Fiscal policy

Fiscal policy objectives are set out in the Government Programme. According to the programme of Prime Minister Jyrki Katainen's Government dated 22 June 2011, the Government's economic policy goal is to sustainably strengthen the economy’s growth potential, to raise the employment rate, to bolster household spending power and to improve international competitiveness and the framework conditions for industry. The Government is committed to an active fiscal policy that supports economic growth and employment.

The Government's aim is to strengthen the financing base for welfare society without undermining the sustainability of public finances. The Government is committed to achieve a substantial reduction in the central government debt-to-GDP ratio by the end of the parliamentary term.

The Government will initiate measures necessary to fully close the sustainability gap by 2015. However the impact of restructuring on public finances will only be visible in the medium to long term. The sustainability of public finances will be safeguarded by means of front-loaded expenditure and revenue adjustments and restructuring measures during the parliamentary term. Net annual adjustments to central government expenditures and revenue will total EUR 2.5 billion through to 2015. The adjustments will be equally divided between the revenue and expenditure side. In addition the Government will reallocate expenditures to improve basic security and to promote employment and growth.

The Government is committed to undertake further adjustment measures if indications are that the central government debt-to-GDP ratio is not shrinking and if the central government deficit shows signs of settling at over 1% of GDP. The need for additional adjustments will be reviewed annually starting from the 2013–2016 central government spending limits decision. A wider review of the Government's economic strategy will be conducted midway through the Government's term in office. Based on this review, decisions will made on any further measures that are deemed necessary during the remainder of the parliamentary term to strengthen public finances and to achieve the targets set.

 

 

Key instruments of budgetary policy are the State's annual budget and the spending limits frameworks for future State budgets. The Government's fiscal policy plans are reported to other EU Member States via the Stability Programme. Since the economic crisis the main focus of EU fiscal policy coordination has shifted to ex-ante monitoring within the framework of the European Semester. Fiscal policy planning is the domain of the Ministry of Finance.

Fiscal policy impacts the national economy via decisions taken on general government revenue and expenditure. General government finances comprise both central and local government finances as well as statutory social security and employment pension funds. Medium-term domestic demand can be regulated by means of decisions to either tighten or relax fiscal policy. Automatic stabilizers kick in when in conditions of either a declining or rising economy there is an increase or decrease in public spending (such as unemployment expenditure) without any changes being made to the revenue and expenditure bases. Taxation and decisions related to social welfare benefits, pensions and pension funding also have an effect on structural developments in the economy and consequently have repercussions far into the future.

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