Government budget proposal to build sustainable growth for the future

The budget proposal of Prime Minister Sanna Marin’s Government for 2022 builds sustainable growth for the future in the wake of the COVID-19 crisis. The budget proposal aims to support post-pandemic recovery, accelerate investments, enable environmentally sustainable growth and increase the availability of skilled labour. The goal is to safeguard people’s wellbeing and to ensure favourable conditions for sustainable economic growth in the long term.

As outlined in its Programme, the Government will continue building the welfare state in ways that are socially, economically and ecologically sustainable. The government budget session decided on significant investments with a view to fostering growth, mitigating climate change, boosting employment and dismantling the backlog in treatment and services. 

The successful management of the COVID-19 crisis and a properly scaled fiscal policy have enabled the Finnish economy to recover swiftly from the damage caused by the crisis. Safeguarding production capacity in the economy and boosting total demand have rapidly improved employment in the wake of the crisis. For this positive trend to continue, the Government considers it important to invest in research, product development, education and training while also pursuing a determined growth policy and safeguarding predictability in the investment environment. 

It is essential to succeed in raising the investment rate through active tax policy and industrial policy and by means of an economic policy that ensures favourable demand prospects.

The budget proposal for 2022 totals EUR 64.8 billion. The level of appropriations proposed for 2022 is EUR 3.3 billion lower than budgeted for 2021, including supplementary budgets for 2021. 

The Government decided on expenditure within the framework of the central government spending limits adopted last spring.

In its budget session, the Government agreed on measures to ensure that Finland will be carbon neutral by 2035. The Government decided on emission reductions totalling about 14 to 15 Mt of carbon dioxide equivalent, which together with the climate programme for the land use sector that will be adopted later will be sufficient to achieve the carbon neutrality target.

Significant investments in economic renewal and the green transition

Sustainable economic growth and the green transition will be accelerated by increasing the budget authority for energy support by EUR 453 million. The Government proposes an appropriation of EUR 35 million for grants to households (detached, semi-detached and terraced houses), municipalities, parishes and associations for phasing out heating oil. A total of EUR 23.3 million is proposed for expanding the charging infrastructure network for electric vehicles and the natural gas filling network. 

The Government will support research and development activities with an additional tax deduction of 150% in 2022–2027. This deduction can be made for research and development expenditure that is based on research and development cooperation between companies and research organisations. To support growth and investments, the Government is extending the temporary double depreciation rules for machinery and equipment to 2024–2025.

Data centres, heat pumps and electric boilers that generate heat for the district heating network will be reassigned to the lower electricity tax category II to promote the green transition. Data centres outside the district heating network that meet the criteria for energy efficiency and energy utilisation and building-specific heat pumps of industrial size are also entitled to a reduced electricity tax. The electricity tax reduction also applies to recirculating water pumps in geothermal heating plants. The changes will be brought into effect from the beginning of 2022, provided that the necessary approval has been secured from the European Union.

To foster the replacement of heating systems away from the use of oil as a form of heating, the maximum tax credit for household expenses will be raised from EUR 2,250 to EUR 3,500 and the compensation percentage from 40% to 60%. The change is temporary and will be in force from 2022 to 2027. A tax credit for household expenses will not be allowed if the taxpayer has received other subsidies towards the same work. It is the Government’s aim that once the subsidies have been paid out from the Sustainable Growth Programme for Finland, further support for conversion work could be provided through the tax credit for household expenses.

To promote electrification, all-electric vehicles will be exempted from the car tax, with a corresponding increase in the basic tax in vehicle taxes for all-electric vehicles. The increase in vehicle taxes will not apply to all-electric vehicles previously taken into use. The exemption from car tax applies to vehicles taxed after 1 October.

The budget authority of the Academy of Finland will be secured for 2022. The budget authority for research projects amounts to EUR 390.5 million in 2022. 

The Government proposes a budget authority of EUR 573 million to Business Finland for awarding grants in support of research, development and innovation. This is EUR 236 million more than in the 2021 Budget. Funding will be increased significantly for promoting the reuse and recycling of key materials and industrial sidestreams (EUR 87.8 million) and for partnership projects of leading companies (EUR 58 million).

The implementation of the tax policies outlined in the Government Programme will continue in 2022. For example, index adjustments to earned income taxation will be implemented in such a way that no one’s earned income taxation will increase as a result of the general development in prices and earned income. 

In connection with the government budget session, the Government outlined a number of new tax measures, some of which will enter into force already at the beginning of 2022. 

