The Government's adjustment measures support strengthening public finances, but additional measures are needed to address expenditure pressures

Despite additional measures, the Government's objectives of strengthening public finances will not be achieved in the light of the current forecasts. The underlying reason is the permanent general government deficit, which is due to an increase in general government expenditure. The increase, in turn, is mainly the result of structural factors, such as the ageing of the population.

The spring 2024 fiscal policy assessment of the National Audit Office of Finland (NAOF) deals with, for example, the General Government Fiscal Plan, the economic forecast of the Ministry of Finance, and the impact of the new EU fiscal framework.

In spring 2024, Prime Minister Orpo’s Government specified its fiscal objectives and decided on EUR 3 billion additional adjustment measures. As the objective of strengthening public finances is still substantial, it is good that the range of measures was expanded in spring 2024. However, despite the adjustment measures now decided, the government debt ratio in Finland is forecast to grow in the long term.

“In the light of the current forecasts, even the additional measures decided will not be sufficient to achieve the Government’s objectives of improving the fiscal position and stabilising the debt trend. The question is whether measures should be directed to a greater extent at the causes for expenditure pressures, such as the ageing of the population, in order to better control the growth of Finland’s government debt-to-GDP ratio in the long term,” says Economist Suvi Kangasrääsiö.

The Government aims at 100,000 new employed people and thereby at strengthening public finances by EUR 2 billion through structural measures by 2027. According to calculations by the fiscal policy monitoring function, the ex-ante estimate of the total employment impact of the measures decided so far is 65,000 to 83,000 new employed people and the dynamic impact on public finances is approximately EUR 1.3 to 2.1 billion.

Finland risks breaching the reference value for general government deficit

The new EU fiscal rules entered into force on 30 April 2024. The targets for strengthening public finances in Finland will not be defined until in the autumn. The 3% reference value for the general government deficit continues to be in force even after the reform of the rules. Based on the Ministry of Finance’s forecast and the consensus forecast compiled by the fiscal policy monitoring function, Finland risks breaching this reference value in 2024.

The measures the Government has taken to strengthen public finances are justified from the perspective of compliance with the rules as well.

Read more: Fiscal policy monitoring assessment on the management of general government finances, spring 2024