2010 budget: revenue down, spending to remain largely unchanged

Centre Party wants better tax break for those with low incomes

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Top figures at the Ministry of Finance convened at the military base of Santahamina in the east of Helsinki on Tuesday for two days of discussions on a proposal for next year’s state budget.
      The basic parameters for the discussions involve rising costs stemming from growing unemployment, coupled with reduced incoming revenue, leading to a need to borrow more money.
      “We are not cutting spending, even though our revenue base is collapsing”, explained Minister of Finance Jyrki Katainen (Nat. Coalition Party).
     
The EUR 12-13 billion gap that falls between income and expenses will be patched with heavy borrowing. Next year a quarter of state spending will take place with borrowed money.
      “We will have to balance between indebtedness and overindebtedness. The deeper we go during the crisis, the greater the task will be to balance the economy when it is over. So let’s keep our heads cool during the crisis as well.”
      He repeatedly emphasised to journalists that the spending framework needs to be held.
     
Dealing with employment is one of the most important tasks of the recession budget, and to that end, a few planned investments are to be moved forward.
      The government agreed already in the spring to shuffle EUR 200 million within the budget from other items as a way of promoting employment.
      Some measures are also expected for the prevention of bankruptcies.
     
One proposed stimulus measure, a cut in VAT on food bought in restaurants, does not win Katainen’s favour. “The price tag is 300 million, and I can’t quickly come up with an idea for where that is supposed to come from.”
      Katainen does not promise very large changes to taxation in other respects, either.
      However, he sees the autumn’s collective bargaining talks as very important. He hopes that wage earners and employers will “show realism”, and that they will work to preserve jobs.
      “The state cannot fix mistakes that might be made at the negotiating table.”
      Katainen promised that the government might consider the possibility of extending a carrot to the labour market table as a way of encouraging moderation in pay demands.
     
The ministry has also updated its cyclical outlook, indicating that the recession seems to be bottoming out. Until now, each forecast has been grimmer than the previous ones, whereas now it seems that things are no longer getting worse - except with respect to unemployment.
      In June the Finance Ministry predicted that the jobless rate would rise to 10 per cent. Now unemployment is expected to reach 10.5 per cent.
     
The Centre Party is not satisfied with the Finance Ministry’s proposals regarding easing the tax burden of those with low incomes.
      Under the ministry’s proposal, the basic tax deduction - the amount that a person can earn tax-free - is to rise from the present EUR 1,480 a year to EUR 2,000.
      The deduction applies to those earning less than EUR 1,400 a month. Most people whose income falls within the framework subsist on public assistance anyway, as even those with low wages usually earn more than that.
      The Centre Party plans to call for bigger tax cuts at the government’s budget talks scheduled for late August. The matter already came up in preliminary discussions in March.


Previously in HS International Edition:
  Finance Ministry considers allowing deferment of corporate taxes and employer fees (8.5.2009)

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