The aim of the new tax decisions is to achieve sustainable growth by promoting investments required for the green transition and employment. In addition, the Government outlined a tax package to strengthen general government finances by approximately EUR 100 million. Additional tax revenue will be accrued from measures that help strengthen and expand the tax base and from combating tax avoidance. In 2023, the Government will introduce a separate mine tax and a capital gains tax for natural persons that will broaden the Finnish tax base because capital gains on the sale of assets accumulated in Finland will be taxed in Finland even when assets are relinquished while living abroad.

Boosting investments and building sustainable growth: More than EUR one billion in funding from the Recovery and Resilience Plan in the budget proposal for 2022

The focus in Finland’s Sustainable Growth Programme is on renewal. The key priorities of the Programme are the transition from a fossil economy to renewable natural resources, digitalisation, and research, development and innovation. The Sustainable Growth Programme enables Finland’s whole economy to set in motion green and digitally driven international growth. The funding under the Programme will build a foundation for future growth that is socially, ecologically and economically sustainable.

The general national objectives of the Sustainable Growth Programme are: reducing greenhouse gas emissions, productivity growth, raising the employment rate, faster access to care and promoting equality. 

In the budget proposal for 2022 a total of EUR 1.2 billion in allocations (appropriations and authorisations together) are proposed for implementing the Recovery and Resilience Plan. Additional appropriations for 2022 amount to approximately EUR 636 million (the largest items are listed in the section ‘selected items from the budget proposal’).

The largest sums related to the green transition and a carbon neutral welfare society will be allocated to:

• investments in energy infrastructure
•  investments in new energy technologies
• investments in low-carbon hydrogen and capturing and harnessing carbon dioxide
• electrification of industrial processes.

For these purposes, a total increase of EUR 453 million is proposed to the budget authority for energy support. The Government proposes an appropriation totalling EUR 35 million for grants to small residential buildings (detached, semi-detached and row houses), municipalities, parishes and associations for phasing out heating oil. A total of EUR 23.3 million is proposed for expanding the charging infrastructure network for electric vehicles and the natural gas filling network.

Digitalisation and the data economy will contribute to more robust productivity and make services accessible to all. EUR 15 million is proposed for improving the quality of communication networks and access to these, and EUR 7 million is proposed for the digital economy of companies. A total of EUR 5.6 million is proposed to ensure efficient supervision and enforcement of the prevention of money laundering under different administrative branches, and EUR 3 million to investment in cybersecurity research activities and exercises. A budget authority of 14.7 million is proposed for the microelectronics value chain. 

EUR 83 million is proposed for implementing the Nordic labour market service model with a view to raising the employment rate and level of competence and to boost sustainable growth. To develop a digital infrastructure that utilises world-class automation, a total of EUR 12 million is proposed to support the immigration of experts. EUR 33 million is proposed for developing a service system for continuous learning and a related digitalisation programme. EUR 15 million is proposed for new student places in universities. Supplementary budget authorities totalling EUR 93 million are proposed for the Academy of Finland and Business Finland for an RDI funding package to support the green transition.

To strengthen access to healthcare and social welfare services and enhance their cost-effectiveness, EUR 125 million is proposed for dismantling the backlog in treatment, rehabilitation and services in healthcare and social welfare and for faster access to care.

Finland’s Recovery and Resilience Plan is the national plan for making use of the funding from the EU’s Recovery and Resilience Facility. Finland submitted the Plan to the Commission on 27 May 2021. The Commission is assessing Finland’s Programme, and its implementing decision is expected to be adopted by the Council of the EU in October or November 2021.    

The payments from the EU are based on the progress made in the Plan and the time when it can be demonstrated that the objectives included in it have been reached as planned. In the budget proposal for 2022, the estimate for the payments from the EU’s Recovery and Resilience Facility to be received in 2022 is EUR 355 million. The estimated revenue is based on the Commission’s proposal on the payments to be expected. The revenue from the Recovery and Resilience Facility will accrue with a lag compared with the use of appropriations.

Government policy outlines to achieve carbon neutrality in 2035

In connection with the government budget session, the Government approved the policy outlines that will implement the objective of the Government Programme to make Finland carbon neutral by 2035. In the emissions trading sector the emission reductions that are still needed to achieve carbon neutrality by 2035 will be implemented within the framework of the Climate and Energy Strategy and in the effort-sharing sector within the framework of the Medium-term Climate Change Policy Plan. 

The Government’s policy outlines will enable Finland to achieve additional emission reductions of about 14 to 15Mt (8.4Mt in the effort-sharing sector and 6 to 7Mt through the Climate and Energy Strategy). The plans will be sent out for comments in autumn 2021.

