Minister of Finance Riikka Purra (PS) was photographed leaving a meeting of the Finns Party Parliamentary Group in Helsinki on 4 April 2024. Purra on Saturday told Iltalehti that the government is very likely to come out of its upcoming framework session with a plan to cut pensions, an area of public spending that has hitherto been ruled outside the effort to balance the central government budget. (Heikki Saukkomaa – Lehtikuva)

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MINISTER of Finance Riikka Purra (PS) views that the government has no choice but to slash earnings-based pensions as part of its effort to balance public finances, reports Helsingin Sanomat.

“My understanding is that it’s impossible to reach the desired outcome without dealing with pensions,” she said yesterday in an interview with the newspaper, referring to the three-billion-euro target set for the spending cuts and tax increases that are to be thrashed out in the looming framework session.

Purra on Saturday stated to Iltalehti that she believes also the pension age will eventually have to be raised. She added to the daily that the government is “very likely” to slash pensions as it continues its effort to consolidate public finances. The cuts, she estimated, could be carried out by freezing the annual cost of living-based increases in pensions or raising the taxes levied on certain pensions.

She also indicated that the government will seek to avoid measures that reduce the lowest pensions.

Iltalehti reported at the beginning of the month that the government has set itself the target of agreeing on fiscal adjustments worth three billion euros in the framework session scheduled for 15–16 April. Spending cuts, it revealed, are to account for two-thirds and tax increases for one-third of the adjustments.

Purra confirmed the approximate balance between the measures to Helsingin Sanomat on Monday.

The government will discuss its general fiscal plan at the framework session based on a proposal presented by the Ministry of Finance. A final decision on the plan is to be made at a plenary government session on 25 April. The plan will serve as the basis for the central government budget for 2025.

Iltalehti also revealed that the government has provisionally agreed on a 600–700-million-euro target for reducing spending on social and health care services.

Prime Minister Petteri Orpo (NCP) on Sunday told YLE that the government will leave no stone unturned in its framework session.

“We’ll review everything, including pensions,” he stated during his regular interview with the public broadcasting company. “Primarily we’ll be focusing on measures that deal directly with the ledger.”

“We won’t be touching the pension age.”

Helsingin Sanomat on Sunday reported that the two largest ruling parties are struggling to find common ground on pension cuts. The Finns Party has expressed its desire to find massive and technically complicated cost savings in pensions, to the chagrin of the National Coalition. The National Coalition, in turn, has caused frustration within its coalition partner with its insistence on favouring pensioners at the expense of other population groups.

The government has three options to slash pension spending, the newspaper wrote on Monday.

The first option is to adjust the annual increases in earnings-based pensions. The Ministry of Finance calculated one year ago that revising down the cost of living-based increases in earnings-based pensions by two percentage points would have a net impact of 400 million euros on public expenditure when also taking into account the impact on tax revenue. The average, roughly 2,000-euro pension would therefore increase by 40 euros less than it would otherwise at the turn of next year.

More than 34 billion euros in earnings-based pensions were paid out to Finns in 2023. Earnings-based pensions are thereby the single largest expenditure item in the public economy.

Pensions were raised by 5.7 per cent at the beginning of this year, marking the second consecutive year of unusually high increases due to the rise in consumer prices. With inflation slowing down, the increase is not expected to be as dramatic for next year.

The other two options have their challenges, too.

Increasing the taxes levied on high-income pensioners would likely stir up unrest among supporters of the National Coalition. Decision makers have also sought to tax pension and earned income at roughly the same rate when taking into account statutory social security contributions, indicate calculations by the Taxpayers’ Association of Finland.

With Minister of Finance Purra outlining that the possible cuts should not affect low-income pensioners, significant adjustments to the annual increases in national and, especially, guarantee pensions appear unlikely.

Both national and guarantee pensions are paid by the state to pensioners with low earnings-based pensions.

Adjusting the increases in national pensions alone would also not have as significant an impact on public finances given that they added up only to 2.3 billion euros in 2023. Reducing the increase by two points would generate gross savings of about 50 million euros, according to Helsingin Sanomat.

Aleksi Teivainen – HT

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