Finance Ministry pushing for more spending cuts
State debt continues to grow
Finnish state debt is expected to continue to grow over the next four years, according to calculations made public by the government on Wednesday.
The government presented its budget proposal for next year, as well as this year’s third supplementary budget, and a budget framework for spending through 2015. These will now go before Parliament.
The final sum of next year’s draft budget is EUR 52.4 billion, of which EUR 7.1 billion is in the form of new borrowing. The trend is expected to be similar in the following years as well.
According to the economic review of the Ministry of Finance, which accompanied the draft budget, economic growth will average 1.9 per cent in the next four years. In the same period, the ageing of the population will start to affect the economy.
All of the budgets of the current parliamentary term are expected to show a deficit, which means that Finland will have to borrow in each of the years.
Next year’s debt will be the equivalent of 44.4 per cent of GDP, while in 2015 the figure is expected to be 48.1 per cent.
The government has agreed that it will take measures if the proportion of debt to GDP does not go down.
According to the budget framework, there will be “reason to prepare” for additional savings, although the government adds that spending cuts might prove problematic if there is a recession looming.
Next year’s taxation decisions were made during the autumn’s budget talks. Taxes on cars and fuel are set to go up, as well as those on alcohol and tobacco, and sweets and soft drinks.
Income taxes will not rise, nor will there be any overall increase in value added tax. The tax on capital gains income will go up to 30 per cent, and with very large earnings from capital gains, the tax will rise to 32 per cent.
Tax deductions for interest on housing loans and for spending on home services will be cut.
The biggest single spending cut is on state subsidies for local authorities. The Association of Finnish Local and Regional Authorities (KL) calculates that the move will tighten local budgets by EUR 448 million compared with this year. This would lead to pressure for an average 0.5 percentage point increase in municipal taxation.
Parliament starts processing the government’s draft budget on Monday. The process is expected to last until near Christmas.
Previously in HS International Edition:
Finance Ministry warns of further cuts in tight budget (13.9.2011)
New government programme taxes high incomes more heavily than before (20.6.2011)
Draft budget raises many already high taxes (16.9.2011)
Government budget proposal exceeds ministry recommendations (15.9.2011)