The budget proposal of Minister of Finance Riikka Purra implements decisions that strengthen general government finances
The proposal of the Ministry of Finance for the 2024 budget and spending limits for 2024–2027 ensures implementation of the policies in the Government Programme. The budget proposal totals EUR 87.2 billion, and a deficit of EUR 10.1 billion is proposed. The budget total is EUR 3.7 billion higher than the total budgeted for 2023, including the first supplementary budget. The budget proposal will be published in full at budjetti.vm.fi on Monday 28 August. The proposal of the Ministry of Finance for a spending limits decision on general government finances will also be published at this time.
Seeking to reverse the trend towards indebtedness
The economic and fiscal policy of Prime Minister Petteri Orpo’s Government is based on preserving the welfare society for future generations. The fiscal policy seeks to strengthen general government finances and reverse the trend of Finland’s indebtedness. The Government Programme is committed to strengthening general government finances with a package of measures that will reinforce these finances by a net sum of EUR 6 billion reckoned at the 2027 level. The net direct consolidation measures from strengthening will be just over EUR 4 billion at the 2027 level. Measures to boost employment also seek a strengthening of nearly EUR 2 billion at the 2027 level.
The consolidation outlined in the Government Programme will see a change in the trend of general government finances, but the consolidation must also be continued beyond the current electoral period.
The central government spending limits system is a key instrument for steering Government fiscal policy, and the foundation of a credible economic policy. The Government Programme is committed to the central government spending limits procedure. Government Programme items and other actions will be implemented within the constraints established by the spending limits for the electoral period.
The increases and reductions in expenditure outlined in Annex B to the Government Programme have been taken into account in the Ministry of Finance proposal for the 2024 budget and spending limits for 2024–2027 to the extent that the impact is directed at on-budget entities. The timing of some savings has been reassessed and specified. Such circumstances mainly arise in entities that are more difficult in terms of legislative preparation or technical implementation. Assessments of the impact of measures, both on the central government budget and on the public economy as a whole, have also been specified in some respects. While these assessments will be further specified as the budget, spending limits and government proposals are prepared, the overall economic package outlined in Annex B to the Government Programme will be maintained.
The budget proposal for 2024 accommodates the expenditure policies listed in Annex B to the Government Programme, which will yield net savings of just under EUR 1 billion in the central government budget. The impact of the spending decisions of the Government Programme by the end of the spending limits period in 2027 will be just over EUR 2 billion at the 2024 price level and EUR 2.5 billion nominally. A more detailed allocation is set out in the annex.
The budget proposal for 2024 involves a deficit of approximately EUR 10 billion
The budget proposal totals EUR 87.2 billion, which is EUR 3.7 billion higher than the sum budgeted for 2023 including the first supplementary budget. Growth in the level of appropriations compared to 2023 is mainly explained by changes in central government funding of wellbeing services counties.
A reorientation towards more balanced general government finances is nevertheless under way, as the appropriations proposed for 2024 are EUR 1.1 billion lower than in the technical public finances plan for the spring.
The draft budget of the Ministry of Finance for 2024 involves a deficit of EUR 10.1 billion. This deficit is EUR 1.5 billion smaller than was estimated in the technical public finances plan for the spring.
The level of central government budget expenditure will fall by EUR 1.1-2.0 billion at the 2024 price level compared to technical spending limits for the spring. The deficit in central government on-budget finances is also at a level that is EUR 1.3-2.7 billion lower than was estimated in spring 2023.
Central government on-budget expenditure is expected to average approximately EUR 86.6 billion at 2024 prices over the 2024–2027 spending limits period. On-budget expenditures in 2027 are forecast to be EUR 86.4 billion at the 2024 price level, which is some EUR 2 billion smaller than in the technical public finances plan for the spring.
The central government on-budget deficit is forecast to average EUR 9.8 billion in 2024-2027, while the average annual deficit in the technical public finances plan for the spring was EUR 11.7 billion.
The shrinking of the deficit will also be reflected in falling interest costs for central government debt. The estimated interest costs in the Ministry of Finance proposal fall by EUR 0.2–0.3 billion annually. Annual interest costs are forecast at EUR 3.2 billion euros in 2024–2026 and EUR 3.6 billion in 2027.
Central government on-budget revenue, expenditure and balance, EUR billion
|2023 B + SB||2024 DB||2025 GGFP||2026 GGFP||2027 GGFP|
Revenue (excluding net borrowing)
* Expenditure converted into current prices using the central government expenditure price index projection of the Ministry of Finance, which provides a rough estimate of price trends over the spending limits period.
