Fiscal policy

Finland's fiscal policy objectives are set out in the Government Programme. The original targets established in the Government Programme were reviewed in the Government mid-term policy review of 24 February 2009.

Fiscal policy in the Government Programme

The pressure on public finances created by the ageing of the population will be eased by strengthening the carrying capacity of the economy and by means of judicious expenditure and tax policies. Growth in employment and productivity play a crucial role in boosting the capacity of the economy.

To ensure the sustainability of general government finances, the Government's objective is that central government finances will show a structural surplus corresponding to one per cent of GDP at the end of the government term.

To safeguard a prudent long-term expenditure policy, the Government will pursue and develop the system of spending limits.

The Government’s tax policy lends support to the goals of higher productivity and better employment. During its term in office, the Government will reduce taxes levied on labour in particular. Tax decision will be scaled so as not to jeopardize sustainability in general government finances in the long term.

Increases in expenditure and reductions in taxes will be timed so that stable economic performance is not threatened and that the target surplus can be achieved.

The aim is that by implementing structural reforms to boost employment, a structural surplus corresponding to one per cent of GDP can be achieved by the end of the parliamentary term.

The Government’s premise is that central government finances must never show a deficit of more than 2½ per cent of GDP even in a weak economy.

Government mid-term policy review

The Government has already responded to the global recession that reached Finland in the autumn of 2008 by undertaking a number of actions introduced in different stages. The main purpose of the stimulus measures scheduled for 2009 is to ease the severity of the cyclical downturn, prevent the rise of unemployment and to make sure that the effects of the weak cycle on companies’ performance, workforce and productivity are minimised. These actions will be accompanied by structural measures that create favourable conditions for economic growth in the future and improve sustainability in general government finances.

The Government will continue to pursue a prudent long-term spending policy. The deficit restriction on central government finances and the structural surplus objective specified in the Government Programme can be temporarily lifted if this is accompanied by decisions to reinforce general government finances structurally.

Key instruments in budget policy are the Budget and the spending limits drawn up for the years ahead. The Stability Programme provides a report to the other Member States of the Finnish Government's fiscal policy plans. The Ministry of Finance is responsible for planning Finland's fiscal policy.

Fiscal policy impacts developments in the national economy through decisions on revenue and expenditure in general government finances. General government finances consist of central and local government finances and the statutory social security and employment pension funds. Medium-term domestic demand can be regulated by means of decisions to restrict or relax fiscal policy. Automatic stabilizers arise in fiscal policy when, in conditions of weaker or stronger economic cycles, public spending, such as unemployment benefits, increases or decreases while tax revenue rises or falls without any changes being made in 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.

 

Printable version