Government reaches agreement on fourth supplementary budget proposal for 2021
The fourth supplementary budget proposal for 2021 will reduce the central government’s net borrowing requirement for this year by approximately EUR 2.2 billion. The proposal takes into account changes in needs estimates resulting from the economic upturn and increases in tax revenue estimates. On the whole, the supplementary budget proposal envisages a reduction of approximately EUR 249 million in appropriations for 2021. In addition, the supplementary budget proposes increasing the tax revenue estimate by EUR 1.5 billion.
The supplementary budget proposal proposes allocations to several areas. The proposed allocations take into account the necessary spending needs arising from COVID-19, other necessary spending needs in the administrative branches, compensation for the fall in gambling proceeds, and proposals related to the Sustainable Growth Programme for Finland.
Economic growth has led to increased tax revenue
Economic growth has seen a relatively strong recovery following the COVID-19 pandemic, which is also reflected in central government tax revenue. The Government proposes increasing the tax revenue estimate by EUR 1.5 billion. The most significant single positive change concerns taxes on earned income and capital income, the estimated accrual of which will be increased by EUR 1.2 billion.
Based on the updated macroeconomic forecast and accrual data, corporate tax revenue is expected to grow by EUR 123 million, value-added tax revenue by EUR 536 million and transfer tax revenue by EUR 105 million. The estimate for inheritance and gift tax revenue has been reduced by EUR 90 million, while the estimate of revenue from the tobacco tax has been reduced by EUR 106 million. In addition, car tax revenue is projected to be EUR 261 million lower than previously budgeted.
An increase of EUR 412.5 million is proposed for the estimate of miscellaneous revenue. The most significant factors behind the proposal are EUR 271 million in revenue from the Recovery and Resilience Facility and emission allowance trading income, the estimate for which will be increased by EUR 148 million due to an increase in the price of emission allowances.
Additional expenditure still needed to deal with effects of COVID-19
Approximately EUR 23.2 million is proposed to support the operations of cargo and passenger shipping companies, which means that the amount of support for 2021 will rise to approximately EUR 69.5 million. The goal of this support is to safeguard Finland’s essential transport connections, security of supply and foreign trade transport and to guarantee regular freight and passenger transport as the COVID-19 pandemic continues.
An appropriation of EUR 100 million is proposed for implementing the fifth application round for business cost support. A sum of EUR 13.8 million is proposed for safeguarding flight connections to regional airports.
An increase of EUR 23 million is proposed for the operating costs of the courts, the National Prosecution Authority, private legal counsels and the Criminal Sanctions Agency to cover the costs arising from the COVID-19 situation.
A total of approximately EUR 10.4 million is proposed for the police, the Border Guard, rescue services and the Emergency Response Centre Administration to cover the costs arising from COVID-19.
To mitigate the losses caused by the reduction in income from student fees and to compensate for the additional costs of health-secure teaching arrangements due to COVID-19, approximately EUR 6.8 million is proposed for providers of basic art education who receive central government grants based on the number of hours of instruction.
EUR 29 million is proposed to cover the continuation of the right of entrepreneurs and self-employed persons to labour market support and the increase in the exempt amount of unemployment security from 1 September to 30 November 2021. This means that the changes made to unemployment security due to the COVID-19 pandemic will therefore continue until 30 November 2021 continue until 30 November 2021.
A total increase of EUR 3.7 million is proposed for the operating costs of the Finnish Institute for Health and Welfare. The increase is due to the costs of maintaining COVID-19 testing capacity, monitoring genetic variation in virus strains and communication efforts aimed at improving vaccine coverage.
The Government also proposes a number of smaller appropriations for different agencies, institutions and operators to offset operating costs arising from the COVID-19 outbreak.
Decrease in gambling proceeds to be compensated for this year
Veikkaus Oy’s revenue estimate for 2021 has decreased from the previously announced EUR 740 million to EUR 700 million, which means that the central government’s proceeds from gambling activities are expected to fall by around EUR 40 million this year from the level that was expected at the time of drawing up the 2021 budget. This decline will be compensated in its entirety from budget funds within the spending limits. Of the diminished proceeds, EUR 21.2 million will allocated to the administrative branch of the Ministry of Education and Culture, EUR 17.2 million to the administrative branch of the Ministry of Social Affairs and Health and EUR 1.6 million to the administrative branch of the Ministry of Agriculture and Forestry. Compensation for the decline in proceeds from gambling activities for 2022 will be agreed on in an amendment to the supplementary budget proposal.
Expenditure related to the Sustainable Growth Programme for Finland
The fourth supplementary budget proposal for 2021 includes a total of EUR 3.86 million in expenditure under the Recovery and Resilience Plan, which consists mainly of administrative resources for the mobilisation of investments and an advance payment to Åland. These are costs associated with implementing the EU-funded Recovery and Resilience Plan for Finland.
Other changes included in the supplementary budget proposal
The proposal includes many specifications to needs assessments and changes to the timing of projects.
