The Government has agreed on the budget proposal for 2013

The situation in the euro area is one of the main reasons behind the economic uncertainty in Finland. The global economy continues to grow very slowly. At the same time, economic growth in the euro area and the EU has come to a halt. In Finland, too, economic uncertainty has increased and the predicted economic growth of 1% is based almost exclusively on domestic demand.

Supporting economic growth and balancing central government finances are of key importance in safeguarding the sustainability of public finances and the funding of the welfare state. Investments in growth and employment and fairly implemented central government adjustment measures accompanied by significant structural reforms will continue to form the core of Finland’s economic policy.

A concrete economic policy objective is to maintain Finland’s credit rating at the current best possible level. To safeguard the sustainability of public finances, the aim is to achieve a substantial reduction in the central government debt-to-GDP ratio by the end of this parliamentary term.
With its budget proposal, the Government seeks to boost the growth potential of the Finnish economy, increase the employment rate, improve the position of those on low incomes and enhance the international competitiveness of business activity. The proposal also implements a number of decisions adopted in the government discussion on spending limits to reinforce social justice and the welfare state. The budget proposal introduces significant improvements to the resourcing and position of elderly care.

The Government proposes a Budget of EUR 54 billion for 2013.
Appropriations for the different branches of government will be cut by approximately 3% from the amount budgeted for 2012. Tax revenues, in turn, are expected to grow by around 5% from the amount budgeted for 2012. On-budget revenue is expected to amount to EUR 47 billion.

Tax decisions and structural reforms to help foster new growth and business activity

The Government will boost growth through tax decisions supporting business activity, as adopted in the government discussion on spending limits. A temporary tax incentive for research and development will be introduced to support growth-oriented product development. To increase investment, the depreciation allowance for industrial production investments will be doubled for a fixed period. In capital taxation, the Government will introduce temporarily an investor’s tax incentive in which investors receive a deduction on the investments they make in growth companies. The acquisition cost assumption of investments made in unlisted growth companies will be raised to 50%. In addition, the introduction of a tax incentive for patenting will continue to be explored.

Growth will be supported by special measures to promote exports. Finnvera plc’s financial contribution will be increased in start-up enterprises and in growth and internationalising companies. The Government will allocate EUR 940 million to funding for export companies and vessel deliveries in accordance with the export refinancing model.

A sum of EUR 27 million will be allocated in 2013 for the acquisition of a new icebreaker. The total authorisation for the acquisition is EUR 125 million, which includes the expansion of oil-spill response capacity. A general increase of EUR 0.6 million will be made for the maintenance of oil-spill response preparedness. A sum of EUR 0.5 million will be allocated to planning the overhaul of the oil-spill response vessel Hylje.

To support research, development and innovation activity, it is proposed that EUR 428 million in grants and EUR 109 million in loans be allocated via TEKES, the Finnish Funding Agency for Technology and Innovation.

The Government also agreed that preparations for the EU Sulphur Directive, which comes into force in 2015, be made next year through ex post investments, such as the installation of scrubbers, for which a EUR 30 million grant authorisation will be allocated, of which EUR 10 million is budgeted for 2013. The adequacy of the appropriation will be monitored. The Government is also making provision for decisions for the latter part of the parliamentary term on measures necessary to secure the competitiveness of Finnish industry, to promote environmental technology and to curb the increase in logistics costs caused by the Sulphur Directive. In addition, a separate plan to develop the liquefied natural gas infrastructure will be prepared.

To create new growth and new jobs in the ICT sector, the Government will prepare to initiate, in the third supplementary budget of 2012, measures in line with the proposals of the ICT 2015 working group established by the Ministry of Employment and the Economy, and to take into account the cost impacts in 2013 when supplementing the budget proposal.

Free utilisation of public information resources will be pursued to stimulate business opportunities and to promote civil society and democracy. The Finnish Meteorological Institute’s real-time observation data will be released in two stages for use free of charge. The ministries will submit to the Ministry of Finance their reports of other free-of-charge open data implementation measures and their related budgetary impacts.

