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Main Lines of the Ministry of Finance's budget proposal

28.07.2010  |  Press release 91/2010

The Ministry of Finance's budget proposal totals EUR 50.4 billion, with the budget deficit standing at EUR 8.7 billion. Central government debt will rise next year to EUR 85 billion, which is around 46% of GDP.

On-budget expenditure will be around 4% lower than that budgeted for 2010. The lower expenditure is partly accounted for by the removal from the expenditure of stimulus measures and loans granted to certain states. Of the budget proposal's expenditure, administrative branch appropriations account for EUR 48.4 billion and interest expenses EUR 2.1 billion.

On-budget revenue is projected to be around 3% higher in 2011 than that budgeted for 2010 and 6.5% higher if the use of the cumulative surplus budgeted for 2010 is not taken into consideration. Tax revenue will account for 85% of all on-budget revenue and is projected to grow by nearly 8% due to economic growth and tax changes that come into force in 2011.

On-budget balance, EUR billion

                                2010 budgeted        2011 proposal

Revenue                    40 499                    41 691

Expenditure               52 482                    50 432

Actual deficit             11 983                      8 740

 

Tax decisions

Energy taxation will shift, in terms of all fuels, to taxation based on energy content and carbon dioxide emissions, emphasising environmental steering. Energy taxes will be increased in connection with structural change by around EUR 750 million from the beginning of 2011 to compensate for tax revenue losses arising from the abolition of the employer's national pension contribution. This increase will not affect transport fuels. The excise duty on diesel fuel will be increased from the beginning of 2012 and at the same time the vehicle motive force tax levied on cars will be reduced.

In 2011 an excise duty on sweets, ice cream and other such products will be introduced and the excise duty on soft drinks will be increased.

An easing of the employment tax criteria will compensate for the tax-tightening impact of rising earnings levels and an increase in social insurance contributions. In addition, taxation of pension income will be reduced such that the tax rate of pension income is no higher than the tax rate of corresponding earned income.

The tax base of the waste tax will be broadened and the tax increased.

Bright economic prospects

The global economy is recovering from the recession that followed the financial crisis, and world trade will grow fairly rapidly during the next 18 months. The Finnish economy, after the winter downturn, is returning to a growth track, driven by traditional export demand. Growth is also supported by private consumer demand, which reflects the fact that employment has weakened less than in previous recessions. The unemployment rate will remain lower than forecast in June both this year and next.

In the current year, GDP is projected to grow by just over 1.5%. The prospects for economic growth remain positive for 2011, which will also lead to a pick-up in investment. GDP is forecast to grow next year by more than 2.5%. Due to under-use of capacity, domestic consumer price pressures will be modest this year, so prices will be affected most by a rise in import prices resulting from increases in world market prices of raw materials. The inflation forecast for this year is around 1.5% and for next year around 2.5%. Next year, price pressures will intensify due to a rise in import prices and through more buoyant economic activity both domestically and internationally.

Despite the economic recovery, the financial position of public finances will weaken further this year. In 2011 as economic growth accelerates, taxation tightens and social security contributions rise, the financial position of public finances will strengthen, but remain even so in deficit. Public debt will rise further as a result of central and local government borrowing, and the debt ratio will exceed 51%.

Accelerating economic growth and an improving employment situation will be reflected next year particularly in a reduction of the central government deficit. Central government tax revenue will also grow as a result of increases in value-added taxation and energy taxation. Despite the reduction in the deficit, central government will still have to cover its spending by borrowing around EUR 8.7 billion in 2011. The improved economic prospects will not therefore be sufficient to stabilise the central government's financial position.

In the current year, the financial position of the municipal sector will remain around -0.5% of GDP. The weak development of tax revenue will compel municipalities to continue savings measures, although the differences between municipalities in terms of savings needs are great. In 2011 growth of local government tax revenue will prove to be better than previously forecast. The local government deficit will fall as consumer spending increases moderately and municipalities continue to balance their finances in the wake of the crisis.

Further information: Director General of the Budget Department Hannu Mäkinen, tel. 358 9 160 33036, Director General of the Department of Economics Tuomas Sukselainen, tel. 358 9 160 33191, Director General of Tax Department Lasse Arvela, tel. 358 9 160 33150 and Deputy Director General of the Budget Department Markus Sovala, tel. 358 9 160 33105

 

 

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Ministry of Finance P.O BOX 28 FIN-00023 GOVERNMENT Tel. +358 295 16001 E-mail: valtiovarainministerio@vm.fi