General government finances nearly balanced – rules are followed

23.5.2019 - 12:00

The National Audit Office (NAOF) assesses that Finland has complied with the EU fiscal rules . The central government spending limits have also been followed. It is important in the management of general government finances that the Government sets such economic policy targets that can be monitored explicitly.

NAOF has published an assessment of fiscal policy monitoring regarding the compliance of Finland with the central government spending limits and the EU rules of fiscal policy during the previous year. The assessment also includes a review of the economic forecast produced by the Ministry of Finance and the general government fiscal plan prepared on the basis of the forecast.

According to NAOF’s calculations, the central government spending limits were followed in 2018. NAOF has already previously emphasised the need to develop the spending limits framework so that it would act as well as possible as a tool for steering the fiscal policy. In April, the Ministry of Finance published a report of the spending limits working group which excellently highlighted key questions related to the spending limits system, with a view to incorporate those issues in the Government Programme.

“One of the most important questions in the development of the spending limits system is, for example, the definition of financial investments, which should be clarified further. It is important to ensure that budget spending limits are comprehensive. Spending can only be outside the limits in well-justified situations”, says Director Matti Okko.

According to NAOF’s assessment, Finland complied with the EU Stability and Growth Pact in 2018. General government finances will be nearly balanced by 2021.

“The structural balance of the general government, significant in terms of the rules, has worsened. However, the rule on the structural balance was followed, when the flexibility factors granted by the Commission are taken into account. In the light of current knowledge, Finland will also comply with the rules in 2019 and 2020”, says Economist Leena Savolainen.

NAOF also assesses the general government fiscal plan for 2020–2023 regarding how comprehensive its data content is and how well it is in line with regulations. The general government fiscal plan corresponds with statutory requirements. NAOF holds that the Government’s targets should be monitored more consistently in general government fiscal plans. Overall, the Government’s fiscal policy targets should be as clear as possible so that their fulfilment can be assessed explicitly.

The general government fiscal plan proposed by the Government is based on a short-term forecast and an estimate of medium-term economic outlook produced by the Ministry of Finance. The new plan is technical in nature, and a plan including the policy measures of the new Government will be drawn up in September 2019. NAOF holds that the forecast produced by the Ministry of Finance on which the fiscal plan is based is realistic.

In autumn 2019, NAOF will publish an assessment of the Government Programme and of the Government’s first general government fiscal plan. The report assesses the Government’s targets for the new term and the potential of reaching them, particularly from the viewpoint of compliance with the fiscal policy rules and from the viewpoint of fiscal stance.

Read more about the publication: NAOF’s assessment of the management of central government finances