Helsinki spending exceeds revenues

Three-year deficit could total EUR 1.3 billion

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The economic slump is driving Helsinki’s finances into a serious crisis. The gap now looming between the capital’s income and expenditure is enormous.
      Helsinki Mayor Jussi Pajunen (National Coalition Party) says that the spending of the capital city could exceed its revenues by EUR 1.3 billion in the period from 2009 to 2011. The sum equals half of the city’s one-year tax revenues.
     
In broad outline, such an amount of money would be sufficient to cover the construction of two western Metro extensions, two Vuosaari harbour projects including transport facilities, or ten tram bridges across Kruunuvuorenselkä to the district of Laajasalo.
     
The greatest problem is a sharp fall in tax revenues. According to the most recent economic forecasts, Helsinki’s tax income for the next three years will drop by EUR 740 million.
      Pajunen is unable to report how serious Helsinki’s situation really is, as economic forecasts keep changing. Moreover, nobody knows exactly how deep the recession will get and how long it will last.
     
All the same, Helsinki does not intend to touch the current budget, even though the neighbouring cities of Espoo and Vantaa have already made a decision to revise their 2009 budgets.
      Instead, Helsinki is considering its options for 2010. Should it start saving, take out a new loan, or increase the municipal tax rate from the current 17.5 %.
     
Out of the shortfall of EUR 1.3 billion, almost EUR 600 million would be required for investments, namely the construction of new buildings and the renovations of old ones. A decision on this stimulus package was made already last autumn on the eve of the economic downturn.
      The collapse of tax revenues will lead to another yet larger deficit.
     
According to the most recent forecast by the Ministry of Finance, Finland’s GDP slowed sharply towards the end of 2008, and it is expected to decline by over 2% in 2009.
      If the three-year forecast made by the Ministry of Finance materialises, Helsinki’s tax revenues will drop by a total of EUR 740 million in the period from 2009 to 2011.
      Last autumn it was estimated that Helsinki would receive a total of EUR 2.5 billion in tax revenues in 2009. As things stand, it is likely that as a result of the fall in flows from corporate taxation, the capital’s income will be more than EUR 200 million lower than predicted.
     
The City of Helsinki will start drafting a budget for the fiscal year 2010 in March-April, when the City Board gives its budget instructions to city officials. A final decision on the budget will be made at the City Council next autumn.
      According to Pajunen, it is already now clear that for next year the capital will have to consider all its options: savings, additional loans, and a hike in the municipal tax rate. However, a final decision on the specific measures to be taken depends on the spring’s economic prognosis.
     
At present, Helsinki’s loans amount to EUR 700 million, which is not an excessive amount, Pajunen says.
      A positive glimpse amid all the gloom is the fact that Helsinki Energy is predicted to continue to make a good profit. The company’s net earnings for this year are expected to amount to EUR 245 million.


Previously in HS International Edition:
  Helsinki City Council approves plan for 900-metre bridge across Kruunuvuorenselkä to Laajasalo (13.11.2008)
  Ministry makes downward adjustment to budget of planned Espoo extension of Helsinki Metro (4.3.2008)

See also:
  Sharp decline in tax revenue forces Espoo to slash spending (30.1.2009)

Links:
  Ministry of Finance press release 23.1.2009: GDP to fall in 2009 - Central and local government in deficit

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