Finance Ministry warns against tax cuts and spending increases
Vanhanen and Heinäluoma disagree with assessment
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The main partners in the three party coalition government rushed to dispute the findings of a report issued by the Ministry of Finance on Friday warning Finnish political parties of a lack of room to manoeuvre in the coming Parliamentary term.
In his report, Jukka Pekkarinen, Director-General of the Economics Department of the Finance Ministry, warned that there are signs of a "frenzy" in the air, reminiscent of the time before the recession of the early 1990s. He said that there is a real danger of overheating on the economy, and that the government should concentrate on enhancing the state surplus.
Pekkarinen emphasised that the report is not a forecast, but an assessment based on the assumption that no new political decisions are made.
The ministry bases its views on criteria of sustainable economy as defined by the European Union, according to which there should be a surplus in public finances equivalent to more than four per cent of GDP.
The Ministry of Finance calculates that in 2011 the surplus would stand at just over three per cent of GDP. This suggests that according to the EU criteria, Finish public finances are not on a sustainable foundation.
Centre Party chairman, Prime Minister Matti Vanhanen responded to Pekkarinen’s report in his blog.
Vanhanen’s interpretation of the assessment is that the ministry expects the amount of money to be distributed to be the same as what the Centre Party predicts - EUR 4-5 billion. However, Raimo Sailas, a top Finance Ministry official, said at a press conference on Friday that the report suggests that there is "minus two billion euros" available for distribution.
Vanhanen notes that four years ago, in the previous election year, the Finance ministry also put forward some very ominous figures.
"However, we did not start to follow the bookkeepers’ practice, in which everything is assumed to be a zero sum game. Instead, the government focused on taxation, services, and income transfers, and the economy got on the move", Vanhanen writes.
The Social Democratic Party is proposing spending EUR 2.4 billion on services. According to SDP chairman, Minister of Finance Eero Heinäluoma, this goal does not contradict the idea of "minus two billion" in available funds.
"The SDP is approaching the matter from the employment angle", Heinäluoma said to Helsingin Sanomat by telephone. Pekkarinen predicts in his report that only 20,000 new jobs will be created in the next electoral term, while the SDP still has 100,000 new jobs as its goal.
Heinäluoma also said that the SDP is not politically committed to the EU’s demand of a surplus of four per cent of GDP. He said that adhering to such a goal would mean that all available money would have to be used to pay off the state debt.
National Coalition Party chairman Jyrki Katainen issued a statement on Friday noting that the Finance Ministry’s report proves that his party has been on the right track.
"The National Coalition Party has criticised the Centre, and the SDP for making irresponsibly big election promises. Now the Ministry of Finance is also warning parties not to promise too much before the Parliamentary elections", Katainen noted.
Helsingin Sanomat
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| 19.2.2007 - TODAY |
 Finance Ministry warns against tax cuts and spending increases
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