Government agreed on supplementary budget to boost employment and on the spending limits for 2011-2014
Employment, practical training or a study place for 15,000 young people
On Tuesday 23 March, the Government agreed on a supplementary budget proposal for 2010 and on the Government spending limits for the period 2011-2014. The increases in appropriations proposed in the supplementary budget will be targeted especially towards measures to alleviate unemployment. The spending limits decision made by the Government mainly outlines preparations for the 2011 Budget, which will be the last budget planning year for this Government. This means the overall spending limits for the years 2012-2014 are mainly technical ones, reflecting how existing decisions will affect the annual expenditures for those years. The new Government, which will be appointed after the spring parliamentary elections, will decide on its political priorities in the central government spending limits for 2012-2015 on the basis of a new Government Programme.
Government to allocate EUR 77 million to ease youth unemployment
The supplementary budget proposal allocates a total of around EUR 77 million to reduce unemployment among young people. This means that approximately 15,000 young people will find employment, a place to study or take part in active labour market measures. The Government will also grant resources for shipbuilding and building renovations with a view to sustaining employment.
The Government proposes appropriations totalling EUR 33 million and an additional authorisation of EUR 9 million to curb youth unemployment by means of action involving job creation, student placements and special measures. The appropriations would make it possible to bring an average of 3 900 people within the scope of active labour market measures. Advisory services targeted to young persons will be improved. Start-up funds, entrepreneurship education and targeted wage subsidies will be increased. An employment voucher will be introduced for young people and recent graduates.
Increases in vocational education and training and apprenticeship training
An increase of EUR 4.4 million is allocated for initial vocational education and training. This sum will be used to increase the student number in the Career Start (ammattistartti) programme by 1,000. The funding will be especially targeted to education guiding and preparing school-leavers for vocational education and training. An increase of EUR 5.5 million is allocated for apprenticeship training. Most of it, EUR 4.5 million, is intended for increasing initial vocational education and training given in the form of apprenticeship training and, relating to this, for increasing the targeted wage subsidy paid to employers to the extent that an additional 1,000 young persons could be recruited to training programmes. Moreover, EUR 1 million will be allocated for increasing the number of students in apprenticeship training for further vocational qualifications by 250.
Liberal adult education institutions are allocated a total of EUR 1.35 million, of which EUR 0.9 million will be used to increase the number of study weeks in folk high schools with a view to providing a place in further training for 300 school-leavers who have not secured a place in upper secondary education or training and the remaining EUR 0.45 million to subsidise education and training vouchers.
Employment in the creative sectors
From the unallocated proceeds of Veikkaus, the Finnish National Lottery, EUR 30 million will be entered as revenue for the purpose of promoting young people's employment prospects in the fields of research, art, sport and youth work. Pools and lottery funding will also be targeted to the storage and digitisation of materials, to job creation in audiovisual and other culture and in the creative industries, to the employment of holders of vocational qualifications in sports and to projects promoting youth employment. On estimate, the allocations from the pools and lottery funds can promote the employment prospects of some 4,700 young persons.
Additional EUR 3 million will be allocated to outreach youth work.
EUR 0.5 million more in government aid will be allocated to 4H activities developing young peoples capabilities to apply for work.
The Government proposes EUR 1.5 million for the purpose of creating jobs for young people in the Metsähallitus nature-management projects and in customer service functions in the nature centres. Targeted wage subsidies will cover part of the payroll expenses. The appropriation is estimated to provide work, totalling some 50 man-years, for over a hundred young people in different parts of Finland.
Measures to combat unemployment in the shipbuilding industry
An authorisation to grant an additional EUR 10 million will be targeted to the innovation support for shipbuilding. A one-off loan authorisation of EUR 500 million is proposed to the refunding of ship loans. The proposal is to grant the Finnish Border Guard an authorisation to purchase ten new patrol boats. In addition, the acquisition of ships with oil spill response capabilities will be made sooner than originally planned. These measures aim to ensure the survival of the shipbuilding industry employing 21,000 people in Finland through the current economic situation and to combat unemployment in the sector. A EUR 15 million environment support will be budgeted for new ship acquisitions.
As far as the risk-based research and development lending by Tekes - the Finnish Funding Agency for Technology and Innovation is concerned, EUR 3 million is added to its appropriations and EUR 5 million to its authorisation to grant loans, especially in endeavours aiming to convert R&D results into internationally marketable products. Jobs corresponding to approximately 175 man-years will be created in companies through these measures.
The ten per cent renovation grant introduced as a stimulus measure for the construction sector proved more popular than expected: applications received amounted to a total of EUR 2.5 billion. Instead of the earlier EUR 50 million authorisation, the Government now proposes a EUR 125 million authorisation for renovation grants in the supplementary budget. The grants are paid by the Housing Finance and Development Centre of Finland.