Social guarantee for young people will come into force

The social guarantee for young people will come into force in 2013. All unemployed people under 25 years old and recently graduated unemployed people under 30 years old will be offered a job or training place or activation measure at the latest within three months of becoming unemployed. The programme will be implemented in the administrative branches of the Ministry of Education and Culture and the Ministry of Employment and the Economy. The Employment and Economic Development Centres will support the engagement with the labour market of young people and recent graduates. The guidance services for young people will be enhanced. In the Ministry of Education and Culture, additional funding will be allocated to vocational education, apprenticeship training and outreach youth work. Social guarantee funding will total around EUR 60 million in 2013.

Apprenticeship training for young people will be strengthened from the beginning of 2013. The Government will initiate a trial with the aim of improving by practical means opportunities for small and medium-sized companies to employ young people for apprenticeship training. Workshop activity, outreach youth work and other low-threshold channels in vocational education will be developed as supplementary pathways of transition into the labour market with the aim of reaching groups that otherwise remain outside of education. A total of EUR 27 million, of which EUR 8 million relates to the social guarantee for young people, will be allocated to young people’s workshop activity and outreach youth work.

In addition, the Government will launch a young adults’ skills programme which will offer vocational education to 20–29 year-olds who have been unable to secure a study place. This will increase appropriations by EUR 27 million in 2013.

In 2012–2015, to activate the long-term unemployed, a municipal trial will be implemented in which the main responsibility for activation will be transferred to municipalities, and municipalities’ responsibility in the service of the long-term unemployed will be increased. A sum of EUR 20 million per year has been allocated for the trial. In connection with the trial, an employment bonus trial in which a long-term unemployed person, after receiving a job, can keep one month’s labour market support will be implemented in 62 municipalities.

From the beginning of 2013, an action programme to promote the employment of people with partial work ability will also be launched. The employment and business services of the Employment and Economic Development Centres will be reformed so that they support the availability of skilled labour, the rapid employment of job seekers and entrepreneurship.

Employment appropriations will be increased by around EUR 32 million compared with the amount budgeted for 2012 in order to maintain the activation rate as the employment situation weakens. Of these appropriations, additional funding will be directed to integration training promoting the employment of immigrants. At the same time, social assistance will be reformed by making the unemployment security increments of the activation period to be preferential income. The reform will encourage the long-term unemployed to participate in activation measures.

The authorisation intended for assistance in areas of abrupt structural change will be increased by EUR 10 million, particularly for measures arising from garrison closures and for the needs of new areas.

Position of elderly and those on low incomes will be improved

The Act on Care Services for the Elderly will come into force on 1 July 2013. Appendix 1 of this press release outlines in more detail the content of the Act and appropriations.

To improve the purchasing power of people on low incomes, a partially brought forward index adjustment will be made to basic security benefits immediately at the beginning of next year. To implement this, the appropriations will be increased by an estimated EUR 45 million in 2013.

In line with a decision of the government discussion on spending limits, to improve the income of families the Government proposes that the means testing of labour market support be removed in terms of a spouse’s income, which will increase the appropriation requirement by EUR 32 million. When an unemployed person becomes employed, the housing allowance adjustment made due to the increase in income as a result of going to work will be deferred from the present three months to six months.

Public finances will be strengthened

In connection with the decision on spending limits, a number of adjustment measures that will come into force in 2013 were agreed. The Government’s decisions will reduce budget appropriations next year by a net total of around EUR 350 million. In addition to these, the new decisions made in the government budget session will increase spending by around EUR 100 million in 2013.

Taxation measures influencing the balance of central government finances will increase central government tax revenue by a net EUR 1.3 billion in 2013. Of the actual changes in tax criteria, tax revenue will be increased most significantly by the raising of value-added tax rates by one percentage point. A corresponding change will be made to the tax on insurance premiums. The public service broadcasting tax will be introduced in 2013. The revenue from this tax will be used to fund the operations of the Finnish Broadcasting Company and will therefore not affect the balance of central government finances. As a measure affecting tax revenue, the inflation and earnings level adjustments in earned income taxation will not be made. The taxation of people on low incomes will be eased by increasing the earned income deduction and the basic deduction in municipal income tax.

The fairness of taxation will be enhanced by solidarity taxes. A new top income class will be temporarily added to the central government income tax scale, and taxation on large pensions and on inheritances and gifts will be tightened. Tax revenue will also be increased by tightening asset transfer taxation and by abolishing excessive payment of mileage allowance for employees’ use of their own car for work-related travel.

In energy taxation, lower emissions will be encouraged by shifting the focus of the tax on heating fuels to a carbon dioxide tax.

