Medium-term challenges

Economic downturn handled systematically

It was possible to exit the historically deep recession systematically. Concern for employment and economic activity was emphasised during the economic crisis when shaping fiscal policy. The Government responded quickly to the weakened economic situation with stimulus measures that maintained consumer confidence. Due to the chosen economic policy approach, unemployment is much lower than it might have been had it been based on a sharp fall in GDP alone.

The Government is committed to pursuing responsible and sustained fiscal policy. It has engaged in applying the system of spending limits as agreed in the Government Programme of Prime Minister Matti Vanhanen’s second Government and has complied with the spending limits for the parliamentary term as adopted by the Government in May 2007.

The main impact and cost of fixed-term or one-off stimulus measures will take effect mostly in 2009–2011. No separate decisions for exit strategies are necessary for these measures. The first steps towards the balancing of public finances will be taken in 2011. Through agreed increases in VAT, energy taxes, taxes on sweets and soft drinks and on waste taxes, fiscal policy will change from expansionary to restrictive.

 

Essential to safeguard sustainability in public finances

The population in Finland is ageing faster than in any other EU country. The working age population already started shrinking in 2010, when the first baby boom generation born in 1945 reached 65 years. According to the population projection made by Statistics Finland (2009), the number of people of working age (ages 15 to 64) will decrease sharply in the 2010s and then ease off slightly in the 2020s.

In the wake of the economic crisis, general government finances are increasingly more vulnerable to the rising costs associated with population ageing and to the narrowing tax base. It is now a greater challenge to safeguard the sustainability of public finances. The current estimate is that, in the light of age-related expenditure growth, a surplus of 4% of GDP is necessary to secure long-term sustainability in public finances. This estimate has remained fairly stable over the past few years even though the position in general government finances has considerably deteriorated. Improving sustainability in public finances will in fact be one of the key medium-term tasks in Finland’s economic policy. 

 

 

 

 

 

 

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