Revenue estimates, financial equilibrium and debt in the supplementary budget proposal
The supplementary budget proposal raises the net estimate for ordinary revenue in central government by EUR 891 million, of which EUR 770 million derives from an increase in the value-added tax revenue accrual. The sum of undistributed profits entered as revenue from Veikkaus, the Finnish National Lottery , is proposed to be raised by EUR 30 million.
In 2010, net borrowing can be reduced by EUR 812 million as a result of the EUR 891 million increase in ordinary revenue and the total increase of EUR 79 million in appropriations. Central government net borrowing will amount to EUR 12.2 billion in 2010. Consequently, central government debt at the end of 2010 is estimated at just under EUR 77 billion, which is just short of 44 per cent of GDP.
The supplementary budget proposal will be submitted to Parliament on 30 March 2010.
Impact of the deep recession central government finances to remain in deficit throughout the budget planning period
The deep recession will have an impact on public finances for years to come. This year, the deficit is projected to deepen to four per cent, thus exceeding the three per cent budget deficit ceiling set in the EUs Stability and Growth Pact. While economic recovery will boost public finances in the years to come, unless new measures to support growth and strengthen the public finances are introduced, general government finances are expected to remain in a clear deficit up until 2014.
By the time of the next budget session, once the results of the preparatory work carried out on a tripartite basis are submitted to it, the Government will draw up a plan to stabilise public finances and to eliminate the sustainability gap.
Difficult years ahead for local government finances
The position in local government finances, especially in larger cities and in municipalities dependent on industrial exports, deteriorated fast last year, as local government tax revenue ceased to grow and corporate income tax revenue collapsed. Final accounts estimates for 2009 indicate that the annual margin in local government finances dropped by one fifth and the debt burden increased at an accelerating rate. Municipalities attempted to adjust their finances through a significant 0.4 percentage point raise in the average municipal income tax rate and an exceptionally high raise in real estate tax rates.
In 2010, with employment prospects being bleak and the base in local government tax revenue deteriorating as a result, the crisis will spread to the whole of the local government sector. Recovery will be slow, as tax revenues accrual will be weak in 2011 too. Unless municipalities significantly curtail expenditure growth on a permanent basis, local government is set to remain on a path of expanding tax rates and mounting debt burdens.
It is ever more important to ensure that local government finances are sustainable in the long term because the financial crisis eroded municipal finances and the medium-term outlook is poor, and because central government finances are weak. With expenditure pressure mounting in local government year by year owing to an ageing population, the need to introduce reforms to boost productivity in basic public services becomes ever more important.
Government supports municipalities in provision for basic public services
The Government decided already a year ago on measures supporting local government finances. These steps already had an impact in 2009, and will continue between 2011 and 2014. The most substantial measure is the temporary 10 percentage point raise in the corporate tax apportionment in local government between 2009-2011, which increases local government tax receipts by nearly EUR 400 million per year. In addition, local government real estate tax rate scales were raised from the beginning of 2010. The abolition of the employers national pension contribution at the beginning of 2010 means that local government expenditure pressures will be permanently eased by EUR 250 million on an annual basis.
Government aid granted to municipalities by various administrative branches in government will reach a total of EUR 9,855 million in 2011. These government grants will grow by a net of EUR 360 million during the budget planning period between 2011 and2014.
The central government transfers for social welfare and health services in local government will be increased by EUR 21.25 million in 2011, as outlined in the Government Programme. This increase consists of implementing legislative provisions governing services for persons with disabilities, of improvements to maternity and child health clinic services, and of funds for school and student health care and other services. Furthermore, an index adjustment to child home care allowances will increase the government transfer by nearly EUR 3 million. These changes will lead to an increase of EUR 31 million in local government expenditure.
With the responsibility for organising interpreter services for persons with severe disabilities being transferred to the state starting from 1 September 2010 means that local government expenditure will be reduced by EUR 17.6 million per year.
The compensations payable for the provision of medical and dental training in 2011 will rise by EUR 5 million.
Over the budget planning period, up to a total of EUR 58 million in government aid granted as a part of the governments recovery measures will be provided to set up projects for educational institutions. In addition, EUR 10 million in ex post government funds for repairing mould damage in child day care centres, health care centres and homes for the elderly will be granted in 2012.
Measures enhancing employment and training by means of initial and further vocational education and training will be continued in the Ministry of Education sector from 2011 to 2014. The decisions made here and earlier will increase the government transfers for this purpose by some EUR 63.5 million.
In addition, around EUR 20-25 million in targeted government grants will be allocated to local authorities from youth employment appropriations .
Government takes steps to promote well-being, knowledge, innovation and information systems
Priority areas in the spending limits decision include R&D, climate and energy policy, and the development of social security and knowledge. Given the current situation in employment and public finances, the new budget planning period starting in 2011 will focus on employment and training in the first year, so that appropriations for these will stay at a high level. Expenditure generated by measures decided on before the new budget planning period will be included in the spending limits of the first years of the new period.