The Government is committed to taking the emission reduction measures that are necessary to achieve the national and EU climate objectives. In March 2022 the Government will evaluate, on the basis of assessments by the ministries, research institutes and the Finnish Climate Panel, whether the emission reduction targets can be achieved with the measures included in the Medium-term Climate Change Policy Plan and, in this context, will decide on binding financial and legislative steering instruments that may be needed to reach the target. A parliamentary monitoring group will be set up to support the implementation of the climate objectives in a systematic way and with a long-term perspective.

Medium-term Climate Change Policy Plan

Medium-term Climate Change Policy Plan will contribute to reducing greenhouse gas emissions from transport, agriculture, building-specific heating, non-road mobile machinery and waste management, and F-gas emissions, i.e. the effort-sharing sector. To achieve carbon neutrality by 2035, additional emission reductions of 4 to 5Mt will be needed, on top of the current measures. 

By 2030 emissions from transport will be cut by at least half from the level in 2005 with the measures included in the Roadmap for Fossil-Free Transport. The aim is to achieve a total reduction of 1.2Mt by 2030 relative to a scenario where the present measures were to be implemented.

Emissions from agriculture are divided between the land use and effort-sharing sectors. In the effort-sharing sector emissions will be reduced by 0.4Mt by 2030 compared to a where the present measures were to be implemented.

The use of fossil oil in heating will be phased out by the beginning of the 2030s. A process to stop using fossil oil for heating government and municipal facilities will be implemented by 2024. An action programme to phase out oil heating will be finalised and implemented.

The aid intensity of the aid payable to municipalities for phasing out oil heating will be raised temporarily for the period 2022–2024. The possibilities to extend the aid to joint municipal authorities will be examined.

Cost-efficient emission reductions from non-road mobile machinery and their electrification will be promoted on the basis of the Government’s joint analysis, assessment and research activities, and the possibilities to use electricity and gas operated mobile machinery especially in agriculture and to support this will be investigated.

Climate and Energy Strategy

Tightening emissions trading in the emissions trading sector together with the reforms of the national energy taxation that have already been agreed and measures under the Sustainable Growth Programme will take Finland towards reducing emissions by 6 to 7Mt.

The reduction of emissions from industry will mainly take place on the basis of the implementation of the carbon reduction roadmaps for individual sectors. The implementation of the roadmaps requires a predictable operating environment that supports low-carbon investments. The Government will also step up the introduction of non-combustion heat production forms, such as waste and environmental heat recovery and the use of geothermal heat.

Roadmap to fossil-free transport 

Appropriations of around EUR 75 million are proposed for 2022 for implementing the roadmap for fossil-free transport. 

An appropriation of EUR 1.5 million is proposed to be allocated for developing the ecosystem for electronic heavy transport. In addition, EUR 6 million is proposed for procurement and conversion subsidies that promote the transition to vehicles using alternative, low-carbon fuels and bring energy efficiency benefits to transport by supporting the procurement and widespread use of low-emission vehicles and a higher percentage of such vehicles in the car fleet. 

It is proposed that an appropriation of EUR 1 million be allocated to the Transport and Communications Agency for the implementation of the proposals in the Roadmap.

As earlier observed, EUR 13.3 million in funding of the Recovery and Resilience Plan is proposed for infrastructure investments that encourage developing low-emission transport. It will be allocated as subsidies to improve the public charging infrastructure and the natural gas filling network. In addition, in line with the Recovery and Resilience Plan, EUR 8.5 million is proposed to be allocated for subsidies promoting electric transport infrastructure for residential buildings and EUR 1.5 million for workplace facilities.

It is proposed that an appropriation of EUR 4 million be allocated for 2022 to promote walking and cycling. An appropriation of EUR 40.9 million is proposed for supporting public transport services.  

Government decision on quick-impact employment measures

In its budget session, the Government decided on measures that will support the availability of skilled labour and improve labour market matching. The Government will focus on measures with quick results to address the labour shortages in the labour market and at the same time implement measures outlined in the roadmap for work-based and education-based immigration.

In the course of 2022, the Government will create a two-week fast track to promote work-based immigration. Specialists as well as growth entrepreneurs and their family members are pledged a decision on an electronically submitted residence permit application within 14 days of the date the application is submitted. An additional EUR 1 million will be allocated to the Finnish Immigration Service for this purpose in 2022. In addition, the human resources of the Foreign Service related to the immigration process will be temporarily increased by EUR 1.6 million in 2022. After it has assessed different options, the Government will extend the national D visa to cover researchers, students and their family members already during this Government term.