Investments in growth
The Ministry of Finance budget proposal includes increases in central government R&D funding for 2024 in accordance with the Act on State Financing of Research and Development (hereinafter referred to as the R&D Finance Act). The said Act provides for an increase in central government budget authorisations and appropriations intended for R&D operations to a total corresponding to 1.2 percent of GDP by 2030.
The increase under the Act will be some EUR 260 million. Additional financing has been allocated in particular to support the R&D operations of enterprises and for national co-funding of EU projects. The R&D financing authorisations of Business Finland will be increased by EUR 110 million and loans for research and innovation work will rise by EUR 10 million in the period 2024–2027. An appropriation of EUR 40 million is allocated annually to universities and state research institutes for national co-funding of EU projects. Appropriation increases totalling EUR 79 million in the special and general grants of VTT Oy are proposed for the 2024–2027 spending limits period in order to purchase and commission shared hardware for the Kvanttinova microelectronics and quantum technology piloting environment, together with increases totalling EUR 70 million over the spending limits period for scaling a quantum computer towards 300 qubits. A total allocation of EUR 90 million will be set aside for a researcher training pilot programme to be implemented in 2024–2027. A permanent increase is proposed in the research project authorisation of the Academy of Finland. EUR 30 million in additional funding will be directed to research flagships, EUR 10 million to the effectiveness of researched information, and EUR 5 million to national research infrastructure. An increase of EUR 5 million for 2025–2027 is proposed in state funding of health care units engaged in university-level research and for university-level research in social work.
Under the R&D Finance Act and according to the spring economic forecast, state R&D funding must be EUR 2.9 billion in 2025, EUR 3.2 billion in 2026, and EUR 3.4 billion in 2027. The increases for 2025–2027 have yet to be allocated by administrative branch or budget item. The intention is to outline the allocation in the context of future plans for budgets and general government finances.
A temporary EUR 4 billion investment programme to be implemented over the electoral period will also boost growth. The investment programme will be financed using the proceeds of state asset sales, by liquidating overcapitalisation of unlisted state-owned companies, and using earnings transferred from the State Housing Fund, so that investment expenditure does not increase the central government borrowing requirement during the government term. Measures under the investment programme have yet to be included in the budget and spending limits proposals of the Ministry of Finance, and this has not been taken into account in estimates of expenditure or revenue. The investment programme is being prepared in the course of further preparation of the Government’s budget proposal and spending limits for 2024–2027, with a view to outlining the first measures in the Government budget session.
Revenue forecasts allow for the taxation policy set out in the Government Programme
The Government’s taxation policy also seeks to buttress conditions for economic growth. Government taxation policy will encourage work and self-employment, and support domestic ownership. The Government will avoid discretionary measures that increase the overall tax rate.
Central government revenue in 2024 is estimated at EUR 77.0 billion, of which tax revenue will account for EUR 68.2 billion. On-budget revenue will grow by an average of 2 per cent annually in 2025–2027, with a forecast of EUR 82.5 billion in 2027, of which EUR 74.3 billion will be tax revenue.
The Government Programme includes taxation measures to take effect both in 2024 and later in the spending limits period. In accordance with the Government Programme, an index revision will be made annually to earned income tax bases at all income levels. Taxation of work will be gradually eased over the electoral period, with an emphasis on low and middle-income earners. The earned income tax credit will be increased by some EUR 100 million annually to a total of some EUR 400 million. This will ease taxation of work by an average of nearly 0.5 percentage points by the end of the government term, and by almost 1 percentage point for annual incomes of approximately EUR 20,000–25,000. A child supplement to the earned income tax credit will also be introduced in 2025.
Further factors reducing tax revenues in 2024 will include continuing the temporary increase in the tax credit for household expenses, increasing the deposit cap on equity savings accounts, and increasing the equalisation provision for agriculture. An amendment to alcohol taxation will increase the tax on wines and spirits and reduce the tax on beer. Factors increasing tax revenues in 2024 will include continuing the 2 percentage point temporary increase in the highest income bracket in the central government income tax scale, increasing the commuting expenses deduction threshold, and reallocating the age-based increased earned income tax credit. Nicotine pouches will also be brought within the scope of tobacco taxation.
Excise duty on transportation fuels will be reduced as of the beginning of 2024 to compensate for the average fuel price increase over the spending limits period arising from the upward trend in the distribution obligation under the Government Programme. This will result in a fall in excise duty revenues of just under EUR 160 million. The change in fuel excise duty will be permanent. The CO2 component of fuel tax will also be reduced by EUR 100 million later in the government term.
