The National Audit Office takes positive note of the fact that the steering of general government finances is on a more consolidated basis and that the setting of fiscal policy objectives is now linked with the long-term prospects of general government finances. The report covers the steering of general government finances as a whole, adherence to central government spending limits and adherence to the Stability and Growth Pact.
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This separate report to Parliament contains the fiscal policy evaluation report 2015 of the National Audit Office. The report covers the steering of general government finances as a whole, adherence to central government spending limits and adherence to the Stability and Growth Pact.
The National Audit Office takes positive note of the fact that the steering of general government finances is on a more consolidated basis. This is based on the Decree on the General Government Fiscal Plan, under which the steering of general government finances must be put on a more comprehensive and long-term basis. This is also reflected in the Government Programme of Prime Minister Juha Sipilä. Until now, Government Programmes have focused on central government finances and the issues affecting general government finances as a whole have not been discussed in the document.
The National Audit Office takes positive note of the fact that the setting of fiscal policy objectives is now linked with the long-term prospects of general government finances. The planned consolidation of general government finances by 10 billion euros will cover a sufficiently long period as it extends beyond one parliamentary term. This requires commitment to a long-term fiscal and economic policy, which will pose new challenges to fiscal policy decision-making, in which the focus has until now been on parliamentary terms.
The Finnish economy is in need of wide-ranging structural reforms. The Government of Prime Minister Juha Sipilä is continuing the structural reforms launched in the previous parliamentary term. Under the Government Programme, before legislative proposals are submitted and implemented, the effects on the sustainability gap sought with the reforms should be assessed. When the agreements on the conclusions of the sustainability gap reviews and decisions on any further measures are made, it must be ensured that the legislation concerning the reforms can be processed on the basis of the principles of good statute drafting. This would help to ensure that the decisions will be made during the current parliamentary term.
According to the observations made by the National Audit Office as part of fiscal policy evaluation, the expenditure within central government spending limits in the final budget was about 34 million below the 2014 spending limits. The National Audit Office notes that the 2015 spending limits were prepared on the basis of a strict budgetary framework.
Expenditure outside the spending limits has remained stable despite the economic downturn. The National Audit Office notes that in the preparation of the 2015 spending limits, financial investments have been used for expenditure resembling grants. The Government should refrain from this.
The National Audit Office has assessed compliance with the Stability and Growth Pact on the basis of an overall assessment. The conclusion of the National Audit Office is that Finland was in compliance with the preventive arm in 2014. This conclusion is based on the fact that Finland was in compliance with the expenditure benchmark pillar with a clear margin, despite the existence of a significant deviation in the structural balance pillar. According to the assessment of the National Audit Office, deterioration of the structural balance may be the result of the lower than expected tax revenue and the growth in cyclical unemployment expenditure. At the same time, however, total public sector expenditure in Finland has grown substantially more slowly than permitted under the expenditure benchmark. Thus, the National Audit Office is of the view that compliance with the preventive arm is due to the moderate growth in total expenditure.
The National Audit Office has also assessed compliance with the corrective arm of the Stability and Growth Pact. In the view of the National Audit Office, it is not yet necessary to initiate excessive deficit procedure for Finland as we are only slightly in excess of the nominal deficit. If the adjustment of general government finances will proceed as laid out in the Government Programme, the deviation may be temporary. However, the effects of the measures laid out in the new Government Programme should only be assessed in autumn 2015 when the Government decides on the first General Government Fiscal Plan for the parliamentary term. Finland also remains in compliance with the debt criterion laid down in the corrective arm. However, forecasts indicate that Finland will be in breach of the debt criterion in 2016.
The National Audit Office would like to draw attention to the functioning of the preventive arm of the Stability and Growth Pact in a prolonged economic downturn. The flexibility elements of the preventive arm, in which consideration is given to such factors as economic circumstances and structural reforms, are useful instruments for ensuring that it will not become necessary to introduce strong economic adjustment measures in a downturn. As a result, Finland will soon be in a situation where compliance with the preventive arm will not provide us with sufficient margin for the criteria laid down in the corrective arm.
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