Proposals of the SATA Committee for reforming social protection will be implemented during the budget planning period. Major social policy measures that have already been decided on include: a guarantee pension securing a reasonable rate for the smallest pensions will be introduced on 1 March 2011; and the minimum rehabilitation allowance and different daily allowances, child benefits, home care allowance and private care allowance for children, which have not been covered by index protection, will be linked as from 1 March 2011 to the national pension index reflecting the change in consumer prices. The responsibility for organising psychotherapy reimbursed as discretionary rehabilitation under the health insurance system will be transferred to the Social Insurance Institution as from 1 January 2011.
During the current government term of 2007-2011, funding for R&D has exceeded the EUR 90 million increase established in the Government Programme. By 2011, a total of EUR 177 million will have been added to the original sum. Taking account of all increases, public R&D financing will grow by around EUR 320 million to a total of EUR 2,060 million in 2011. Public R&D funding in relation to GDP will rise from 0.97 per cent in 2007 to approximately 1.12 per cent in 2011.
Relating to the university reform implemented at the beginning of 2010, a decision was already made at an earlier stage to allocate a total of EUR 150 million in equity to the original equity of the two foundation universities, Aalto University and Tampere University of Technology. With the decision on spending limits, the government is prepared to make a financial investment totalling EUR 100 million in universities other than the foundation universities in 2011. The effective sum of the government investment will be determined on the basis of the original principles of distribution, depending on the volume of purely private investment.
To boost productivity, a considerable sum of additional investments will be allocated to advance information systems in many branches of government. Core central government financing to boost productivity will be allocated in 2011to the procurement of an administrative and human resources management information system and to carrying out a project to promote eServices and democracy (SADe project), for example. A total of EUR 11 million will be allocated during the budget planning period for further pursuing the comprehensive revamping of the police information systems (Vitja project). The development of the electronic client information systems in social welfare and health care will be pursued thanks to an additional appropriation of approximately EUR 20 million per year.
Other expenditure guidelines
Finland's candidacy for a non-permanent seat in the Security Council for 2013-2014 has been taken into account in the spending limits of the Ministry for Foreign Affairs.
On international forums, the Government has confirmed its commitment to increase its official development assistance (ODA) to 0.7 per cent of Finlands GNI by 2015. Furthermore, Finland has pledged to contribute at least EUR 110 million to help developing countries combat climate change in 2010-2012. As from 2013, Finland will participate in the long-term public funding of climate change to developing countries in accordance with the decisions made in the UN Climate Change Conference in Copenhagen.
Provision has been made in the decision on spending limits for the increase in development cooperation appropriations administered by the Ministry for Foreign Affairs, meaning that the level of Finlands ODA will rise from 0.55 per cent this year to 0.58 per cent in 2011 in relation to GNI. This percentage will be kept as a technical default for the next Government in 2012-2014. Political decisions on possible increases in development cooperation appropriations over 2012-2014 will be made by the next Government and Parliament.
The Government will step up its efforts to combat domestic violence by making petty assaults in close family relationships an offence subject to public prosecution. At present, it is still an offence in which the prosecution rests with the injured part.
The Border Guard will be replacing its twin-engine helicopters as of 2011, and a total of EUR 44 million will be allocated for this purpose during the budget planning period. The total cost of the new helicopters is EUR 62 million, and funding for this purpose has also been requested from the European External Borders Fund.
Given that the number of refugees and asylum seekers has proven to be higher than anticipated, an annual average of EUR 117 million in additional funding will be allocated, in the field of migration administration, to finance the reception of refugees and asylum seekers and to cover costs incurred by local authorities.
In the administrative branch of the Ministry of Agriculture and Forestry, both EU and national funds are used to support agriculture, rural development and fishery in accordance with the objectives of the common agricultural and fisheries policies of the EU.
The minimum interest rate for interest-subsidised loans taken out in 2000-2007 will be lowered to ease the financial position of farms that have made investments. This reform brings minimum interest rates paid by farmers with older loans raised during this period in conformity with new loans.
The Government will launch large-scale transport infrastructure projects, as outlined in the Government Report on Transport Policy. There will be altogether 33 projects in progress during the budget planning period. Seven new projects will be launched in 2011: a by-pass road for E18 in Hamina, main road 8 Sepänkylä by-pass, main road 12 Tampere lakeside road, main road 19 Seinäjoki eastern by-pass road, the 2nd phase in improving the service level of the Seinäjoki-Oulu rail section, Uusikaupunki fairway, and electrification of the Rovaniemi-Kemijärvi rail section. For 2011 a total of EUR 20 million will be reserved for the 2nd phase of repairs in the town centre of Savonlinna.
