Central government spending limits
At the beginning of the parliamentary term, the Government decides on the parliamentary term spending limits, i.e. a ceiling for budget expenditure, as well as the rules governing the spending limits procedure for the entire four-year parliamentary term. The spending limits’ allocation for each administrative branch is reviewed within the parliamentary term spending limits in March-April as part of the General Government Fiscal Plan. Decisions are made on the basis of the spending proposals of the ministries’ administrative branches. For the administrative branches, the General Government Fiscal Plan serves as a guide to the preparation of the following year’s draft budget.
Spending limits procedure
Around four-fifths of central government budget appropriations are allocated in accordance with the spending limits framework, which is binding for the whole parliamentary term.
The annual General Government Fiscal Plan reviews the spending limits allocations for each administrative branch and updates the spending limits to correspond with changes in price and cost level as well as changes in the structure of spending limits expenditure. In the annual decisions, the spending policy defined in the Government Programme and in the parliamentary term’s first General Government Fiscal Plan, which is the basis for the parliamentary term spending limits, is not changed.
According to Prime Minister Sanna Marins’s Government Programme, the expenditure ceiling will be EUR 1.4 billion higher in 2023 than in the technical spending limits (4 April 2019) (at the 2020 price level), including unallocated reserves of EUR 0.1 billion and a supplementary budget provision of EUR 0.1 billion, which were not included in the technical spending limits. The measures in the Government Programme and other measures will be implemented to the extent possible within the spending limits framework.
The expenditure ceiling in 2020–2022 will take into account a reserve of EUR 300 million for the purpose of supplementary budgets.
The Government is committed to observing the General Government Fiscal Plan and the first spending limits decision included in it.
The purpose of the spending rule is to limit the total amount of expenditure incurred by the taxpayer. When changes are made in the Budget that are neutral from this perspective, corresponding adjustments may be made in the spending limits of the parliamentary term.
If expenditure falls below the spending limits even after supplementary budgets, the difference can be used the following year on one-off expenditure items without reference to the spending limits.
According to Prime Minister Marin’s Government Programme, a mechanism will be introduced for dealing with an exceptional economic situation (the ‘exceptional situation mechanism’), which aims to ensure that economy policy can respond in the manner required by the economic situation. For the purposes of the mechanism and in view of the employment goal and the objective of balancing general government finances, there is an exceptional situation if the global economy and especially the euro area experience a serious economic downturn and this pushes Finland’s economy into the same situation, or Finland’s economy experiences a serious economic downturn due to a temporary disturbance that is independent of the Government’s actions. With the exceptional situation mechanism, up to EUR 1 billion, but not more than EUR 500 million per year, can be allocated to one-off expenditure altogether in 2020–2022 without reference to the spending limits.
In April 2020, the Government decided to start preparing the activation of a state of emergency mechanism included in the rule on spending limits. In May, the Cabinet Committee on Economic Policy expressed its endorsement of invoking the emergency mechanism for the Government, as a result of which the level of the spending limits in 2021 will be EUR 500 million higher than originally planned. The state of emergency mechanism is intended to be used for one-off expenditure under the spending limits rule.
Exceptions in 2020–2021
In March 2020, the Government, together with the President of the Republic, announced that Finland was in emergency conditions due to the coronavirus situation. The Emergency Powers Act was also invoked. Under these circumstances, the central government spending limits have not posed restrictions to 2020, which has involved temporary and targeted measures such as combating the impacts of coronavirus on health and the economy.
The coronavirus situation has also continued to be difficult after the expiry of the emergency conditions and the adoption of the Emergency Powers Act. As a result, all direct costs related to coronavirus, including testing and increasing testing capacity, tracing, quarantines, patient care, travel health safety and vaccine, are fully covered as expenditure outside the spending limits in the 2021 budget and, if necessary, supplementary budgets. In addition, as a result of the coronavirus situation, expenditure related to increasing the budget authority of business funding was exceptionally classified outside the spending limits already in the spring 2020 General Government Fiscal Plan. An additional spending limits reserve of EUR 500 million will also be introduced in 2021 to be used for one-off expenditure needs arising from the coronavirus situation that are obligatory for fiscal policy purposes. If the expenditure referred to above falls below the spending limit projections, the difference is not used to increase other expenditure.
Expenditure outside the spending limits
Outside the scope of the spending limits are particularly expenditures affected by cyclical fluctuations and automatic stabilisers, i.e.
- Cyclical expenditure, i.e. unemployment security expenditure, social assistance expenditure, wage guarantee and housing allowance. These expenditures are, however, included in the spending limits if changes that have expenditure effects are made to their criteria
- Interest expenditure on central government debt
- Compensation to other tax recipients for changes in taxation (including social security contributions) decided by central government
- Expenditure corresponding to technically transmitted payments and external funding contributions
- Expenditure corresponding to the return on profits gained from gambling activities
- Financial investment expenditure
- Value-added tax expenditure
- Funding for the Finnish Broadcasting Company (“transfer to the State Television and Radio Fund”).
Operational and financial planning
The Government’s operations and finances are planned for several years ahead. The goal is to ensure that the ministries take the Government’s financial and operating policy guidelines into account in their fields of activity. Planning covers the setting of objectives as well as analyses of actual costs and periodic evaluations of financial management.
Each ministry has operational effectiveness and performance plans for multi-year periods. As a rule, operations and finances are planned for a four-year period. Planning includes, among other things, general operating polices and priorities as well as the key social effectiveness and performance objectives.
Operational and financial planning is the basis for preparation of the central government spending limits and the annual Budget. Each ministry’s spending proposal includes a baseline scenario stating the level of appropriations already decided. In addition, each ministry may submit development proposals as well as an estimate of administrative branch appropriations that fall outside the scope of the spending limits and revenue estimates.
Senior Ministerial Adviser