Minister of Finance Riikka Purra (PS) spoke at a news conference following the conclusion of internal budget talks at the Ministry of Finance in Helsinki on Friday, 25 August 2023. Purra presented a budget proposal containing 87.2 billion euros worth of expenditures for next year, 10.1 billion euros of which would be funded by borrowing. (Roni Rekomaa – Lehtikuva)


THE MAIN OPPOSITION PARTIES in Finland are unconvinced by the first snippets of the budget proposal of Minister of Finance Riikka Purra (PS), reports YLE.

Purra on Friday revealed she is proposing a budget proposal worth 87.2 billion euros for next year, signalling an increase of 3.7 billion euros from this year. Billed to be the first in a series of budgets that set the government on a path to reverse its debt trend, the budget has a deficit of 10.1 billion euros, a drop of 300 million euros from the budget for this year.

The deficit is expected to remain at over nine billion euros in 2027. Purra estimated that the government is moving in the right direction but acknowledged that the difficult situation will require that fiscal adjustment continues beyond 2027.

“The situation will be difficult throughout this term and the numbers will continue to be ugly,” she said.

The proposal lays out income-tax cuts worth 100 million euros with a focus on low and middle-income earner and, fuel-tax cuts worth 156 million euros. The taxation of beer will be lowered to the tune of 25 million euros, whereas that of wines and spirits will be raised to generate 40 million euros in additional revenue.

Purra on Friday pointed specifically to cuts in funding for development co-operation, immigration, state administration and social security. Investments, meanwhile, will be made to supporting research and development, national security, active lifestyles, basic education and families with children.

The proposal, for example, calls for increases in appropriations for police and defence forces.

Matias Mäkynen, the chairperson of the Social Democratic Parliamentary Group, on Friday voiced his surprise that the weak economic situation is not taken into consideration in the budged proposal.

“This proposal didn’t comment on [the situation] in any way. And it seems unlikely that this adjustment will be scheduled according to the economic situation, which is something economists proposed as recently as today. This does pose the risk that the badly timed cuts will undermine the economic situation further,” he said to the public broadcasting company.

He also argued that the budget does not live up to the promises made to voters before the parliamentary elections.

“Purra is first of all breaking her promise about not cutting from low-income people. They’re making very harsh cuts to the livelihood of people, but they’re also breaking their promise about reversing indebtedness,” said Mäkynen.

The budget is ideological, according to him: what the spending cuts achieve is transferred to high-income people in the form of tax cuts.

“This is a very ideological budget that won’t save the national economy.”

Annika Saarikko, the chairperson of the Centre Party, highlighted that the budget proposal is roughly in line with the budgets drafted by the previous government.

“Many Finns might be surprised that the government’s lofty talk and concerns about debt have yielded a budget whose scope is roughly equivalent to what we saw last electoral term. The government faces a dual challenge: Finland’s long-running borrowing and the difficult economic situation,” she stated to YLE.

While the Centre recognises that spending cuts are necessary in the prevalent economic situation, it believes the cuts should be targeted differently – not at people who are already in the weakest position.

“It doesn’t mesh with my sense of justice that while you’re making painful cuts for those in the weakest position in society, you’re lowering taxes in the income bracket of cabinet ministers.”

Economists on Friday urged the government to postpone the spending cuts planned for next year due to the eroding economic situation.

“The Finnish economy is heading toward recession. Just this week we’ve had lots of bad news on the economic front – news that mark the continuation of bad economic news. That the government is heading toward recession should definitely be reflected in the government’s budget for next year,” Markus Lahtinen, the chief executive of Pellervo Economic Research, stated to YLE on Friday.

Last week indeed brought a string of worrying economic news: the number of bankruptcies has surged, the employment situation has deteriorated, the number of job vacancies has decreased and pessimism among purchase managers has eroded.

Lahtinen stressed that there is no need for widespread fiscal stimulus but encouraged the government to postpone the cuts in social security, including on housing allowance and earnings-based unemployment security, while proceeding with structural reforms according to plan.

“Is this the right time to tighten purse strings given that the economic development looks fairly muted?” he asked.

Tiina Helenius, the chief economist at the pension insurance company Elo, similarly viewed that the government is taking on the debt problem at a time that hardly the most opportune.

“With the economic situation looking like it’s deteriorating, the adjustment measures should focus on addressing structural issues whereas those that immediately undermine demand and employment should be delayed,” she said to the public broadcasting company.

“These decisions should be postponed until we see more clearly how the economic situation will develop in the next six months.”

Purra on Friday insisted that the fiscal adjustments laid down in the government programme will not be postponed. The government has outlined spending cuts worth a total of four billion euros for the electoral term, with 1.5 billion euros of the total arising from changes to the social security system.

The budget proposal will be unveiled in full today.

Aleksi Teivainen – HT