Government agrees on expenditure guidelines
The Government of Finland has now drawn up budgetary appropriation guidelines for the next four years. The ceiling for 2001 was set at FIM 193.8 billion, and at FIM 194.4 billion for 2002, FIM 194.8 billion for 2003 and FIM 193.1 billion for 2004. These guidelines were drawn up using price and cost levels for 2001.
Signs of overheating are becoming alarmingly widespread in the Finnish economy. Labour shortages are estimated to increase in fields such as construction activities in main centres of population growth and in the expanding information technology industries; economic developments in the labour, house and stock markets are starting to show some signs of overheating of the kind last seen in the late 1980s, when the Finnish economy was driven into recession; and inflation risks accelerating again.
Domestic money market measures, which earlier curbed overheating, are no longer viable in today's euro area conditions. Interest rate changes and currency fluctuations now reflect economic developments in the whole of the euro area, which means that the economic stance in larger Member State economies has become a major determining factor. Indeed, the euro area inflation rate is anticipated to still stay low compared to Finland's rate of economic growth.
In these conditions, it has become justifiable to adopt a tough stance in fiscal policy to ensure that economic developments remain on a balanced course. The financial surplus relative to GDP as calculated in the budgetary limits adopted today promises to rise from this year's 0.6 per cent to 1.4 per cent in 2001. These guidelines roughly correspond to the level of appropriations outlined in the Government Programme. Notwithstanding, the new expenditure framework makes next year's fiscal policy slightly less restrictive than this year.
Budget expenditure restraint during this period of strong growth lends support to the aim of cutting the State debt ratio sharply before the largest cost impact of the ageing population begins to take place.
These government measures are estimated to bolster local government finances in 2001 by a net value of FIM 1-1.5 billion, depending on the calculation convention applied. Central government transfers to local government will increase in 2001 by one half of the statutory adjustment in shared-cost activities. The other half of the adjustment will be made in 2002 and 2003. This means that legislation will have to be revised. In addition, central government transfers will be raised by one half of the full index adjustment. Separate measures will not be taken to offset local government income losses from the previously agreed higher earned income concessions. However, a temporary increase in discretionary aid to local government for a value of FIM 100 million. The aim of the Government's municipal plans under preparation is to better allocate transfers to those local governments that face the toughest financial difficulties.
The expenditure guidelines for 2001 include EU Structural Fund appropriations and related national appropriations for a value of FIM 3.2 billion to be divided under eight main classes. This implies an increase of about FIM 1.2 billion in the Budget for 2000.
The highest increase in appropriations is in the Ministry of Education. Interest outlays on State debt are set to decrease by over FIM 4 billion over the four-year period. Active debt servicing expenses comparable to State debt servicing are not included in the appropriation guidelines.
A Government Statement will be submitted to Parliament on the budgetary guidelines.
Inquiries:
Mr Timo Viherkenttä, Budget Director, Ministry of Finance, tel. +358 9 160 3105 or
Mr Hannu Mäkinen, Deputy Budget Director, Ministry of Finance, tel. +358 9 160 3036