In accordance with the Government Programme, a bank tax will be introduced from the beginning of 2013. In corporate taxation, a tax deduction for training costs will be taken into account. In addition, the right to deduct interest expenses on corporations’ internal loans will be restricted.

Outlook for local government finances tightens

Local government finances are expected to tighten in 2012 as operating expenditure grows significantly more than tax revenue and central government transfers. Local government finances will also remain tight over the next few years. There is a threat that indebtedness will continue to increase rapidly and that municipal income tax rates will rise if the municipalities are unable to adjust their expenditure to revenue.

In 2013 central government transfers and grants to local government will total around EUR 10.7 billion, of which imputed central government transfers will be around EUR 9.7 billion. Central government transfers and grants will grow by EUR 180 million from 2012. Central government transfers will be reduced by, among other things, a EUR 125 million cut in central government transfers for basic public services in line with the decision on spending limits as well as by a decision not to make an index increase in central government transfers for culture. Central government transfers for basic public services, on the other hand, will be increased to support the functional capacity of an ageing population, to develop social welfare and health services for elderly people and to implement the social guarantee for young people. In addition, index increases will increase central government transfers for basic public services by EUR 231 million, and changes in the age structure and size of the population will bring a further increase of EUR 67 million to these funds.

Changes in local government revenue arising from tax criteria adjustments will be compensated in full. Changes in earned income taxation that reduce municipalities’ tax revenue will be compensated via the central government transfer system. Changes that reduce municipalities’ and parishes’ corporate tax revenue will be compensated by increasing the municipalities’ and parishes’ apportionment of corporate tax revenue. In addition, the municipalities’ corporate tax apportionment will be paid at a five percentage points higher rate in the period 2013–2015. The temporarily higher corporate tax apportionment will also be applied to parishes.

Appropriations to administrative branches: some extracts

A total appropriation of EUR 1.1 billion is proposed for international development cooperation. The level of the development cooperation appropriations is expected to be 0.55% of GDP. The allocated appropriation for the Ministry for Foreign Affairs’ actual development cooperation is EUR 892.6 million, which corresponds to the 2012 level. Possible revenue from emissions trading will be spent on development cooperation.

An appropriation of EUR 3.2 million will be allocated to Baltic Sea, Barents and Arctic area cooperation. Activities will be focused primarily on Northern Dimension Policy and multilateral cooperation in northern region councils, and support will be given to the implementation of the Russia Action Plan.

In the administrative branch of the Ministry of Justice, the prison renovation programme will be continue with the aim of removing cells without toilet facilities, as result of which an additional EUR 1.2 million will be allocated to the institutional expenditure of the Criminal Sanctions Agency.

Handling of industrial rights and copyright issues will be centralised and transferred from the Board of Appeal of the National Board of Patents and Registration and Helsinki District Court to the Market Court as of 1 September 2013. A sum of EUR 150,000 will be allocated to the implementation of the National Language Strategy and for the monitoring of democracy. An additional EUR 50,000 will be allocated to the Sami Parliament.

A sum of EUR 22 million will be allocated to continuing the renewal of the Border Guard’s four twin-engine helicopters, EUR 52 million will be granted for the acquisition of a new border guard ship, which has already been ordered, and EUR 2.4 million will be allocated to the Border Guard’s operating expenses to increase the number of border guards due to strong growth in cross-border traffic.

In accordance with a decision of the government discussion on the spending limits, a general increase of EUR 12 million will be allocated to Police appropriations to safeguard operating capacity.

A reform of the defence forces will be implemented, and as a result a decrease of EUR 69 million is proposed in the appropriations of the administrative branch of the Ministry of Defence.

The daily allowances of conscripts and those engaged in non-military service will be increased.

The Tax Administration will launch a complete modernisation of taxation information systems. A sum of EUR 25.4 million is proposed for modernisation based on off-the-shelf software, as a transfer from appropriations earmarked for the promotion of productivity in public administration. Efforts to combat the shadow economy will be promoted by creating a cross-administrative information source system for official information.

It is proposed that around EUR 43 million be used from appropriations earmarked for the promotion of productivity in public administration for various administrative branch information system modernisations and projects to improve public electronic services.