As education-based and work-based immigration and international recruitment increase, efforts will be made to safeguard the capacity of the Finnish National Agency for Education to recognise foreign qualifications. An evaluation will be launched on whether persons who have received a decision on the recognition of their degree or qualifications could enrol in supplementary studies or take an aptitude test so that they can quickly obtain qualifications to work in Finland. The Government will promote the employment of international students and their networking with Finnish companies. In addition, ways to support the employment of international students and to promote work-based and education-based immigration by simplifying the residence permit processes will be examined.

The Government will improve the conditions for employment among young people and temporarily raise the income thresholds for student financial aid for 2022. 

The Government will decide on the employment package of EUR 110 million agreed in its mid-term policy review by 15 February 2022. 

Dismantling the backlog in treatment and services, investing in people’s wellbeing

The Government is committed to promoting people’s wellbeing and clearing the backlog in treatment and services caused by the COVID-19 crisis.

A total of EUR 125 million from the EU’s Recovery and Resilience Plan funding will be allocated for dismantling the backlog in treatment, rehabilitation and services in healthcare and social welfare and for speeding up access to care. In addition, EUR 9 million in Recovery and Resilience Plan funding will be allocated to services supporting work ability and to measures to strengthen mental health and work ability.

The maximum waiting times for access to primary healthcare will be shortened so that access to non-urgent care must be arranged within a week (7 days) of the assessment of the need for care. The date for submitting the government proposal on the maximum waiting times for access to care will be decided by the end of October 2021. For this purpose, a spending limits provision of EUR 50 million will be made for 2023 in addition to the EUR 45 million already included in the General Government Fiscal Plan.

The staffing levels for social workers in child welfare will be tightened in accordance with the Government Programme. The ratio will be 1 to 35 in 2022 and 1 to 30 from 2024 onwards. The reform will cause an increase of EUR 4.8 million in central government transfers to local government from 2022, and the cost impact will be EUR 21.7 million from 2024 onwards.

The family leave reform, which will enter into force in autumn 2022, aims to encourage parents to adopt a more balanced use of family leaves. Under the new model, each parent would be given a quota of 160 daily allowance days, but they could transfer some of their own allowance days to the other parent or spouse. Parents could use daily allowance days until the child reaches the age of two. The reform is estimated to increase general government expenditure annually by approximately EUR 80 million. It is estimated that central government expenditure will increase by around EUR 1 million in 2022 and by around EUR 9 million from 2024 onwards.

The entry into force and funding of the previously decided reforms (such as the minimum required carer per client ratio of 0.7, extension of aftercare services in child welfare and the Act on Client Charges in Health and Social Services) will proceed as previously decided. The screening programme for colorectal cancer will take effect in 2022, increasing the central government transfers to local government for basic public services by EUR 10 million.

Budget proposal totals EUR 64.8 billion

The appropriations level proposed for 2022 is EUR 0.5 billion lower than in the 2021 Budget, and EUR 3.3 billion lower than budgeted for 2021, including supplementary budgets. 
    
The appropriations level is lower than the 2021 Budget particularly due to a decrease in expenditure related to the COVID-19 epidemic. For example, health security spending on the coronavirus epidemic will fall by EUR 1.7 billion and financial investment will decrease by EUR 0.6 billion. Cyclical expenditure, including unemployment security expenditure, will fall by EUR 0.3 billion compared with the 2021 Budget.

On the other hand, the level of expenditure will increase compared with the 2021 Budget in particular because approximately EUR 0.9 billion in funding allocated for the wellbeing services counties in 2023 will already fall due for payment in December 2022. Expenditure in 2023 will decrease by a corresponding sum. The level of expenditure in 2022 will also rise due to statutory and contractual index increases (EUR 0.7 billion), the cost of changes related to the reform of healthcare, social welfare and rescue services (EUR 0.2 billion), and contributions to the European Union (EUR 0.2 billion).

Temporary appropriations related to the coronavirus epidemic for 2022 will amount to around EUR 0.4 billion, including the spillover effects of supplementary budgets in 2020. 

Tax decisions strengthen general government finances and support the green transition, economic activity and easier everyday life 

The Government will implement several previously agreed tax decisions in 2022. In its government budget session, the Government also decided on a number of new tax measures, some of which will enter into force already at the beginning of 2022. The aim of the new tax decisions is to achieve sustainable growth by promoting investments required for the green transition and employment. In addition, the Government outlined a tax package to strengthen general government finances by approximately EUR 100 million. Additional tax revenue will be accrued from measures that help strengthen and expand the tax base and from combating tax avoidance. 
 