A national action plan, Broadband for All, will improve the information society infrastructure. A total of EUR 66 million has been reserved for the purpose between 2009 and 2015.
Relative to the previous spending limits decision, a total of EUR 61 million will be added to appropriations for labour market policy in 2011. The impact of development subsidies for companies granted in 2009 and 2010 and of the additional authorisations for employment-based investments has been taken into account in these provisions for appropriations.
In light of the current cyclical turn, financing from the Structural Fund programmes will be targeted as swiftly as possible towards actions to foster entrepreneurship, to encourage setting up new businesses and to create of new jobs as well as towards employment and training measures.
The demand for cyclical renovation grants for terraced and apartment buildings in 2009 and 2010 was far greater than anticipated in preliminary estimates. An appropriation of EUR 132 million will be allocated in 2011-2012 for this purpose, EUR 75 million of which will be financed by the Housing Finance and Development Centre of Finland.
The estimates for central government on-budget revenues are based on medium-term projections for the national economy and related tax base estimates. Along with the recovery in total output, on-budget revenues are expected to grow by 2 per cent in 2010 and by an average of 5½ per cent per year over the budget planning period.
Tax revenue, accounting for some 85 per cent of the ordinary on-budget revenue, is expected to increase by an average of 6 per cent annually during the budget planning period. In addition to growing tax bases, tax revenue will increase as a result of higher indirect tax rates to be introduced between 2010 and 2012 and the termination in 2012 of the fixed-term reduction in the governments apportionment of corporate tax revenue.
In 2009, central government tax revenue fell by 15 per cent, i.e. by EUR 5.7 billion, as a result of the decrease in total output and owing to changes in tax bases. According to current estimates, central government revenue would reach the same level as in the 2008 final accounts in 2012, and at the end of the review period tax revenue would be EUR 3.1 billion higher than in 2008.
Tax receipts from earned income and capital income are expected to increase by an annual average of 5½ per cent over the budget planning period. Corporate tax revenues are expected to rise by an average of 13 per cent per year. Fast growth in corporate tax revenue is explained not only by improved business profitability but also because the temporary increase for 2009-2011 in the apportionment of corporate tax revenue for municipalities and parishes will terminate during this budget planning period.
Value-added tax revenue is expected to increase by an average of 4½ per cent during the budget planning period. As of 1 July 2010 all value-added tax percentages will be raised by one percentage point and VAT for restaurants will decrease to 13 per cent, which is the same rate as for foodstuff.
Receipts from excise duties are estimated to increase by an annual average of 5 per cent during the planning period. The increase will peak in 2011 when energy taxes will be raised by EUR 750 million. As of the beginning of 2011, an excise duty on sweets will be introduced and the excise duty on soft drinks will be raised. These are calculated to increase tax revenue by a total of EUR 100 million annually.
Tax on lottery proceeds will be raised to 10 per cent from the beginning of 2011, increasing tax revenue by over EUR 10 million.
Debt burden mounting
To safeguard adequate room for manoeuvre and to secure shifts in priorities, the current spending limit decision will pursue some of the reallocations adopted in the 2010 Budget. The operating expenses of government agencies will be reduced by EUR 47 million in 2011 and by over EUR 30 million during the rest of the years of this budget planning period.
Central government finances will remain in deficit throughout the budget planning period. The deficit is estimated to amount to EUR 8.4 billion in 2011. In terms of national accounts, this equates to 4.7 per cent of GDP. By 2014 the deficit is expected to contract to 4.0 per cent of GDP.
Central government debt is projected to grow throughout the planning period and to total around EUR 110 billion in 2014, which calculates at over 50 per cent of GDP.
Preliminary estimates indicate that total output in Finland will start growing this year. The improvement in private consumption and the recovery of exports are expected to bring an increase of about one per cent in GDP relative to last year. In 2011, private sector investments will start growing, and exports and consumption will continue to grow, although at a more moderate pace than this year. Total output is forecast to grow by a little over two per cent next year. Foreign trade has started improving. However, growth potential in exports is partly hampered because most of Finlands exports involve EU economies, where growth prospects are currently weaker than average. In 2010 and 2011, exports are expected to grow slightly more than imports, lifting the balance of current accounts out of the record low level of 2009.
Given the current business cycle, the rise in the unemployment rate has been slow. This is mainly thanks to temporary lay-offs and the willingness of companies to retain their skilled labour. In spite of the increase in total production, the number of unemployed people will continue to grow in 2010, and the unemployment rate is expected to rise to slightly over 10 per cent. Monthly unemployment figures are expected to peak late this spring. The situation in employment will improve in 2011: the employment rate is forecast to rise to 67 per cent and the unemployment rate to be less than 10 per cent.
Further information: Hannu Mäkinen, Director General of the Budget Department, Ministry of Finance, tel. +358 9 1603 3036