Spending limits

At the beginning of the parliamentary term, the Government decides on a ceiling for budget expenditure for the whole term. The allocation of budget resources to different administrative branches is revised each year in March with a decision on central government spending limits, based on proposals submitted by the different ministries. The overall spending limits provide a framework for the ministries in preparing their proposals on the following year's Budget.

Spending limits procedure

Some four-fifths of total Budget appropriations are scaled to binding spending limits over the entire electoral term.

Annual decisions on central government spending limits do not affect the underlying expenditure management regime as set out in the Government Programme and the first spending limits decision of the parliamentary term, but their purpose is to revise and adjust the existing spending limits to reflect changes in cost and price levels and in the structure of the budget.

In line with the Government Programme of Prime Minister Jyrki Katainen's Government, the cap imposed on central government expenditure in 2015 under the first spending limits decision of the parliamentary term (dated 5 October 2011) was EUR 1,215.5 million lower than the technical spending limits of 23 March 2011. At 2012 prices the spending limits for 2012 are set at EUR 42,284 million; for 2013 at EUR 42,205 million; for 2014 at EUR 42,037 million; and for 2015 at EUR 42,132 million. A fixed annual provision of EUR 200 million is set aside for supplementary budget needs.

In connection with its spending limits decision for 2013-2016 (4 April 2012) the Government adopted additional adjustment measures. The decision was made to cut expenditure under the spending limits by EUR 1.23 billion at 2015 levels. Spending limits savings in 2013 come to EUR 495 million. With the additional adjustment measures, overall and annual spending limits have been revised downwards in line with the spending limits savings. This is the first time in the history of the current spending limits system that the limits for the parliamentary term are revised downwards mid-term. It is possible to lower, but not to raise, spending limits mid-term without undermining the credibility of the system. After the April 2012 spending limits decision the spending limits for 2013-2015 at 2013 prices are EUR 42,801 million for 2013; EUR 42,319 million for 2014; and EUR 42,007 million for 2015.

In connection with its spending limits decision for 2014-2017 (dated 27 March 2013) the Government has announced further adjustment measures that will have a significant net effect on spending limits expenditure. Overall the spending limits for the electoral term are further lowered by EUR 150 million for 2014 and by EUR 450 million for 2015. Following the Government's March 2013 decision the spending limits for 2014 come to EUR 42,871 million and for 2015 to EUR 42,259 million at 2014 price levels.

Excluded from the spending limits are

• unemployment security expenditure, the central government contribution to the cost of basic social assistance, pay security and housing allowances; however expenditure effects resulting from changes to the criteria for these items are included in the spending limits;
• debt interest payments;
• any compensation payable to other tax recipients as a result of tax changes made by central government (including social security contributions);
• expenditure corresponding to technically transmitted payments and external funding contributions;
• expenditure corresponding to revenue from betting and lottery, totalisator betting and transferred earnings from the Slot Machine Association;
• financial investment expenditure; and
• appropriations for VAT expenditure.

The Government has agreed that if annual revenue from the sale of shares exceeds EUR 400 million, a maximum of EUR 150 million of the excess can be spent on one-off, infrastructure and skills investments that promote sustainable growth, notwithstanding the spending limits for the electoral term. Central government revenue from the auctioning of emissions rights can be allocated to one-off climate change and development cooperation expenditure, spending limits notwithstanding.

If economic growth is faster than anticipated, the increased revenue and decreased expenditure will  primarily be used to reduce central government debt. If there is a clear reduction in the central government debt-to-GDP ratio before 2015, no more than 30% of the improved fiscal position can be assigned to additional expenditure in line with the Government's strategic objectives.

The Government has decided that if annual expenditure falls below the spending limits even after supplementary budgets, the difference, up to a maximum of EUR 200 million, can be spent the following year on one-off expenditure items, spending limits notwithstanding.

Operating and financial plans

The purpose of the multi-annual operating and financial planning is to ensure that the Government's guidelines for central government finances and operating policies are taken into account in each ministry's sector. The operating and financial plans include the adopted goals and information and analysis on how well they have been met, as well as periodic evaluations of past performance.

The ministries plan their effectiveness and operational efficiency for a number of years in advance. The operating and financial plans, which are generally four-year plans, consist of general operating guidelines and priorities as well as the key targets for the development of societal effectiveness and efficiency. Operating and financial planning provides a baseline for formulating the central government spending limits and annual Budget. The ministries’ preliminary central government spending limits comprises basic computations that illustrate the level of appropriations already decided. In addition, the ministries present potential development proposals and an estimate of the appropriations excluded from the spending limits and the revenues for the ministry’s administrative branch.

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