Ageing population and high structural unemployment risk to sustainability in long-term public finances

30.11.2006  |  Press release 138/2006

Finland's public finances meet Stability and Growth Pact obligations

Although local government is still clearly in deficit, the financial position in general government remains strong overall. The social security funds, in which assets are being accumulated in response to the mounting expenditure pressure caused by an ageing population, are the main source of the surplus in public finances. The surplus in general government is estimated at around 2½ per cent of GDP over the next four years and the public debt ratio is expected to drop below 34 per cent in 2010. Finland will therefore meet the EU's Stability and Growth Pact objectives in the medium term too. These are the estimates of Finland's Stability Programme update, endorsed by Government on 30 November and presented to the EU on the same day. 

The Finnish economy has now reached its current cyclical peak. In the wake of the upswing and with the structural factors in the economy starting to erode growth potential, production growth is expected to gradually start slowing down in the next few years. Together with a declining labour force and high structural unemployment, economic growth is faced with challenges such as a high household debt ratio, changes in regional demographics, and the demands created by globalisation and rapid technological advances. The significance of productivity as a growth factor is thus gaining in weight. Productivity needs to be boosted especially in the service sector where competition is low.

High structural unemployment in the form of more skills mismatches in the labour market is a growing threat to stable economic growth. To boost labour supply, ageing workers need to be encouraged to stay in the labour force longer and young people should be able to enter the working world sooner. Demand for foreign labour has also become more significant.

The Programme includes a sustainability scenario that takes demographic changes into account. The scenario indicates that public finances on the whole are not built on a sufficiently sustainable basis in the long term. The population in Finland is ageing faster and earlier than in the rest of the EU member states. The population projections of Statistics Finland show that the population of working age will decline by over 300,000 people by 2030. An ageing population coupled with high structural unemployment seriously challenge the sustainability of public finances in particular. While the pressure to spend in pension and welfare services will start mounting, the labour force will be dwindling and growth in both total output and the tax base will diminish.

The Stability Programme update draws on the 2007-2011 spending limits for central government finances and the 2007 budget proposal submitted in September, as well as related economic policy guidelines and assessments on economic developments.

Inquiries:
Mr Jukka Pekkarinen, Director General, tel. 358-(0)9-160 33191
Mr Lauri Taro, Economist, tel. 358-(0)9-160 34967

Stability programme for Finland

Language versions

• Ikääntyminen yhdessä korkean rakenteellisen työttömyyden kanssa uhkaa julkisen taloutemme kestävyyttä pitkällä aikavälillä
  30.11.2006
• Åldrandet och den höga strukturella arbetslösheten hotar de offentliga finansernas långfristiga uthållighet
  30.11.2006

Printable version