Central government revenue for 2022 is estimated at EUR 57.9 billion, of which tax revenue will account for EUR 48.7 billion. The revenue estimate is based on the August forecast of the Ministry of Finance. Tax revenue is expected to grow by around 8.1 per cent in comparison with the budgeted figure for 2021. Besides economic growth, the increase in tax revenue will be attributable in part to the easing of tax payment arrangements, which will result in a transfer of some tax revenue from 2021 to 2022.

No increase in taxation of earned income

The implementation of the tax policies outlined in the Government Programme will continue in 2022. An index adjustment will be made to taxation of earned income to ensure that no increase in taxation occurs due to an increased general price or earnings level. The strengthening of tax bases will be continued by reducing the right to deduct interest on housing loans, as previously decided. 

Excise duties on tobacco will be increased by EUR 117 million over a period of two years. The limit for tax-exempt use of peat fuel will be increased to 10,000 megawatt hours, as agreed at the government spending limits discussion. This change will apply at all generating plants. A floor price mechanism will also be issued for peat. Reductions in tax relief for synthetic diesel and in the tax refund for energy-intensive companies will continue in 2022, as previously decided. The halving of fairway dues will continue. The tax on lottery proceeds will be reduced. 

Sustainable growth - supporting investment towards a green transition

Government measures to boost sustainable growth include support for investments in sustainable energy solutions and subsidies for low-emission transport. The new decisions apply to both businesses and private households.

Data centres, heat pumps and electric boilers that generate heat for the district heating network will be reassigned to the lower electricity tax category II. Data centres outside the district heating network that meet the criteria for energy efficiency and energy utilisation and building-specific heat pumps of industrial size are also entitled to a reduced electricity tax. The electricity tax reduction also applies to recirculating water pumps in geothermal heating plants. The changes will be brought into effect from the beginning of 2022, provided that the necessary approval has been secured from the European Union.

A tax levy will be introduced on biogas used in transport. The use of biogas for heating, on the other hand, remains exempt from tax.

The recycling industry will be transferred to the industrial electricity tax category from the beginning of 2022. Fish farming will be included in the agricultural energy tax refund system, bringing their electricity tax down to the industrial electricity tax category, provided that the necessary approval has been secured from the European Union.

To promote electrification, all-electric vehicles will be exempted from the car tax, with a corresponding increase in the basic tax in vehicle taxes for all-electric vehicles. The increase in vehicle taxes will not apply to all-electric vehicles previously taken into use. The exemption from car tax applies to vehicles taxed after 1 October.

The taxable value of low-emission company cars will be reduced by EUR 85 per month for the years 2022–2025. This applies to low-emission plug-in-hybrids and biogas-operated company cars. 

The tax base for taxes on waste will be broadened from the beginning of 2023. 

To foster the replacement of heating systems away from the use of oil as a form of heating, the maximum tax credit for household expenses will be raised from EUR 2,250 to EUR 3,500 and the compensation percentage from 40% to 60%. The change is temporary and will be in force from 2022 to 2027. In addition, a study will be launched into how the tax credit for household expenses could be applied to renovations in other energy systems and to renovations commissioned by housing companies. 

The Government will launch an analysis, assessment and research project seeking to improve life cycle emission assessments of food and other consumer products with a view to guiding consumption taxation in ways that accommodate impacts on climate and the environment. 

Interest on debts of jointly-owned forests will be made tax-deductible from the beginning of 2022.

To support growth and investments, the Government is extending the temporary double depreciation rules for machinery and equipment to 2024–2025.

Companies may make an extra deduction of 150% in their taxation for 2022-2027 for research and development expenditure that is based on research and development cooperation between companies and research organisations.

Restrictions on interest rate deductions will be eliminated for public infrastructure projects.

Availability of skilled labour, easier everyday life and economic activity

The Government also aims to improve employment and the everyday life of families through taxation.

An earned income deduction for those over 60 years of age, which was already raised based on an earlier agreement, will be increased on a staggered scale.

A two-year trial will be launched to assess the employment impact of the tax credit for household expenses. In the trial, the maximum sum of credit for domestic work and care and nursing work will be increased from EUR 2,250 to EUR 3,500 and the compensation percentage from 40% to 60%.

The own-liability threshold for the deduction on commuting expenses for those on family leave during the tax year will be reduced to the same extent as for the unemployed. The change will come into force at the beginning of 2023.

