Second supplement to Government's budget proposal for 2005
As a result of the negotiation outcome concerning the incomes policy agreement for 2005-2007, which was reached on 29 November 2004, the Government will be completing the budget proposal for 2005 by cutting taxation on earned income and increasing certain appropriations.
In the second supplementary bill, the Government will be proposing an increase of EUR 151 million in appropriations and a reduction of EUR 197 million in revenue estimates. Total revenue without net borrowing in the budget proposal for 2005 is put at EUR 36.9 billion and appropriations at EUR 37.8 billion. In order to cover the budget proposal, the Government will be proposing net borrowing amounting to EUR 870 million.
On 2 December, the Government decided on the contents of the second bill supplementing the budget proposal for 2005. The President of Finland intends to submit the bill to Parliament on Friday, 3 December 2004.
The bill's objective is to safeguard the preconditions for a continuation in sustainable economic growth and an improvement in employment. The Government will be proposing a cut in labour tax in 2005 of some EUR 350 million, EUR 208 million of which will be borne by central government. The cut will be implemented by changing the national income tax scale and increasing the earned income allowance in municipal income tax. Furthermore, an inflation adjustment of two per cent will also be applied to the national income tax scale. Municipalities and parishes will be compensated for the loss in tax revenue arising from the increase in the earned income allowance by increasing government grants for social and health care for the former and by raising the latter's share of corporate tax revenue.
The supplementary bill will increase appropriations within the spending limits by a total of EUR 30 million. Under the Government proposal, the appropriations within the electoral period spending limits for 2005 will total EUR 28,471 million. The unallocated reserve will amount to EUR 377 million. In addition to unforeseen supplementary budget needs, it is intended to use the unallocated reserve to finance the salary increases agreed in the new collective bargaining agreements. The aim is to allocate these increases to government departments and agencies in the first supplementary budget of 2005.
The Government proposes an increase of EUR 121 million in expenditure outside the spending limits. This arises out of using increased government grants for social and health care to compensate for the loss in revenue caused by the reductions in tax on earned income. The Government will be proposing EUR 9,314 million for expenditure outside the spending limits for 2005.
Further information is available from Tuomas Sukselainen Budget Director, tel. + 358 0(9) 160 33105