Government decided on third supplementary budget proposal for 2016

The Government discussed the third supplementary budget proposal for 2016 on Tuesday 25 October. The aim is to present the proposal to Parliament on Thursday 27 October.

Economic outlook

Finland’s gross domestic product is forecast to grow by 1.1% in 2016. This moderate growth will mainly be driven by private consumption and investment. The outlook for the global economy and for world trade has recently weakened. The growth in world trade in 2016 will be around 2% and the global economy will grow by about 3%. Finland’s export growth of 1% is again slower than the figure for the growth in world trade, and therefore the loss of market shares in international trade will continue.

The employment rate is forecast to rise to 68.5% at the same time as the trend in the unemployment rate turns onto a slight downward track. However, the number of long-term unemployed people is again increasing. The annual average unemployment rate for 2016 will be approximately 9%.

The general government deficit is expected to be 2.4% of GDP in 2016. Slow growth will not produce sufficient tax revenues to finance public expenditure, and, furthermore, the ageing of the population means an increase in public expenditure. General government debt as a proportion of GDP has long shown a consistent rising trend. This debt ratio is expected to rise this year to 64.3% of GDP. Central government has the largest deficit of all the general government sectors.

Changes in appropriations

A supplementary net total of approximately EUR 38 million is proposed for immigration-related expenditure. The number of asylum seekers arriving in Finland this year will be less than anticipated. However, more appeals against asylum decisions are being made than previously. Hence the number of asylum seekers within the reception system in the latter part of the year is greater than earlier forecast. As a result, it is proposed that the appropriations for the reception of refugees and asylum seekers be increased by EUR 110 million. It is also proposed that the variable annual appropriation for the central government transfers for integration of immigrants be reduced by EUR 30 million as a result of the less than expected number of asylum seekers receiving a residence permit and coming within the scope of the transfers. The appropriation requirement for unemployment security under the labour market support item will be reduced by EUR 32.2 million on account of an adjustment to the costs associated with asylum seekers who have received a residence permit.

A sum of EUR 35 million is proposed for safeguarding the operating conditions for agriculture. The aim is to improve the liquidity of farms and secure their profitability.

Within the administrative branch of the Ministry of Social Affairs and Health, the increase in the appropriation requirement in respect of earnings-related unemployment allowances is EUR 31.6 million. This supplementary figure is due to an increase in the central government’s final share of payments in 2015.

EUR 28 million is proposed for the capitalisation of Baltic Connector Oy, which is wholly state-owned. The European Commission has awarded support of EUR 187.5 million for this joint project of Finland and Estonia, which will cover 75% of the total costs. The proposed EUR 28 million in funding will cover Finland’s national share of the financing.

Within the administrative branch of the Ministry of Finance, it is proposed that EUR 10 million be transferred from the Ministry of Finance’s productivity appropriation item as supplementary financing for the introduction of a national incomes register.

It is proposed that the authorisations for transport infrastructure network projects already in progress be increased by a total of about EUR 8 million as a result of additional and modification work.  The necessary appropriations will be covered from funds saved on other projects that are under way.

Approximately EUR 2 million is proposed as supplementary funding for Finnish Customs as a result of the amendment of the Customs Act. The amended act means new expenditure on premises in regard to inspection premises that were previously free of charge.

Appropriations of EUR 180,000 for the assembly of an information system for use in mediation of criminal and civil matters are proposed for the National Institute for Health and Welfare.

Supplementary financing of EUR 150,000 is proposed for the Unemployment Security Appeal Board for the purpose of reducing the waiting and processing times for appeals and removal matters.

Within the administrative branch of the Ministry of Education and Culture, EUR 120,000 is proposed for repair of a failure in a wall and earthworks at Suomenlinna.

As part of the preparations for the merger project concerning the University of Tampere and the Tampere University of Technology, a maximum of EUR 50,000 will be reserved as the central government’s contribution towards payment of the initial capital of the foundation being established. Other funding bodies are also contributing to the establishment of the foundation. The aim is that under the Universities Act the activities of the University of Tampere and the Tampere University of Technology will be transferred to the new university foundation, which will operate as a university, as of 1 January 2018.

At the end of the year, an auction will be launched for the 700 megahertz frequency band. The auction will cost EUR 150,000, which will be covered by the participation charges collected from the auction participants. 

An additional EUR 31 million is proposed for the interest paid on central government debt. The need for a supplementary appropriation is mainly due to the issue premium caused by a negative interest rate in connection with the September reference loan issue, for which the interest rate hedging expenses have grown.

Increase in taxes accrued, decrease in other revenues

The estimate of actual revenues is decreased in net terms by EUR 210 million. The estimate of tax revenues is increased in net terms by EUR 608 million. This is particularly due to the information on taxes accrued in the first part of the year, on the basis of which increases are proposed in, for example, the estimates of earned and capital income taxes and the revenue estimates for corporation tax and value-added tax. By contrast, tax receipts have been lower than anticipated, for instance for inheritance and gift tax. The Government’s proposal to increase fines, presented on 4 February 2016, is still before Parliament, which means that revenue from increases in unit fines and fixed fines are not yet being received in 2016 in the manner previously anticipated, which reduces the estimated payment income by EUR 69 million. The estimated dividend and share sales revenue is reduced by EUR 758 million. This reduction is related to the transfer of revenue entry to 2017–2018.

Government borrowing requirement in 2016 will rise to EUR 5.96 billion

Taking into account the reduction of EUR 210 million in actual revenues and the increase of EUR 106 million in appropriations, the third supplementary budget proposal for 2016 increases the central government’s net borrowing requirement by EUR 317 million. The central government’s net borrowing in 2016 is estimated to be EUR 5.96 billion. This year the total asylum seeker costs will be EUR 734 million greater than in 2015.  It is estimated that government debt will be approximately EUR 105.8 billion at the end of 2016, which is around 50% of GDP.

Inquiries: Markus Lahtinen, Special Adviser to the Prime Minister (Economic Affairs), tel. +358 295 160 404, Juha Halttunen, Special Adviser to the Minister of Justice and Employment, tel. +359 50 574 0236, Ville Valkonen, Special Adviser to the Minister of Finance, tel. +358 44 567 2201, and  Mikko Kortelainen, Special Adviser to the Minister of Finance, tel. +358 50 301 8334

English translation of the press release published on 26 October 2016