Government submits supplementary budget proposal to Parliament
The Government submitted the first supplementary budget proposal for 2023 to Parliament on Thursday 2 February.
The supplementary budget proposal includes appropriations for retroactive reimbursement for electricity costs, increased funding of the wellbeing services counties, support measures for agriculture, material support for Ukraine, prevention of youth crime, and development of educational equality in education and teaching. In connection with the supplementary budget, the Government also decided on the conservation of state forests.
The increase in appropriations in the supplementary budget proposal for 2023 is EUR 2.1 billion, which will increase the central government’s net borrowing requirement by the same amount. The effect of growing debt interest payments on the appropriations will be more than EUR 1 billion.
Support for the rising cost of electricity
The Government has prepared a proposal on a retroactive reimbursement for electricity costs due to the exceptional situation in the energy market and the subsequent increase in electricity prices. The Government proposes a total of EUR 412 million for the support. Under this support, retail electricity companies would reimburse consumers for electricity costs in their electricity bill.
Of the total amount, EUR 24 million will be allocated to housing corporations to ensure that residents of centrally heated housing companies whose electricity bills are paid by the housing company receive a similar subvention for increased electricity costs as residents of electricity-heated housing companies who receive support intended for consumer customers. The Government proposes a total of approximately EUR 2.9 million for State Treasury, Energy Authority and Housing Finance and Development Centre of Finland for the implementation costs of the support.
In the administrative branch of the Ministry of Education and Culture, the Government proposes an appropriation of EUR 2.3 million to corporations that own communal housing to support them due to increased energy costs, and EUR 1.5 million to operators of professional museums due to an increase in energy costs in their collection and exhibition spaces.
Increased funding for wellbeing services counties
The Government proposes that the funding of the wellbeing services counties be increased by EUR 500 million, of which EUR 350 million would be allocated as discretionary government grants for consolidating and developing the operations, and EUR 150 million would be allocated to universal funding of the wellbeing services counties. The latter would be an advance payment of the adjustment item payable to the wellbeing services counties in 2024. The funding will be used to support the consolidation and reform of operations of the wellbeing services counties and to ensure a seamless organisation of services and efficient operations.
Reimbursement for costs of supporting Ukraine
In the administrative branch of the Ministry for Foreign Affairs, the Government proposes EUR 4.4 million to be allocated to the maintenance costs of the Finnish Crisis Management Contingent as part of the EU’s training mission supporting Ukraine. In the administrative branch of the Ministry of Defence, participation in the mission can be carried out with the existing appropriation by amending the budget allocation table concerning equipment and administrative costs in military crisis management.
It is proposed that the appropriations for the Defence Forces be increased by EUR 1.7 million to cover the costs of support to Ukraine. The Government also proposes that additional appropriations related to the replacement of defence materiel that has been delivered or will be delivered to Ukraine be included in the authorisation under the Defence Forces’ development programme (PVKEH 2023), the total amount of which would increase by EUR 702.3 million. The costs of replacement procurements will be realised in 2023—2026. Of the procurements, EUR 41.6 million will be included in this year’s appropriations.
In the administrative branch of the Ministry of the Interior, EUR 3 million is proposed for the civilian material assistance to Ukraine due to the continuation of Russia’s invasion. The increase is due to the fact that part of the funding for civilian material assistance to Ukraine granted for 2022 will be transferred to 2023.
Support for agriculture
The Government proposes EUR 96 million for temporary support for business costs in agriculture and aquaculture, of which EUR 1 million will be a transfer to Åland. The support would compensate partly for the rising costs of fertilizers and electricity and ensure security of supply. A total of EUR 3.6 million is proposed for the State Treasury to implement the support.
Conservation of state forests
A transfer is proposed to enable Metsähallitus to permanently conserve more than 50 forest sites. The sites are of major nature value and currently either in restricted use or excluded from commercial use. The total surface area of the sites is approximately 30,000 hectares. The sites are located across Finland.
Investment in preventing and combating youth crime
Additional appropriations of EUR 19 million are proposed for preventing and combating crime committed by young people. EUR 11 million is proposed for preventive Anchor activities provided by the police, social services, healthcare and youth services, for improving the skills of teaching and guidance staff relating to wellbeing and safety, and for municipal youth work. EUR 3.5 million is proposed for continuing and expanding youth work carried out in educational institutions.
In addition, EUR 1.4 million is proposed for the police for activities such as preventive measures and criminal investigation. In the administrative branch of the Ministry of Justice, EUR 2.5 million, divided between several operators, is proposed for measures improving the efficiency of the criminal procedure in order to break the cycle of criminal behaviour, and EUR 350,000 for grants to finance preventive projects.
Positive discrimination funding for improving equality in teaching and education
EUR 20 million is proposed for grants promoting educational equality in early childhood education and care, pre-primary education and primary and lower secondary education. The grants will enhance equality by allocating support to schools and early education settings located in areas of socioeconomic disadvantage, improve wellbeing and the achievement of high-quality learning outcomes, and reduce the sizes of student and teaching groups.
Other changes included in the supplementary budget proposal
EUR 17 million is proposed for safeguarding flight connections to regional airports in the period from 30 July 2023 to 28 April 2024.
Several branches of government have also updated the appropriations with changes to their needs assessments.
Effect of growing debt interest payments is over one billion euros
As a result of rising inflation, the Central Bank has tightened its monetary policy, which has been reflected in higher general level of interest rates. An increase of EUR 1,073 million is proposed for central government debt servicing costs. For both short-term and long-term interest rates, the estimate is based on the assumption that the interest rate will be 2.9 per cent.
Changes in revenue estimates
The estimate of actual revenues is decreased in net terms by EUR 6 million. The Government proposes decreasing the tax revenue estimate by EUR 45 million. It is proposed that the revenue from withholding tax on interest be increased by EUR 94 million, as higher general level of interest rates will increase the interest income accrued from deposits. It is also proposed that revenue from asset transfer tax be reduced by EUR 139 million due to reduction in the value of home and real estate sales. Weaker consumer confidence and higher interest rates are expected to slow down the housing and real estate market.
An increase of EUR 39 million is proposed for the estimate of miscellaneous revenue. EUR 33.1 million of this increase is due to interest subsidies and hedge income from Finnish Export Credit Ltd’s interest equalisation of export and shipbuilding credits.
Impact on central government debt and the balance of central government finances
Taking into account the reduction of EUR 6 million in actual revenues and the increase of EUR 2.1 billion in appropriations, this supplementary budget proposal for 2023 increases the central government’s net borrowing requirement by EUR 2.1 billion.
Net borrowing in 2023 is expected to total nearly EUR 10.4 billion. The budgeted amount of government debt at the end of 2023 is estimated to be approximately EUR 158 billion, which is around 56 per cent of gross domestic product (GDP).
Inquiries: Ilkka Kaukoranta, Special Adviser to the Prime Minister in Economic Policy Affairs, tel. +358 295 160 449, and Joel Kuuva, Special Adviser to the Minister of Finance in Economic Policy Affairs, tel. +358 295 530 458