Terhi Järvikare, the director general of the Ministry of Finance, spoke at the launch event of the ministry’s survey of the structure of general government finances in Helsinki on Monday, 6 March 2023. The Ministry of Finance believes the expenditure and revenue structure requires “significant adjustment” to stabilise general finances. (Antti Aimo-Koivisto – Lehtikuva)


MAJOR PARTIES in Finland have widely rejected the most impactful spending cuts and tax increases proposed by officials at the Ministry of Finance, reports Helsingin Sanomat.

The Ministry of Finance on Monday released a report assessing a variety of concrete alternatives for balancing public finances, including doing away with the reduced value-added tax rates, moderating index-based increases in earnings-related pensions and other social security benefits, and slashing state subsidies for cultural and sports organisations.

Because the structures of general government finances were created at a time of more favourable demographic and economic development, it argued, the financing base is no longer sufficient to support all public-sector tasks.

While the Centre, Finns Party, Green League, Left Alliance, National Coalition and Social Democrats all commended the work of the ministry officials, they expressed their support only to measures they had proposed themselves.

Juha Majanen, the permanent state secretary at the Ministry of Finance, on Monday said he hopes decision makers will engage in thorough discussion about the alternatives identified by officials instead of rejecting them off-handedly.

“It may be that this generation has to give up something for a moment to make sure there’s still a welfare state for our children,” he said.

Officials at the Ministry of Finance estimated that adjusting the reduced value-added tax rates, which are applied to commodities such as food and medication, could increase tax revenue by up to 2.8 billion euros.

“We’ve been critical about raising the reduced value-added tax rates all along. We don’t think it’s tenable, particularly now that prices have risen,” Matias Mäkynen, a deputy chairperson of the Social Democrats, declared to Helsingin Sanomat.

“Now is not the time to raise food and medication prices,” echoed Riikka Purra, the chairperson of the Finns Party.

The parties similarly voiced their reluctance to moderating the increases in earnings-based pensions and other social security benefits, despite ministry officials viewing that adjusting the index-based increases by a single percentage point would generate annual savings of around 1.5 billion euros. Earnings-based pensions would account for more than half of the projected savings, according to the daily newspaper.

While the Greens, Left Alliance and Social Democrats unsurprisingly voiced their opposition to the idea, the idea was also rejected by the Finns Party and National Coalition.

“We simply aren’t interested in freezing the index-based increases in earnings-related pension. Pensioners must be able to trust that they didn’t pay their pension contributions for nothing,” argued Kai Mykkänen, the chairperson of the National Coalition Parliamentary Group.

Both the Centre and National Coalition, though, expressed their tentative support for moderating the increases in the housing allowance.

The Ministry of Finance on Monday stressed that decision makers should not rule out spending cuts in education due to the appalling situation of public finances. Among the possible measures identified by officials were shortening the duration of certain vocational degree programmes from three to two years and introducing tuition fees at higher education institutes.

“It’s simply not okay. Not a single euro should be cut from education in the next electoral term,” retorted Maria Ohisalo, the chairperson of the Green League.

The reception was similarly frosty for the idea of slashing state subsidies to cultural and sports organisations by 500–700 million euros. The Finns Party, though, stood out in this regard, with its chairperson estimating that there might be room for cuts in subsidies to cultural organisations.

Minister of Finance Annika Saarikko (Centre), who commissioned the report from the Ministry of Finance, said the work of ministry officials demonstrates that savings of 2.5–3.0 billion euros can be achieved without “eroding the core of the welfare state”.

Also she declined to specify which of the proposals the ruling centre-right party would be prepared to support, however.

“One interesting measure I could point to – even though we’re talking about fairly small sums – is reforming the reception of refugees and asylum seekers and streamlining the residence permit process to the tune of around 100 million euros,” Saarikko told Helsingin Sanomat.

Aleksi Teivainen – HT