It has been proposed that the capital of the European Investment Bank be increased by a total of EUR 10 billion, of which Finland’s share will be EUR 127.8 million. It is proposed that the increase be paid in the period 2013–2015. For 2013 it is proposed that a EUR 127.8 million authorisation be committed to the capital increase and an appropriation of EUR 64 million be allocated for the payment of the 2013 portion. After the increase, Finland’s share of the Investment Bank’s capital will be a total of EUR 3 billion.

A sum of EUR 6.3 million will be allocated to the Helsinki Olympic Stadium project. The funding will come in full from betting and lottery revenue.

From 2013 the University of Arts Helsinki will be established by merging the Sibelius Academy, the Finnish Academy of Fine Arts and the Theatre Academy Helsinki. Operating conditions for the University of Arts Helsinki will be safeguarded within the existing financial spending limits. In 2013 EUR 0.7 million will be allocated to augment the collections of the Finnish National Gallery.

A general increase will be made for the higher education students’ meal subsidy, which will increase the appropriation requirement by around EUR 1.5 million.

As a savings measure, the central government transfer index and the university index of the administrative branch of the Ministry of Education and Culture will be frozen for 2013. However, an index increase, which will be funded in 2013 from betting and lottery revenue, will be made to central government transfers for theatres, orchestras and museums.

A total of EUR 58 million will be earmarked in 2013 for the repair of moisture- and mould-damaged school buildings and for educational institution establishment costs.

A sum of EUR 60 million will be allocated to reducing basic education class sizes.

It is proposed that agriculture appropriations be reduced by around EUR 18.9 million net compared with the amount included in the actual 2012 Budget. An increase of EUR 7.0 million is proposed for forestry appropriations.

Expenditure on basic transport infrastructure maintenance is estimated to be EUR 1009 million, of which the share of appropriation funding is EUR 935 million. In basic transport infrastructure maintenance, priority will be given, in accordance with the Government Programme, to rail transport, by allocating to it EUR 5 million on top of the additional funding allocated in 2012. A total of around EUR 593 million will be spent on transport infrastructure maintenance to safeguard efficient everyday travel.

Appropriations totalling EUR 576 million are proposed for the funding of transport infrastructure network development projects. In addition, of the basic transport infrastructure maintenance appropriations, it is planned to spend EUR 71 million on new and extension transport infrastructure investments and their project planning.

In accordance with the Transport Policy Report, two new development projects will be initiated in 2013. The renewal of road, sea and railway transport control systems will launched in basic transport infrastructure maintenance. The total cost of the project will be EUR 90 million and the project will be implemented in 2013–2018. It is proposed that an appropriation of EUR 5 million be reserved for the project in 2013. In addition, a start will be made to the second phase of the E18 motorway Ring Road III development, to be implemented through a partial private finance initiative. The estimated cost of the project is EUR 150 million, of which the central government’s share of funding share is EUR 110 million.

To safeguard operations, appropriations for archipelago ferry traffic will be increased by EUR 1.7 million compared with the amount budgeted for 2012.

In addition to sulphur scrubber investments, a EUR 28 million appropriation is proposed for environmental support to vessel investments, in the form of a grant for a second vessel to be completed in 2013 and based on an authorisation given in 2010.

In accordance with a resolution made by the Government on 29 March 2012, an auction of the 800 MHz spectrum band is planned in 2013. The starting price for the entire spectrum band is EUR 100 million and the proceeds of the auction will be remitted in equal instalments during a five-year period after the granting of the operating licence.

Appropriations totalling EUR 480 million are proposed for regional development and structural fund policy.

A EUR 21 million increase compared with the amount in the actual 2012 Budget will be allocated to energy policy appropriations. A funding authorisation of EUR 45 million will be allocated for energy subsidies. A sum of EUR 125 million will be allocated to the renewable energy production subsidy, of which EUR 1.1 will be allocated to the gasifier premium.

Renewable energy investment projects will be accelerated, with a particular emphasis on windpower projects. An additional appropriation of EUR 0.6 million will be granted to ELY centres to expedite research into environmental effects. Furthermore, an additional appropriation will be directed to municipalities and regional councils to accelerate the preparation of plans guiding wind power construction.

Basic reimbursement and lower special reimbursement for medicines will be reduced by 7% and wholesale prices for medicines will be lowered by 5% from 1 February 2013. On the other hand, the medicine reimbursement ceiling will be lowered by around EUR 50 from 1 January 2013 in order to improve the position of those who pay most for their medicines. The measures will reduce the appropriation requirement by around EUR 103 million.

