The National Audit Office monitors and evaluates fiscal policy in its role as an independent national fiscal policy evaluation body under the Stability Pact (Fiscal Compact) and within the meaning of European Union law. Provisions on the evaluation task are laid down in the Act on the National Audit Office of Finland (676/2000) and the Act on the Implementation and Application of the Provisions Governed by the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union and on Requirements Concerning Multiannual Budgetary Frameworks (869/2012, the "Fiscal Policy Act").
Fiscal policy evaluation comprises the assessment of the setting and implementation of the fiscal policy rules steering the fiscal policy. It covers monitoring of the compliance with the Medium-Term Objective (MTO) and the related correction mechanism, monitoring of the preparation and implementation of the General Government Fiscal Plan and monitoring of compliance with the Stability and Growth Pact. It also covers the assessment of whether the macroeconomic forecasts influencing fiscal policy decisions are realistic as well as the ex-post assessment of the reliability of the forecasts in the manner laid down in the Government Decree on the General Government Fiscal Plan (120/2014, as amended by decree 601/2017)1. By evaluating the fiscal policy, the National Audit Office promotes transparency and intelligibility of regulations as well as stable and sustainable general government finances.
Under section 6 of the Act on the National Audit Office of Finland, the National Audit Office hereby presents Parliament with this separate report on its fiscal policy evaluation for the 2017 parliamentary session.
This fiscal policy evaluation report includes a preliminary assessment on compliance with fiscal policy rules and the achievement of the Government’s goals in 2017 and 2018. It also covers the overall steering of general government finances, the fiscal policy framework, compliance with general government spending limits and adherence to the Stability and Growth Pact.
According to the assessment of the National Audit Office, the general government fiscal position will not improve during the current parliamentary term in the manner envisaged by the Government, despite accelerated economic growth. According to the calculations based on the Ministry of Finance forecast, general government structural balance, from which the impact of the cyclical component on the fiscal position has been eliminated, will weaken in 2017 and 2018. Furthermore, the nominal fiscal position will not achieve the balance target during the current parliamentary term due to slower-than-envisaged improvement of general government finances.
The 2017 supplementary budgets comply with the spending limits rule. The 2018 budget proposal contains an exception to the spending limits rule, which concerns transfer of the funding of the Finnish Broadcasting Company outside the spending limits. In the view of the National Audit Office, the transfer will weaken the credibility of the spending limits system. Incorporating the appropriation of EUR 18.6 billion earmarked for county financing in the general government spending limits will present challenges to the compliance with the spending limits in 2019, the last year of the current parliamentary term, and, consequently, with the overall spending limits for the parliamentary term.
According to the preliminary estimates, Finland will be in compliance with the preventive arm and the corrective arm of the Stability and Growth Pact in 2017. When consideration is given to the flexibility factors granted by the European Commission, Finland will also be in compliance with the two arms in 2018. According to the forecast produced by the Ministry of Finance, the change in the structural balance in 2018 will be about 0.2 percentage points smaller than what is required, even when consideration is given to the flexibility factors.
The National Audit Office deems the Government’s objectives to reduce the sustainability gap through structural reforms important. The health and social services reform offers an important opportunity to promote this goal. However, the effects on the sustainability gap of the Government proposals in spring 2017 regarding the health, social services and regional government reform were very vague. Further preparation of the reforms also enables making effective decisions in terms of general government finances. In August 2017, the Government decided to start the preparation of a family leave reform and a business subsidy reform, which can be considered well-justified measures to improve employment and productivity.