The introduction of an education voucher will be examined. Expanding the scope of application of the vouchers for culture and sports to other leisure and recreational activities will be examined on the basis of a separate report. 
 
The Government has appointed a working group commissioned to examine, by June 2022, whether it is feasible to launch a pilot project on negative income tax and earned income subsidy from the beginning of 2023. The Government will decide on the pilot in summer 2022. 

Broadening and strengthening the tax base and combating aggressive tax planning

The Government has agreed on new tax measures to strengthen general government finances by a total of approximately EUR 100 million on an annual basis. The new decisions will take effect in 2022 and 2023. The details of changes that will come into force later will be specified during their preparation.

To safeguard Finland’s tax base, the capital gains tax for natural persons will be broadened in situations where natural persons move abroad. The changes will take effect at the beginning of 2023.

To mitigate aggressive tax planning, the provisions on the limitation of deductibility of interest expenses will be reformed by restricting the application of the balance sheet exemption from the beginning of 2022 so that the provisions effectively prevent the transfer of taxable income outside Finnish taxation in private equity structures.

Gains derived from the real estate investments of foreign funds will be taxed in Finland as broadly as possible from the beginning of 2023. 

A mine tax will be introduced in 2023 instead of increasing the electricity tax category in mining operations. Of the mine tax revenue, 60% will be directed to the municipalities where the mines are located. Alongside the changes to the mine tax, the Mining Act will be amended in line with the agreed schedule.

The opportunities for forest funds to take advantage of forest deductions will be restricted from the beginning of 2022. 

Preparation aimed at introducing a health-based tax will be launched. In the first stage, the excise duty on soft drinks will be amended in a health-based direction so that the changes enter into force in 2023. In the second stage, a tax model will be prepared to broaden the tax base of the health-based tax to other product groups on a health basis.

In addition, the transfer pricing adjustment provision will be revised from the beginning of 2022 so that it can be applied within the scope of the OECD Transfer Pricing Guidelines.

On-budget deficit EUR 6.9 billion

The central government on-budget deficit will decrease by EUR 4.8 billion compared with the 2021 Budget. In addition to a lower level of appropriations, the reduction in the deficit will be driven by an increase in tax revenues, which will be accelerated by the economic recovery. The budget proposal for 2022 shows a deficit of EUR 6.9 billion, which will be covered by increased borrowing. 

If the technical point that part of funding for the wellbeing services counties for 2023 will be paid as early as December 2022 were to be discounted, the deficit would be about EUR 0.9 billion lower. In accordance with the Act on the Funding of the Wellbeing Services Counties (617/2021), half of the January 2023 payment instalment will be paid to the wellbeing services counties in December 2022. Expenditure in 2023 will decrease by a corresponding sum. 

The budget proposal includes revenue of EUR 355 million and expenditure of EUR 636 million from Finland’s Recovery and Resilience Plan. Less revenue than expenditure has been budgeted, as payments from the EU to the Finland will be based on the progress of the national plan and the achievement of the intermediate goals and objectives presented in it. The differential between revenue and expenditure increases the deficit in the 2022 budget proposal by EUR 281 million. 

According to the budget, central government debt will rise next year to an estimated EUR 146 billion. 

Local government finances

The budget proposal includes government grants and aid to local government totalling EUR 13.0 billion, which is approximately EUR 1 billion less than in the 2021 Budget. The decrease is mainly due to the fact that no corresponding fixed-term coronavirus support measures have been budgeted for 2022 as for 2021.

Slightly less than EUR 8 billion is proposed for central government transfers to local government for basic public services in 2022. Central government transfers will increase compared with the 2021 Budget by approximately EUR 280 million. The increase is mainly explained by the separate increase in central government transfers of EUR 246 million decided by the Government in the spring 2021 spending limits discussion as well as the index increase for 2022, which is approximately EUR 188 million. New and expanding tasks of municipalities will increase central government transfers in 2022 by just under EUR 120 million. 

Child-oriented budgeting piloted in the budget proposal

Child-oriented budgeting will be piloted in the 2022 budget proposal as previously decided by the Government. The package contains not only a section describing the appropriations of different administrative branches allocated for child age groups but also a review of taxation. Child-oriented budgeting will be established as part of the budget proposal from 2023.