Paternity leave will be extended to 54 weekdays without reducing other parental leave, which will increase the appropriation requirement by around EUR 0.3 million.

The monthly dietary compensation payable to coeliac sufferers will be increased from EUR 21 to EUR 23.6, which will increase the appropriation requirement by EUR 1 million.

The HPV vaccine against papillomavirus will be added to the national vaccination programme, and as a result the appropriation requirement will rise by EUR 1.5 million in 2013.

An appropriation of EUR 1040 million is proposed for interest-subsidy authorisations for state-subsidised housing production as well as EUR 285 million for guarantee authorisations. Most of the state-subsidised housing production is targeted at the larger growth centres, particularly the Helsinki region.

It is proposed that a total of EUR 50.5 million be allocated to housing renovation and energy grants. The focus of renovation grants will be on the construction of lifts as well as the renovation of the homes of elderly and disabled people.

The implementation of the Forest Biodiversity Programme for Southern Finland (METSO) 2008–2016 as well as the implementation of the Natura 2000 network and nature protection programmes decided earlier will continue with an appropriation of EUR 53.8 million. An appropriation of EUR 3.34 million will be allocated to Baltic Sea protection, particularly to the catchment areas of the Archipelago Sea and the Bothnian Sea for nutrient recycling programme development projects and protection measures, and for underwater biodiversity investments.

An appropriation of EUR 2.5 million is proposed for the green economy with the intention of using it for, among other things, emissions reductions and studies relating to international climate conferences as well as development and trial projects for the sustainable consumption and production programme and waste recycling.

Central government balance and debt

At the end of 2013, central government debt (incl. off-budget debt) is expected to be EUR 96 billion, which is around 47% of GDP. The debt ratio is expected to increase by 2 percentage points from 2012. Central government debt interest payments are expected to be EUR 1.9 billion, i.e. around EUR 320 million less than in the ordinary 2012 Budget. Although central government debt will grow, interest payments are expected to decline due to a presumed fall in interest rates.

The central government budget proposal for 2013 shows a deficit of EUR 7.0 billion, which will be covered by taking additional debt. Central government off-budget finances will show a surplus of around EUR 0.5 billion (incl. State Pension Fund). In national accounting terms, the central government deficit in 2013 is expected to be slightly less than 3% of GDP.

---

The 2013 budget proposal is expected to be adopted in a government plenary session on 17 September 2012, when it will be published in full (in Finnish and Swedish) on the Ministry of Finance’s website.

APPENDIX 1
The decision of the government discussion on the budget with respect to the Act on Care Services for the Elderly, 30 August 2012

1. The main lines of further preparation were agreed based on the draft act dated 28 August 2012 (Act on Supporting the Functional Capacity of the Elderly Population and on Social Welfare and Health Services for the Elderly), such that a government proposal will be given to Parliament in autumn 2012. In the government discussion on the budget, it was decided to allocate in 2013 a sum of EUR 10 million in addition to the EUR 23 million agreed earlier (in the entire spending limits period EUR 82 million). More detailed proposals will be prepared so that both home care and institutional care will be implemented in the Act. An evaluation will be made of the effects of the Act.

2. An additional EUR 10 million will be allocated to improving informal care support services. More detailed proposals will be prepared so that they came into force on 1 July 2013.

3. The Ministry of Social Affairs and Health will prepare quality recommendations for home care by 1 July 2013. An evaluation will be conducted on the effectiveness of the home care quality recommendations by the end of 2014.

4. The quality of round-the-clock care/nursing will be ensured by implementing the quality recommendations.

5. By 1 July 2013, the Ministry of Social Affairs and Health will develop, in collaboration with, among others, the Association of Finnish Local and Regional Authorities and the National Institution for Health and Welfare, indicators for care quality and nursing intensity with the objective of improving the quality of care. The indicators will be used in evaluating the implementation and effectiveness of the Act and quality recommendations.

6. At the beginning of 2015, the Government will issue a decree in which the number of employees relative to the number and nursing intensity of clients, the competence of employees and other quality factors may be prescribed in more detail. If the recommended staffing level (at least 0.5) has not been achieved in round-the-clock care/nursing, a minimum staffing level will be prescribed by Government decree.