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.
In accordance with Prime Minister Juha Sipilä’s Government Programme, central government expenditure outside the scope of the spending limits will be EUR 1.2 billion lower in 2019 than in central government technology spending limits decided on 2 April 2015 (at 2016 prices).
The overall spending limits include an annual reserve of EUR 300 million for supplementary budget proposals.
The Government is committed to adhering to the spending rule and to the central government spending limits decision which is based on it and included in the first General Government Fiscal Plan of the parliamentary term.
The Government is committed to implementing during the parliamentary term the savings and decisions necessary to cover the entire EUR 10 billion sustainability gap. The effectiveness of the savings and structural reforms will be monitored annually in connection with the spending limits discussion.
The purpose of the spending rule is to limit the total amount of expenditure incurred by the taxpayer. When neutral changes are made in the Budget from this perspective, corresponding adjustments may be made in the spending limits of the parliamentary term.
If the level of expenditure falls below that specified in the spending limits after supplementary budgets, the difference, to a maximum of EUR 200 million, may be used for one-off expenditure in the following year without reference to the spending limits.
Expenditure outside the spending limits
Outside the scope of the spending limits are expenditures affected by cyclical fluctuations and automatic stabilisers, i.e.
- unemployment security expenditure, social assistance expenditure, wage subsidy 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
- possible reimbursements to other tax recipients of tax changes decided by the Government (including social insurance contributions)
- expenditure corresponding to technically transmitted payments and external funding contributions
- expenditure corresponding to the revenue from betting and lottery, totalisator betting and the transferred earnings from the Slot Machine Association
- financial investment expenditure
- value-added tax expenditure.
If economic growth proves to be faster than expected, the increased revenue and lower expenditure due to growth will be used in proportions decided by the Government to reduce indebtedness, ease taxation on work and business, and for one-off measures to boost growth.
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
Johanna von Knorring