Flag banners outside a campaign event of the National Coalition in Helsinki on 15 March 2023. The right-wing opposition party has been the most vocal advocate of fiscal adjustment in the next electoral term. (Antti Hämäläinen – Lehtikuva)


PUBLIC DEBT has kindled concerns among Finns.

YLE reported a week ago that public debt has become almost as big a cause of concern among the public as the climate crisis, citing a survey that drew responses from 2,012 Finns in January. The State Youth Council, meanwhile, has revealed that over half of 18–29-year-olds believe public debt should be reined in without delay irrespective of the kind of benefit and welfare cuts it would necessitate.

The Centre and National Coalition have particularly sought to make public debt the top issue in the looming parliamentary elections.

The Ministry of Finance set the stage for the debate earlier this year by publishing a comprehensive list of possible cost-saving measures, including both tax increases and spending cuts. It estimated that savings worth six billion euros are required in the next electoral term and savings worth three billion euros in the term starting in 2027.

“The discussion is a bit overblown, you could maybe say hysterical,” Hannu Vartiainen, a professor of microeconomics at the University of Helsinki, stated to YLE on Sunday. “Of course it’s natural political rhetoric ahead of elections, but it simplifies what the nature of the public economy and debt.”

Vartiainen pointed out that the public debate has revolved primarily on the amount of debt; the more pertinent question is how the debt is used.

“There’s a big difference if it’s used to make investments and structural measures that promote economic and societal development in the long term – or if it’s used to do something that supports the well-being of citizens only at this exact moment,” he explained.

“It’s worthwhile to pay attention to the debt level. But are we on the road of Greece? That isn’t the case, nor is that the interpretation of international financial markets.”

Finland has retained the second highest credit rating, AA+, from Fitch and Standard & Poor’s. Vartiainen acknowledged that the ratings may be partly attributable to the reputation that the country takes its debt seriously.

“So the debt hysteria that’s visible in the political debate may also have some positives,” he said.

Sixten Korkman, a former head of the economics department at the Ministry of Finance, stated to Helsingin Sanomat last week that the situation is not as bad as some have made it out to be.

“While people on the right are overstating the fears, the left isn’t putting enough emphasis on the problem,” he viewed.

It is nonetheless important, he underscored, to recognise that the country will ultimately have to take action to address the long-term deficit in its public economy as population ageing continues to shrink the labour force and increase age-related public costs. The measures are not needed immediately, however, because spending cuts and other adjustments should be postponed during a slowdown.

“It might be good to make the decisions now, but there’s no rush with the implementation,” he said.

The Ministry of Finance in December published a forecast indicating that the debt ratio fell by 0.7 percentage points year-on-year to 71.7 per cent in 2022, having stood at 74.8 per cent in 2020. Helsingin Sanomat reminded that the ratio jumped over the 70-per-cent mark last summer due to the adoption of new methodology by Statistics Finland.

The impact of the methodological change was 5.9 percentage points.

Korkman reminded the newspaper that the ratio can be reined in not only with tax hikes and spending cuts, but also with investments that consolidate the footing of the economy and prevent problems that inflict significant costs in the future, such as social exclusion.

Such investments could include increasing employment-based immigration, improving education policy, and investing in research and development.

“The effects will emerge slowly, but for once we have the time because we aren’t drifting toward a crisis,” he said.

Aleksi Teivainen – HT