Changes that increase tax revenues and are due to take effect later in the spending limits period include assigning commodities (excluding newspapers and magazines) currently subject to a 10 per cent reduced VAT rate to a 14 per cent tax rate as of the beginning of 2025, and increasing taxes on tobacco and soft drinks. Changes that reduce tax revenues later in the spending limits period include reducing the basic motor vehicle tax and switching to a 14 per cent VAT rate for incontinence and sanitary pads, and children’s nappies.
The lower limit for general ground area real estate tax will be increased to 1.3 per cent in 2024. The increase will affect taxation in the 245 municipalities where the general real estate tax rate is currently lower than this. The change will increase real estate tax revenues collected for ground areas in these municipalities, which will strengthen their finances without impairing general government finances as a whole.
Finances of wellbeing services counties
Wellbeing services counties will mainly rely on central government funding to finance their operations. Current estimates indicate that universal funding of wellbeing services counties will be some EUR 24.6 billion in 2024 and EUR 24.8 billion in 2027 at the 2024 price level.
The proposal of the Ministry of Finance allows for the changes in the functions of wellbeing services counties that were agreed in the Government Programme. The Government has also set out changes to be implemented in the financing model so that the reduction will be EUR 65 million for 2027.
Changes in statutory functions have been taken into account in funding of wellbeing services counties, together with changes to be made under the R&D Finance Act, such as an increase in level associated with growth in service needs.
Funding of wellbeing services counties will increase by some EUR 4 billion compared to the approved budget for 2023. Most of this is explained by an adjustment to the funding base arising from an item of some EUR 1.9 billion paid in December 2022, an index increase of some 0.8 billion in 2024, and an increase of EUR 289 million caused by growth in demand for services. An allocation of EUR 444 million also corrects the difference for 2023 between the costs and revenues of functions transferred from municipalities to wellbeing services counties. The proposal nevertheless has yet to accommodate the final revision of social services and healthcare transfer calculations, details of which will only become available later when preparing the budget and spending limits. The transfer calculation correction will further affect the appropriation level of the item.
Ex-post revisions under the R&D Finance Act may increase the funding requirement of central government in the second half of the spending limits period notwithstanding the cost consolidation measures agreed in the Government Programme. A spending limits provision for ex-post revisions and other unforeseen expenditure needs has been made in the technical public finances plan, which will remain unchanged.
Local government finances
A total of EUR 2.6 billion in central government transfers is allocated for basic municipal services in 2024, and this level will rise to EUR 3.6 billion in 2027 with the reform of employment and business services. A saving corresponding to an increase of one percentage point will be made for the index increase in central government transfers for basic municipal services, reducing the transfers by EUR 24 million at the 2024 level and nominally by some EUR 111 million at the 2027 level. Dimensioning of central government transfers as of 2025 has accommodated the policies on immigrant integration services and a reduction in appropriations for employment that are set out in the Government Programme. Dimensioning of central government transfers for basic services will also be affected by the revision of expenditure and revenue transfers related to the health and social services reform to conform to the final figures for 2022. The transfers will be further specified during preparations in autumn.
The increase in the lower limit for the general ground area real estate tax rate will boost the finances of municipalities as of 2024.
The economic outlook remains promising, notwithstanding risks
The start of 2023 has been more favourable than expected for the economy. The Russian invasion and geopolitical and environmental risks nevertheless foster uncertainty and increase economic disruption. While the rise in interest rates is expected to be over, the growth-slowing impact of high interest rates remains visible at the end of the year. This is most seriously evident in the rapid fall in construction away from the high level of recent years. The economic outlook is nevertheless improving, with output growth already expected to accelerate next year.
Wage increases and a slowdown in inflation will support growth in the purchasing power of households. While the labour market situation has deteriorated slightly over the summer, employment remains at a good level. Household consumption will also begin growing again.
The decline in construction should be temporary, as there is demand for new housing. The number of investment intentions related to the energy transition has reached a record level. The investments can also be positively surprising. Exports have made poor progress since growth in the eurozone came to a halt. The global economic outlook is nevertheless improving, which also boosts Finnish exports.
Preparation of the budget and General Government Fiscal Plan continues
Stages in preparing the 2024 budget proposal:
- 28 August: Proposal of the Ministry of Finance for the 2024 budget and central government spending limits decision published online at budjetti.vm.fi.
- 5-6 September: Bilateral negotiations between the Ministry of Finance and ministries
- 19-20 September: Government budget session
- 9 October: Discussion of budget proposal and General Government Fiscal Plan in Government.
Jussi Lindgren, Special Adviser to the Minister of Finance (Economic Affairs), tel. +358 29 553 0514, jussi.lindgren(at)gov.fi