Economic growth assists in achievement of parliamentary term fiscal objectives

According to the National Audit Office’s assessment, parliamentary term objectives on the fiscal position of general government will almost be reached, thanks to strong economic growth. The NAOF has published a fiscal policy evaluation assessment on the management of government finances.

The objectives regarding the general government fiscal balance and government debt ratio will be reached in 2019. According to the NAOF’s calculations, the structural balance of general government, from which the impact of the cyclical factors on the fiscal position has been removed, will be -0.7% in 2019. The medium-term objective (MTO) is -0.5%. These calculations are based on an economic forecast by the Ministry of Finance. The structural balance is not expected to experience any significant improvement during this parliamentary term, i.e. between 2015 and 2019. The improved economic situation has affected the reaching of the objectives more than fiscal policy measures.

“According to the NAOF’s preliminary assessment, Finland will comply with the preventive arm and the corrective arm of the Stability and Growth Pact in 2018. Although the structural balance will weaken, the development will not remain significantly behind the required change towards MTO when taking into account the flexibility factors granted by the Commission. On the basis of the current information, Finland will also comply with the rules in 2019,” says Matti Okko, the NAOF’s Director for Fiscal Policy Audit.

The Government’s budget proposal and the draft budgetary plan for 2019 are based on a short-term economic forecast produced by the Ministry of Finance and an assessment of medium-term and long-term economic growth.

“According to the Ministry of Finance, the GDP will increase by 3% in 2018, which is more than the median of the GDP forecasts by all the parties forecasting Finnish economy that the NAOF follows. On the other hand, the Ministry’s forecast for GDP growth in 2019 is more conservative than the median forecast. The forecast by the Ministry of Finance hasn’t been deemed unrealistic, however,” says Arto Kokkinen, the NAOF’s Senior Economist.

The NAOF’s preliminary fiscal policy monitoring and evaluation assessment investigates how well the Government has reached its objectives and whether it has followed the fiscal rules in 2018 and 2019. The assessment takes into account the Government’s budget proposal and the draft budgetary plan for 2019. The assessment is based on an independent economic forecast produced by the Ministry of Finance and other economic forecasts. The publication also includes an assessment by the NAOF on how realistic the economic forecasts by the Ministry of Finance are.

The NAOF will publish a more extensive fiscal policy evaluation and audit report for the parliamentary term in December 2018. The report will include an assessment of the soon-ending parliamentary term from the perspective of the objectives, compliance with the fiscal rules and the functioning of the fiscal framework. The report to be published in December will also include observations regarding fiscal policy preparation, the knowledge base and the functionality of steering procedures that should be taken into account in the next parliamentary term.