A reduction of EUR 217 million is proposed in central government transfers to cover the costs of unemployment security due to an increase in the employment rate.
A reduction of EUR 40 million is proposed for the central government’s share of the costs arising from the Health Insurance Act. The need for the reduction is due to a lower than expected number of COVID-19 tests reimbursed by health insurance, among other factors.
A reduction of EUR 14 million in the appropriation reserved for the costs of family benefits is proposed due to a more accurate needs assessment. A reduction of EUR 30 million in the appropriation for basic social assistance expenditure is proposed as a result of the upturn in the economic situation and the drop unemployment.
A reduction of EUR 65 million is proposed for the central government share of expenditure arising from the National Pensions Act, as the number of beneficiaries has been lower than anticipated. An increase of EUR 30 million is proposed for the costs of the general housing allowance due to a higher number of beneficiaries than expected.
An increase of EUR 12.6 million is proposed for the exclusive ODA budget item administered by the Ministry for Foreign Affairs due to Finland’s COVID-19 vaccine donations. Finland is participating in the donations with earmarked support via the COVAX AMC Facility administered by Gavi, the Vaccine Alliance. The condition for support is the purchase of vaccines from Finland’s quota. The increase will be allocated as earmarked support tied to vaccines purchased by Finland as part of the EU’s joint vaccine procurement. A corresponding amount will be deducted from the Ministry of Social Affairs and Health’s vaccine procurement item. As the State of Finland has committed to paying for the procured vaccines in any case, the effect of the arrangement on central government expenditure will be neutral or nearly neutral.
A total of EUR 30.6 million is proposed for the police to safeguard operations and combat crime targeting critical sectors, and for a project aiming to uncover corruption and improve the efficiency of investigative support.
An additional appropriation of EUR 65 million is proposed for the Border Guard for the procurement of two offshore patrol vessels in 2021. Within the framework of total funding, the Border Guard is entitled to conclude a contract on two new offshore patrol vessels, provided that the overall value of the contract does not exceed EUR 325 million by 2026. The previous appropriation is not enough to procure new Turva-class offshore patrol vessels, above all because of the increase in the market prices of raw materials and components caused by the pandemic.
To compensate for the costs of the wildfires in Kalajoki, a grant of EUR 1.6 million is proposed for the Jokilaaksot Rescue Department.
An additional appropriation of EUR 7.6 million is proposed for the Governing Body of Suomenlinna for the renovation and maintenance of facilities and real estate assets.
An allocation totalling approximately EUR 4 million is proposed for the Finnish Food Authority for the agency’s work to combat food chain crime, for developing the supervision of distance sales and as compensation for the effects of the IHN fish disease.
The following revisions are proposed to the authorisations for previously decided projects: The authorisation for the project to improve the Luumäki—Imatra—Russian border rail link will be revised by EUR 15 million (from EUR 195 million to EUR 210 million) in order to achieve the quality objectives set for the rail structure in the project. The authorisation for the project to deepen the fairway to Ajos in Kemi will be revised by EUR 15.2 million (from EUR 26.5 million to EUR 41.7 million) due to an increase in the cost estimate. The authorisation for the project to improve main road 68 and construct a new overpass in Kolppi, Pedersöre will be revised by EUR 1.2 million (from EUR 5 million to EUR 6.2 million) due to an increase in the cost estimate. The authorisation for the project to improve the Oulu—Kemi intersections on main road 4 in Simo will be revised by EUR 5 million (from EUR 20 million to EUR 25 million) due to an increase in the cost estimate.
An increase of EUR 2 million is proposed to the support for building electric car charging infrastructure network for residential buildings, and an increase of EUR 10 million from the Housing Fund of Finland is proposed to the authorisation for energy grants aimed at promoting energy efficiency in limited liability housing companies.
EUR 2 million will be allocated for advancing the support functions of the RYHTI built environment information system project.
Impact on central government debt and the balance of central government finances
Taking into account the increase of approximately EUR 1.9 billion in actual revenues and the decrease of approximately EUR 249 million in appropriations, the fourth supplementary budget proposal for 2021 will reduce the central government’s net borrowing requirement by EUR 2.2 billion.
An increase of EUR 534 million will be entered under debt management items, because low interest rates have generated issue premiums when loans have been issued in 2021. Taking into account the difference between revenue and expenditure and the debt management items included in the fourth supplementary budget proposal, a total of EUR 2.7 billion will be entered as a deduction in nominal net borrowing, bringing the amount of net borrowing at nominal value to EUR 11.7 billion in 2021.
The amount of Government debt at the end of 2021 is estimated to be approximately EUR 136 billion, which is around 55 per cent of gross domestic product (GDP).
Inquiries: Joonas Rahkola, Special Adviser to the Prime Minister in Economic Affairs, tel. +358 295 160 998, and Ann-Mari Kemmel, Special Adviser to the Minister of Finance in Economic Affairs, tel. +358 295 530 330