Credible fiscal policy requires predictability and sustained fiscal adjustment
The Economic Policy Council has completed its first statutory assessment of the Government’s measures to strengthen general government finances in relation to EU targets in line with the new fiscal rules. The opinion of the Economic Policy Council is a weighty text, and the Government takes it very seriously.
According to the Council, the Government has implemented significant fiscal adjustment measures, putting Finland on track to comply with the net expenditure path in 2024–2026. However, there is a risk that the targets will not be met in 2027 and 2028. In the Council’s view, the Government should adopt some new adjustment measures in the 2026 government budget session or at least refrain from making new decisions that could weaken general government finances.
The Government has decided on significant fiscal adjustment measures and will continue to implement them until the end of its term
In the 2027 Budget, direct spending cuts will reach EUR 4.8 billion. New decisions to curb indebtedness will be implemented to the tune of nearly EUR one billion. As the Government agreed in its spending limits session, new savings will be directed at central government and grants for organisations, among others. During the parliamentary term, we have introduced additional savings measures worth billions of euros on several occasions, beyond those agreed on in the Government Programme.
The Government will convene for its next budget session in early September in a situation where, after a long period of anticipation, the economy is showing broadly positive signals. Economic forecasts will likely be revised upwards by the time the budget session rolls around. Growth in itself is conducive to stabilising general government finances, even though an additional EUR 8–11 billion in adjustments will be needed in the next parliamentary term. Adjusting general government finances in a credible manner is a marathon, not a sprint. The Government’s Room for Growth project laid the foundations for economic growth. Accelerating growth is likely to somewhat alleviate the need for savings.
The most important factor for economic prospects is a predictable and stable operating environment
Businesses and households need to be able to trust that major decisions are carefully prepared and implemented in a predictable way, so that they can prepare for the changes ahead. In this economic cycle, the economic growth that has begun should not be stifled with hasty new cuts or tax increases, which would be poor economic and stabilisation policy.
New, unanticipated spending cuts and tax increases in particular could destroy confidence in the economic outlook. For example, a sudden reversal of the decision on the corporate tax rate would significantly erode confidence in decision-making, which would be disastrous for reliable economic progress. With this in mind, the Government will refrain from making new, unanticipated decisions that could stifle economic growth.
Spending discipline continues
In line with the Council’s recommendations, the Government will refrain from making any new decisions that could weaken general government finances. The ministries have put forth proposals totalling EUR 0.6 billion. New expenditure proposals will not be accepted for the most part, and only strictly necessary spending increases will be covered within the budgetary framework. The Government instructs the ministries to refrain from making any new proposals in the government budget session that could weaken general government finances.
Prime Minister Petteri Orpo
Minister of Finance Riikka Purra
Inquiries: Matias Pajula, Special Adviser to the Prime Minister, tel. +358 295 161 731