THE GOVERNMENT-ELECT of Antti Rinne (SDP) has reiterated its confidence that it does not have to run up debt in normal global economic conditions.
Juhana Brotherus, the chief economist at the Mortgage Society of Finland (Hypo), pointed out yesterday that the newly published government programme contains a number of stimulus-like measures that are funded in a way that allows the government to circumvent borrowing.
“The public economy will be stimulated in the coming years with three billion euros raised by selling state-owned assets. So you may not be technically running up debt, but in reality you are. And this is taking place in fair economic weather – the government is preparing for a cyclical change by stimulating,” he stated on Twitter on Monday.
The five-party coalition has agreed to earmark three billion euros for one-off investments and socially important trials as part of a so-called future investment programme. The programme will be funded by offloading 2.5 billion euros worth of directly state-owned assets and 500 million euros worth of other assets.
The main objective of the budget and tax policy decisions is to make sure the public economy will be in balance in normal global economic conditions and public debt as a proportion of gross domestic product is declining in 2023.
The government has also promised not to make any spending cuts while ramping up spending by 1.2 billion euros. Although its promise is based on the expectation that the employment rate will rise to 75 per cent by 2023 – again, “in normal global economic conditions” – its measures to promote employment have convinced neither experts nor the political opposition.
“I’m sorry Antti Rinne, Juha Sipilä, Li Andersson, Anna-Maja Henriksson and Pekka Haavisto, but your government programme is completely utopian. This talk about not having to make any cuts is outright delusional,” said Tuomas Malinen, an adjunct professor of economics at the University of Helsinki.
“A recession could hit Europe as soon as this autumn. There are no spoils to share,” he said.
Rinne has repeatedly stated that the economic policy decisions are based on an expected growth rate of two per cent. Statistics, however, show that the economy is already failing to keep step with what he considers the normal rate, and medium-term forecasts promise growth in the region of 1–1.5 per cent.
The government programme also includes a mechanism for extraordinary cyclical situations, allowing the government to disregard the budget framework and allocate a total of one billion euros – but no more than 500 million euros a year – to one-off expenses in 2020–2022.
The mechanism can be triggered if the national economy slides into recession due to a temporary disruption or downswing in the global or eurozone economy.
Aleksi Teivainen – HT
Source: Uusi Suomi