payment by employees. As part of the Pact, existing pay settlements will continue to 2017 without any pay increases.

The central aim of the Competitiveness Pact is to increase growth in the economy and improve employment. Local government finances will also benefit from general economic growth and an improvement in the employment rate. In the Government’s assessment, the Competitiveness Pact will have an overall positive impact on local government finances. Local government finances are expected to achieve a balance in accordance with the target set by the Government (balance -0.5% of total output in 2019). In the event of a deviation from the path to this target, the Government is committed to corrective action under the general government fiscal plan. When assessing the balance in local government finances, the Government will pay particular attention to the effects of the Competitiveness Pact and the 2017 Budget on local government finances.

Labour taxation will be eased

Taxation of wage-earners will be reduced by EUR 515 based on the coverage of more than 90 % of the Competitiveness Pact As a result, taxation of earned income will be cut by an average of 0.6 percentage points. The taxation of pension income will also be correspondingly reduced, by a total of EUR 135 million. The Government also agreed on a concession of EUR 30 million for low income wage-earners, which will implement measures complementing the effects of the contribution increases introduced by the Competitiveness Pact. The model will be agreed on in connection with the amendment to the budget proposal.

In addition, labour taxation will be subject to an annual review based on the consumer price index; this will ease labour taxation by approximately EUR 180 million next year.

The Competitiveness Pact also has an extensive impact on the budget proposal’s appropriations. These are increased in net terms by more than EUR 400 million.

Economy grows slightly – general government finances still showing a deficit

This year and next year Finland’s GDP is forecast to grow by about one per cent. This moderate growth will mainly be driven by private consumption and investment. Private consumption will be supported by an increase in household purchasing power and a turnaround in employment. In 2017 the unemployment rate will fall.

Overall, the economic growth outlook for the 2016–2018 period is very subdued. The reason for the slow growth is the persistently sluggish performance of exports. The growth in Finland’s exports continues to be slower than the growth in world trade, and therefore the loss of market shares in international trade will continue.

Finland’s general government finances will remain in deficit in the coming years, despite the substantial adjustments made in public finances. The slow growth rate will not produce sufficient tax revenues to finance public expenditure. Moreover, public spending will also rise as a result of the ageing of the population.

The combined full-year result for local government finances will improve in 2017. Local government finances will be enhanced especially by the measures in Annex 6 of the Government Programme, but also by other factors, such as the pension reform that takes effect in 2017. 

Support for agriculture

The Government has decided on a crisis package for agriculture. The package contains a total of EUR 50 million for funding different crisis measures. The 2017 budget proposal adds EUR 10 million from the crisis package to the level of national aid for agriculture. The aid will be allocated especially to farms that have made investments. In addition, EUR 1 million will allocated to support the coping of farmers and EUR 10 million to farm relief services, which will used, for example, to reduce farmers' contributions.

In addition, the liquidity of farms will be strengthened by state guarantees for loans and payment relief arrangements and by earlier payment of subsidies. The operating conditions of agriculture will be strengthened by continuing the transition period of the decree on the protection requirements for pig breeding, promoting the production of biogas in farms and use of organic milk in public procurements, and accelerating the use of labelling showing the origin of food in meat and milk products.

It has been decided earlier that national aid for agriculture and horticulture will be increased by 6.7 million and compensatory allowances by EUR 20.3 million. Similarly, based on an earlier decision, the Development Fund of Agriculture and Forestry will be provided with EUR 38 million in capital and export markets for foodstuffs will be promoted by EUR 1.5 million as part of the key projects on bioeconomy.

Savonlinna

The closing of the teacher training unit of the University of Eastern Finland in Savonlinna will cause losses in the area. The Government, together with regional partners, is preparing measures to secure growth and employment in the Savonlinna economic area. Efforts will be targeted at education, research and product development, investments in businesses, bioeconomy, and development of tourism.

Wind farms

A study will be implemented to examine ways of decreasing the level of immovable property tax carried on wind power plants from the current level of 10 megavolt-amperes by basing taxation on the total capacity produced by several power plants located in the same area. Attention must be paid to the neutrality of different forms of energy. The aim is to implement the change in 2018.

Innovation award for women

To mark the end of the 110th anniversary celebrating women's right to vote in Finland, EUR 110,000 will be allocated to an innovation award for women.

Tutkibudjettia.fi

A new interactive visualisation of the Budget will be launched on 22 September 2016, at www.tutkibujdettia.fi. Via the service, citizens and decision-makers may access information on the revenue and expenditure in the Budget. Information is provided in a visual and user-friendly format.

Inquiries: Riina Nevamäki, Special Adviser to the Prime Minister, tel. +358 40 705 2593, Markus Lahtinen, Special Adviser to the Prime Minister (Economic Affairs), tel. +358 50 491 3842, Juha Halttunen, Special Adviser to the Minister of Justice and Employment, tel. +358 50 574 0236 and Laura Åvall, ​ Special Adviser to the Minister of Finance, tel. +358 50 361 7511, Mikko Kortelainen, Special Adviser to the Minister of Finance, tel. +358 50 301 8334

English translation of the press release published on 2 September 2016.