In the 2022 budget proposal, appropriations targeted directly at children or families with children amount to a total of around EUR 7 billion, taking into account the statutory and discretionary measures under different main titles of expenditure. Based on calculations, it is estimated that slightly less than EUR 2.7 billion of these are central government transfers for basic public services that are allocated for child age groups. In addition to the age group specific level of appropriations and the related changes, there are priority areas for each child age group which have been allocated separate funding. The most important of these is the funding allocated for strengthening equal opportunities and supporting vulnerable people. Separate funding for the measures mentioned in the 2022 budget proposal amounts to approximately EUR 378 million. This funding is included in the review of appropriations described above (about EUR 7 billion).

In addition to the piloting of child-oriented budgeting in the budget proposal, a cross-administrative child impact assessment will be carried out next year as part of the implementation of the Child Strategy. A separate project will also be launched by the end of 2022 to develop the monitoring of the budget outturn data concerning municipalities and future wellbeing services counties and to develop their own child-oriented budgeting and to support its implementation.

Science, education and culture create sustainable growth

The volume of central government funding for research and development is estimated at around EUR 2.4 billion in 2022.

The budget authority of the Academy of Finland will be secured for 2022. The budget authority of the Academy of Finland for research projects in 2022 amounts to EUR 390.5 million, including a supplementary budget authority of EUR 40 million decided in the government budget session for 2022 and an addition to the budget authority of EUR 40.5 million in line with the Sustainable Growth Programme. The level of the authority for 2023 will be decided in the government discussion on spending limits in spring 2022. 

As agreed earlier, next year the action plan for quality and equality in comprehensive school education will receive EUR 60 million and the action plan for quality and equality in early childhood education and care EUR 80 million. Student welfare services will be boosted by a total of EUR 20 million. Additional funding of EUR 70 million will be allocated to recruit more teachers and instructors for vocational education and training. In addition, normal index adjustments will be made to all levels of education. 

As part of the Government’s future-oriented investments, EUR 10 million will be allocated in 2022 towards the quality and accessibility programme for general upper secondary education.

Efforts to strengthen student welfare services in primary, lower secondary and upper secondary education will continue. It is proposed that the funding allocated to these services be increased to EUR 20 million in 2022. 

Altogether EUR 65 million will be allocated for continuing the extension of compulsory education and the implementation of upper secondary education that is free of charge. 

A total of EUR 15 million is proposed in Recovery and Resilience Plan funds for new student places in higher education institutions. 

The Government will also launch an extensive climate and sustainability education project in education and training under the leadership of the Ministry of Education and Culture. The Finnish National Agency for Education is responsible for implementing the project, and approximately EUR 4 million is available for this purpose during the current government term.

EUR 14 million is proposed for enhancing production and operating models in the cultural and creative sectors.

As part of the Government’s future-oriented investments, EUR 7.5 million will be allocated towards the capitalisation of a fund to support creative industries and cultural activities. The rest of the funding reserved for the capitalisation will be decided in future budget processes.

EUR 4 million will be allocated towards compensating for the reproduction of works for private use, which helps secure the financial support Kopiosto and the Promotion Centre for Audiovisual Culture (AVEK) provide for the creative industries and culture.

Selected items
 

During this parliamentary term, police appropriations have been increased considerably more than what was outlined in the Government Programme. In the budget proposal for 2022, the operating expenses of the police are higher than in 2021. 

The police appropriations will be allocated to operational police work in line with the Government Programme. The appropriations will be allocated to ensure the presence and visibility of the police, especially in areas with the lowest service level, such as sparsely populated areas. In addition, the operating conditions of the national police team specialised in the investigation of human trafficking crimes and those of the anti-trafficking network will be secured.

The Government will strengthen the resources of the Finnish Immigration Service. To streamline work-based immigration and the processing of applications, the Service’s electronic services will be made easier and faster to use by means of automation.

To develop a digital infrastructure that utilises world-class automation, a total of EUR 12 million in Recovery and Resilience Plan funding is proposed, for example for the Finnish Immigration Service, to support the immigration of experts. In addition, an increase of EUR 5.5 million is proposed for the Finnish Immigration Service to secure human resources.

Under the budget proposal, Finland's refugee quota for 2022 is 1,050 persons. Due to the situation in Afghanistan, the Government is prepared to increase the refugee quota. The refugee quota and its funding will be reviewed in connection with amendments to the budget proposal or in supplementary budget proposals.

A budget authority of EUR 15 million for new ship projects is proposed under the umbrella of innovation support for shipbuilding.

The Government undertakes to secure flight connections until 31 August 2022 in line with the procured services launched in 2021. In future, the aim is to shift towards market-based transport services.

A total of EUR 5.6 million in funds from the Recovery and Resilience Plan is proposed for different administrative branches to ensure efficient supervision and enforcement of the prevention of money laundering.

