Technical General Government Fiscal Plan for 2024–2027 published
On Thursday 23 March, the Government decided on the technical General Government Fiscal Plan for 2024–2027. The General Government Fiscal Plan covers all general government finances, including central and municipal government finances, the finances of wellbeing services counties, statutory employment pension institutions and other social security funds.
The General Government Fiscal Plan for 2024–2027 does not propose any new policy outlines. It is based on current legislation and takes into account the impact of prior decisions made by Prime Minister Marin’s Government on the expenditure and revenue levels in the coming years, in addition to the most recent economic forecast. The technical General Government Fiscal Plan serves as a basis for talks on the Government Programme and for the next General Government Fiscal Plan, which will be decided on in autumn 2023 by the new Government to be appointed after the parliamentary elections.
The Government formed after the parliamentary elections will also decide on budgetary targets and other objectives and rules to guide the management of general government finances, and will determine the expenditure ceiling for the parliamentary term and the rules for the spending limits system in 2024–2027. These are not included in the technical General Government Fiscal Plan. The technical plan will not be discussed by Parliament.
This government term has been particularly exceptional
Finland’s external environment saw a historic upheaval this government term, as the global economy was first disrupted by the COVID-19 pandemic and then, as soon as it subsided, Russia launched its war of aggression in Ukraine. The Finnish economy has faced two significant external crises that have affected general government finances both indirectly through the real economy and directly as a result of measures taken to combat the impacts of the crises. In the midst of these consecutive crises, the Government has pursued an active fiscal policy.
In 2020, the Government introduced large-scale support packages for businesses and households along with other measures to mitigate the effects of the COVID-19 crisis, and the impacts of these measures will gradually fade. In connection with the situation brought on by COVID-19, approximately EUR 16.6 billion in discretionary central government appropriations has been budgeted for 2020–2027. After Russia launched its war of aggression in Ukraine, the Government introduced extensive preparedness measures in 2022 along with household support measures for 2022–2023 to help mitigate the impact of increased energy costs. A total of EUR 11.0 billion in expenditure covered by the security policy escape clause has been budgeted for 2022 and 2023 and allocated for the 2024–2027 spending limits period. Without new decisions, fiscal policy will remain expansionary during the spending limits period.
Despite the exceptional upheaval, Finland’s general government finances have improved over the past couple of years. The employment rate has risen and unemployment has fallen rapidly. The increase in employment and decrease in unemployment will continue over the spending limits period. That said, the moderate rise in employment coupled with sluggish economic growth will not be enough to correct the imbalance in general government finances. The improvements seen in the budgetary position of general government finances in 2021–2022 will begin to deteriorate from 2023 onwards without new measures to strengthen general government finances. Substantial deficits and slow economic growth will also be reflected in the public debt-to-GDP ratio, which is back on a growth path after a momentary slowdown. The ageing of the population has led to a sustainability problem in general government finances that has not yet been solved. Over the long term, general government revenue will not be sufficient to cover expenditure.
Central government on-budget expenditure to be higher during the spending limits period than previously expected
On-budget expenditure in 2024 is expected to be EUR 88.3 billion, which is EUR 4.8 billion more than that budgeted for 2023 (including the second supplementary budget). The main factors explaining the increase in the level of appropriations compared to 2023 include index adjustments and changes in the central government funding for wellbeing services counties.
Central government on-budget expenditure during the spending limits period is expected to average approximately EUR 88.2 billion at 2024 prices. In 2027, on-budget expenditure is expected to be approximately EUR 88.4 billion at 2024 prices. Compared with the General Government Fiscal Plan drawn up in spring 2022, expenditure in 2024–2026 will rise by an average of EUR 8.0 billion per year. The increase in expenditure can be explained by several factors related to index adjustments (EUR 3.0 billion), an estimated increase in debt interest payments (on average EUR 2.3 billion) and provisions for possible annual ex post adjustments resulting from the funding system for the wellbeing services counties, among others. Expenditure under the security policy escape clause has also increased by approximately EUR 0.6–0.9 billion per year compared with the previous decision on spending limits. The increase can be largely explained by the fact that beneficiaries of temporary protection who have a municipality of residence were brought within the scope of compensation under the Act on the Promotion of Immigrant Integration from 1 March 2023 onwards.
When comparing expenditure at current prices, the expenditure estimate for the 2024–2026 period has increased by an average of EUR 6.6 billion per year compared with the General Government Fiscal Plan drawn up in spring 2022.
