FINLAND will borrow 11.5 billion euros to finance its budget of 87.9 billion euros for 2024, according to Minister of Finance Riikka Purra (PS).
The Ministry of Finance estimated as recently as last month that the budget would have a deficit of 10.1 billion euros, but it has since had to revise down its estimate of tax revenue by 1.4 billion euros.
“The difference [in the budget deficit] is of course very large, and most of it is due to a decrease in tax revenue,” Purra conceded at a news conference held in Helsinki on Tuesday, 19 September.
The expenditures of the well-being services counties will also comfortably exceed the estimate made by the previous government. The surge in interest rates, meanwhile, will raise the servicing costs of central government debt by more than 2.5 billion euros compared to 2022, even though the surge has yet been fully reflected in the costs.
Both Purra and Prime Minister Petteri Orpo (NCP) drew attention to the very disconcerting economic situation, the latter describing it as the worst he has encountered in the six budget negotiations he has experienced.
“We’re faced with enormous challenges, but we’re taking resolute action to right the ship,” commented Orpo.
“Although a number of things look more alarming than before, we’re increasingly committed to promoting the entries in the government programme. That’s now more important than before,” echoed Purra.
The government made a number of consequential decisions at its first budget session, including on income tax rates and reimbursements disbursed by the Social Insurance Institution of Finland (Kela).
The tax burden on wage earners is set to decrease by almost 400 million euros due to, on one hand, a 100-million-euro cut in income tax rates and, on the other, a cut in unemployment security contributions that is made possible by the better-than-expected accumulation of contributions during economic and employment growth.
The income tax rate will drop by an average of 0.5 percentage points by the end of the electoral term, including by almost a full point for earners with annual income of 20,000–25,000 euros, according to the budget draft.
The excise tax on fuels will be cut in a way that is expected to lower the pump price of petrol by 4.4 cents per litre and diesel by 4.9 cents per litre.
Funding for research and innovation will increase by roughly 280 million euros from this year, with the government set to, for example, invest in the development of a new quantum computer and allocate 11.7 million euros for increasing student intake in higher education and raise funding for basic education by 50 million euros.
Around 335 million euros is allocated for raising the reimbursements for certain medical appointments disbursed by Kela.
The government agreed to allocate 160 million euros for accelerating the green transition in the energy sector. Funding from the EU Recovery Facility will be directed especially at streamlining permitting.
Almost 600 million euros has been allocated for transport, with the government spending 250 million euros on reducing the maintenance backlog, 110 million euros on increasing rail capacity between Helsinki and Riihimäki, and 163 million euros on improving the functioning of the passenger railway yard in Tampere.
Another 38 million euros has been allocated for continuing subsidised domestic flights to regional airports until the spring of 2026.
The government believes the newly announced fiscal adjustments and productivity measures, along with earlier measures to support economic and employment growth, will halt the increase in the debt ratio. It shed no light on either the cuts outlined in the government programme, including on the general housing allowance, or the plan to halt cost-of-living-based increases in student financial aid, for example.
Opposition lawmakers unsurprisingly found fault with the budget draft.
Annika Saarikko, the chairperson of the Centre, said she is pleased that the government is willing to invest in talent development but voiced her concern at the decision to run up more debt in order to lower taxes.
“It looks like reversing the course of the economy isn’t as easy as the National Coalition promised before the elections,” she wrote on X, the social media platform previously known as Twitter.
The policy position underpinning the budget is not responsible from either the human or economic viewpoint, argued Sofia Virta, the chairperson of the Green League.
“Finns, starting with children to students and low-paid employees who live alone, are being pushed into poverty. It isn’t right, and it isn’t sustainable,” she stated in a press release from the opposition party.
Li Andersson, the chairperson of the Left Alliance, said the budget draft will “intentionally” increase inequalities as the government is making “historic” cuts in social security in circumstances where the economic outlook is deteriorating and both unemployment and poverty are increasing.
“The taxation of high-income earners is reduced to give over 2,000 euros more to people making as much as Petteri Orpo and Riikka Purra. The same amount is taken away from a part-time salesperson,” she wrote in a press release.
Andersson also criticised the government for not publishing any estimates of the overall impact of the budget. The Finnish Federation for Social Affairs and Health (Soste), she highlighted, has estimated that the cuts in social security benefits will increase the number of low-income people by roughly 40,000 in 2024.
The response from labour market organisations was mixed. Juhana Brotherus, the chief economist at Yrittäjät, warned that the cautious approach taken to the budget negotiations could force the government to prepare for even greater cost-savings than agreed on in the government programme.
“Reversing the debt trend this electoral term will require new measures. Measures in the construction industry are important for small and medium business owners right now,” he said.
The Trade Union of Education in Finland (OAJ) welcomed the investments in education and research and innovation but voiced its dismay with the cuts in liberal adult education. The 50 million euros allocated for basic education, it viewed, should be reserved for hiring teachers and reducing class sizes.
The Finnish Confederation of Professionals (STTK) identified the investment in research as innovation as the only positive in the budget draft.
“The government is lowering taxation even more than it is cutting spending. It means that high-income earners are being supported while the position of low and middle-income people is eroding. These measures will not solidify the public economy but rather crumble the welfare state and undermine the position of wage earners,” slammed Patrizio Lainà, the chief economist at STTK.
Aleksi Teivainen – HT