In the budget session, the Government decided to allocate one-off additional funding of EUR 2.74 million for 2022 for designing and constructing a video recording system to be used for recording oral evidence in judicial proceedings. This will implement the entry in the Government Programme stating that taking of evidence in judicial proceedings will be centralised into district courts so that testimonies given in district courts will be recorded and used in proceedings in courts of appeal.

As agreed in the Government Programme, menace will become an offence subject to public prosecution as of 1 October 2021 in cases where the threat is directed at a person because of his or her job or public position of trust. This amendment of the Criminal Code is expected to increase the number of reports of offences and the resulting criminal investigations. The Government is preparing for this by allocating an appropriation of EUR 1.05 million to the police. An additional appropriation of EUR 0.67 million will also be allocated to the National Prosecution Authority and the courts to prepare for the increase in the number of cases.

The network of Finnish missions abroad will be further strengthened next year, and the budget proposal includes appropriations for opening two new missions in 2022.

Altogether EUR 7 million will be allocated to climate-sustainable measures in the land-use sector. 
A sum of EUR 15 million is proposed to improve the quality and availability of communication networks.

As part of the Recovery and Resilience Plan, EUR 3 million is proposed for investment in cybersecurity research activities and exercises. In addition, spread over a number of administrative branches, EUR 3.99 million is proposed to improve data security and data protection in critical sectors of society.

Altogether EUR 83 million in Recovery and Resilience Plan funds are proposed for the implementation of the Nordic labour market service model next year. 

Altogether EUR 3.25 million is proposed to strengthen the multidisciplinary nature of the Ohjaamo One-Stop Guidance Centres.

It is proposed that a special assignment company be founded to promote the employment of people who are partially able to work. It is proposed that EUR 10 million be allocated to the company’s share capital and, similarly, an appropriation of EUR 10 million towards a discretionary government transfer for the employment of people who are partially fit for work.

Under the leadership of the Ministry of Social Affairs and Health, the Government will launch a cross-administrative programme to ensure the availability of healthcare and social welfare staff in the short and long term. 

It is proposed that EUR 13 million be allocated to gypsum treatment of arable and the nutrient recycling project. 

According to the proposal, a low-carbon construction programme would be promoted with EUR 3 million in the administrative branch of the Ministry of the Environment and with a EUR 14.7 million budget authority for Business Finland in 2022.

The budget authority for interest subsidies for state-subsidised housing production is proposed to be EUR 1,950 million, which would be EUR 150 million higher than this year.

Based on a contribution from the Finnish Innovation Fund Sitra, universities will be capitalised with EUR 67 million in 2022. The capitalisation will be implemented on the basis of universities’ acquisition of funds.

Economic outlook

The Finnish economy will continue to grow rapidly this year. Economic recovery has started earlier and is more robust than was expected in the spring. The recovery of the economy will continue over the course of the autumn, particularly in those sectors that are currently still subject to restrictions, and therefore economic growth will remain brisk until the beginning of 2022. According to the Ministry of Finance’s forecast, the fastest growth phase in employment will decelerate during 2022, but the employment rate will remain high.

The economic recovery and the improving employment situation will boost growth in tax revenue and reduce unemployment expenditure. The ending of expenditure related to the COVID-19 pandemic will also, in time, reduce the central government and general government deficits. Economic growth will ease the upward pressure on the general government debt ratio and support the goal of reversing the upward trend of the debt ratio in the mid-2020s. According to the Ministry of Finance’s estimates, however, the current good health the economy will not remove the longer-term upward pressure on debt, which is driven by age-related expenditure due to population ageing and subdued long-term growth prospects. 

Steps in preparation of 2022 budget proposal

The estimates given above are preliminary. The Government will debate the budget proposal on 27 September. The government proposal for the 2022 Budget will then be published on the budjetti.vm.fi website.

The Economic Survey of the Ministry of Finance will be published in connection with the budget proposal on 27 September.

Inquiries: Matti Niemi, Special Adviser to the Prime Minister in Political Affairs, tel. +358 295 160 165, Joonas Rahkola, Special Adviser to the Prime Minister in Economic Affairs, p. +358 295 160 998, Ann-Mari Kemell, Special Adviser to the Minister of Finance, tel. +358 295 530 330, Heikki Sairanen, Special Adviser to the Minister of the Interior, tel. +358 50 456 4662, Lauri Holappa, Special Adviser to the Minister of Education, tel. +358 295 160 870 and Silja Borgarsdóttir Sandelin, Special Adviser to the Minister of Justice, tel. +358 295 150 116