On-budget revenue to grow steadily during the spending limits period
On-budget revenue (excluding net borrowing) is expected to total EUR 76.7 billion in 2024, which is EUR 3.7 billion more than that budgeted for 2023 (including the first supplementary budget). On-budget revenue for 2027 is expected to be EUR 82.6 billion. Tax revenue is expected to total EUR 68.4 billion in 2024 and to grow by an average of 3.7 per cent per year. At the end of the spending limits period, tax revenue is expected to total EUR 74.3 billion.
In monetary terms, the most significant change in tax criteria is the annual index adjustment of earned income taxation, which is included in the forecast as a technical assumption and which will reduce the amount of tax revenue by an average of EUR 0.6 billion per year. By contrast, the spending limits period will see an increase in revenue due to the profit tax in the electricity and fossil fuel sectors, which will accrue an estimated EUR 400 million in 2024, and due to the end of the fixed-term increased depreciation of movable assets in 2025, which will increase tax revenue by an estimated EUR 250 million.
A higher level of tax revenue than expected has increased tax revenue estimates by an average of EUR 1.8 billion per year in 2024–2026 compared with the General Government Fiscal Plan drawn up in spring 2022. In particular, revenue estimates from earned and capital income taxes, value-added tax and corporate tax have increased significantly. The estimate of revenue from withholding tax on interest has also increased considerably due to higher interest rates. Conversely, the weaker outlook for housing and real estate sales has reduced the estimated revenue from asset transfer tax. Estimates of revenue from excise duties have also decreased.
Central government on-budget deficit projected to total approximately EUR 12 billion
The central government on-budget deficit is expected to total EUR 11.6 billion in 2024, which is EUR 1.2 billion more than that budgeted for 2023 (including the first supplementary budget). In 2024–2027, the on-budget deficit will be EUR 11.7 billion on average, whereas the annual deficit in the spring 2022 General Government Fiscal Plan averaged EUR 7.2 billion.
Central government on-budget revenue, expenditure and balance, EUR billion
|2023 B + SB||2024 GGFP||2025 GGFP||2026 GGFP||2027 GGFP|
|Revenue (excl. net borrowing)||73.0||76,7||78,5||80,6||82,6|
1 Expenditure converted into current prices using the Ministry of Finance’s central government expenditure price index projection, which provides a rough estimate of price trends over the spending limits period.
Funding of wellbeing services counties and municipalities during the spending limits period
Universal funding for the wellbeing services counties will total approximately EUR 24.8 billion in 2024. The allocation of central government funding for the wellbeing services counties takes into account the decisions made on changes in duties and obligations and the amendments to the Act on the Funding of Wellbeing Services Counties, for example concerning the supplement for university hospitals. In addition, the revised calculations concerning the expenditure and revenue to be transferred from municipalities in connection with the health and social services reform will be taken into account based on the estimates in the municipalities’ financial statements for 2022. As a result, the funding for wellbeing services counties will be permanently increased by approximately EUR 600 million from 2024, while central government transfers to municipalities will be reduced by approximately EUR 100 million. The General Government Fiscal Plan also contains provisions for ex post adjustments under the Act on the Funding of Wellbeing Services Counties and for the costs of the reform of the Act on Disability Services and Assistance. Imputed central government transfers to municipalities will total EUR 3.9 billion in 2024. The level of central government transfers will increase by approximately EUR 0.9 billion from 2025 onwards due to the transfer of the responsibility for organising employment services.
General Government Fiscal Plan to be submitted to the European Commission
The General Government Fiscal Plan also includes Finland’s Stability Programme, which was drawn up based on the assumption of unchanged policy, and it meets the EU’s requirement for a medium-term fiscal plan. On 23 March, the Government also approved Finland's National Reform Programme. Both the Stability Programme and Finland’s National Reform Programme are part of the European Semester. Finland will submit its General Government Fiscal Plan and National Reform Programme to the European Commission.
The General Government Fiscal Plan is based on the independent macroeconomic and general government finances forecast prepared by the Economics Department of the Ministry of Finance, which was also published on Thursday. Economic Survey 23 March 2023 LINK
Inquiries: Mika Niemelä, Director General of the Budget Department (General Government Fiscal Plan), tel. +358 295 530 525, and Antti Kekäläinen, Ministerial Adviser, (Stability Programme and Reform Programme), tel. +358 2955 30386, Ministry of Finance
Economic Survey : Spring 2023 | Valto
Finland’s National Reform Programme 2023 | Valto