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Government agrees third supplementary budget proposal for 2021

Government Communications DepartmentMinistry of Finance
25.5.2021 10.12 | Published in English on 26.5.2021 at 9.26
Press release 333/2021
Kuvituskuva: lisätalousarvio

The third supplementary budget proposal for 2021 will boost growth, bring forward investment, respond to spending requirements caused by the coronavirus, and alleviate harm that the virus has caused to businesses and to children and young adults. The supplementary budget will initiate reforms and investment under the European Union recovery instrument.

The supplementary budget proposal envisages a total increase of some EUR 2.2 billion in appropriations for 2021. A significant portion of this is due to guarantee and recapitalisation needs.

The Government negotiated the supplementary budget on Monday 24 May and it will be presented to Parliament on Thursday 27 May.

Investment financing to be brought forward

The supplementary budget will bring some previously decided government investments forward to 2021.

An appropriation of EUR 120 million is proposed for purchasing external patrol ships under the aircraft and patrol vessel procurement programme of the Finnish Border Guard.

Ownership steering of Finnish Minerals Group will be transferred from the Ministry of Employment and the Economy to the Prime Minister’s Office as of 1 June. This transfer will involve assigning and re-budgeting a total of EUR 420 million from the Ministry of Employment and the Economy to the Prime Minister’s Office.

An allocation of EUR 50 million is proposed for ICT modification costs in 2021 related to the reform of social services, health care and regional government.

An increase of EUR 37.9 million is proposed for the final costs of the Helsinki Olympic Stadium renovation and repair project. The total estimated project costs of EUR 337 million will be shared equally between central government and the city of Helsinki.

The supplementary budget also sets aside a total of EUR 91.65 million to pay costs incurred from measures financed through the European Agricultural Fund for Rural Development (EAFRD). This sum is entirely financed by the European Union.

An allocation of EUR 23.15 million is proposed to support the operation of cargo and passenger vessel shipping companies. A further EUR 22.8 million is proposed for public transport purchases in large and medium-sized urban areas and in regional and local transport, together with EUR 11 million for passenger train transport purchases due to prolongation of the coronavirus situation.

A total authorisation of EUR 268 million is proposed for new transport projects, meaning electrification of the Laurila – Tornio – Haparanda Digirail link and rebuilding of the Kirjalansalmi and Hesselund bridges on Highway 180, together with an increase of EUR 33.5 million in the authorisation for upgrading the Kouvola–Kotka/Hamina railway line. EUR 50 million in financing of basic road maintenance will also be brought forward from 2022 to the current year.

A transfer of EUR 650 million to the State Guarantee Fund is proposed in order to capitalise Finnvera export credit and special guarantee operations.

An allocation of EUR 257 million is proposed for capitalisation of the natural gas distribution network company Suomen Kaasuverkko Oy. This appropriation is intended to serve as an equity investment to finance repayment of the company’s bank loans.

An authorisation of EUR 40 million will be set aside for procurement of rolling stock for one new night train rake and the battery value chain authorisation will be increased by EUR 40 million. An increase of EUR 6 million will be allocated to implementing the health sector growth strategy and a mandate to support the vaccine ecosystem.

EUR 6 million will be set aside to compensate for reindeer damage caused by snow conditions in the winter of 2019–2020. Use of appropriations previously allocated to coronavirus measures will be expanded to boost recovery of commercial fisheries and stimulate investment.

A proposed allocation of EUR 48 million will prolong the right of the self-employed to labour market support over the period from 1 July to 30 September, and a further proposed EUR 13 million to the increase in the protected portion of unemployment benefit over the same period.

Change of revenue estimate

A total reduction of EUR 185 million is proposed in the revenue estimate. A total reduction of EUR 235 million in estimated tax revenues is proposed. Particular factors reducing the tax revenue estimate are a fall of EUR 87 million in the income and capital income tax forecast, due mainly to updating the source tax forecast. The inheritance and gift tax revenue forecast has in turn been reduced based on accrual data. The forecast of VAT revenue has also fallen by EUR 41 million.

Continuing the simplified payment arrangement in 2021 will reduce the income and capital income tax revenue forecast by EUR 20 million and the corporation tax revenue forecast by EUR 5 million. The energy tax revenue forecast has been correspondingly increased by EUR 3 million due to a delay in reassigning heat pumps to a lower electricity tax category.

An increase of EUR 50 million in the estimate of miscellaneous revenue is proposed. The most significant background factor to this proposal is additional funding of EUR 50 million from the European Agricultural Fund for Rural Development (EAFRD) recovery instrument related to the wholly EU-funded Rural Development Programme for Mainland Finland for 2014–2020.

Investments to support children and young adults, and to close the learning gap

The supplementary budget proposal includes an appropriation totalling EUR 111 million to alleviate the adverse impacts of the coronavirus on children and young adults.

EUR 40 million is proposed for pre-primary, basic and early childhood education, EUR 15 million for upper secondary education, and EUR 5 million for liberal adult education and vocational training. A further EUR 4 million is proposed for upper secondary funding. This funding seeks to offset the impacts of coronavirus, such a growing learning gap and deterioration in student welfare.

An appropriation of EUR 23 million is proposed to improve access to substance abuse services and EUR 16 million to improve mental health services. EUR 3 million is also proposed for preventive policing as a whole.

Spending increases by nearly EUR 600 million due to coronavirus

The supplementary budget includes some EUR 590 million in increased expenditure that is directly due to the coronavirus. An increase of EUR 233.5 million is proposed for procuring Covid-19 vaccines. This is mainly due to participation in joint vaccine procurement by the European Union in 2022 and to procurement of vaccine batches in response to various viral variants.

A total increase of approximately EUR 10 million in the operating expenses of the National Institute for Health and Welfare is also proposed to cover the cost of such operations as maintaining testing capacity and sequencing new viral strains, together with EUR 1 million for reinforcing core operations.

Other expenditure directly attributable to coronavirus includes the cost of postponing municipal elections, the cost of internal border controls, support for the operations of cargo and passenger shipping companies, and purchases of passenger rail and public transport.

An appropriation of EUR 200 million is proposed to cover the budgeting needs of the fourth round of business cost support. The right of the self-employed to labour market support and the increase in the protected portion of unemployment benefit will continue from 1 July to 30 September.

Measures to boost business policy and growth

The supplementary budget includes proposals for several measures seeking to alleviate the harm caused to businesses by coronavirus. The cost of these measures totals some EUR 1 billion. Continuing the simplified payment arrangement in 2021 will also reduce central government tax revenues by approximately EUR 249 million.

A transfer of EUR 650 million to the State Guarantee Fund is proposed in order to capitalise Finnvera export credit and special guarantee operations.

Responding to change in the peat industry

An allocation totalling EUR 60 million is proposed to support peat industry operators with a view to assisting entrepreneurs in leaving the sector and supporting a fair transition. The support will be allocated under the purview of the Ministry of Employment and the Economy to such purposes as a subsidy system for scrapping the machinery and equipment of peat companies, business development services and grants, and support for re-employment and training. Support will be allocated under the purview of the Ministry of Agriculture and Forestry to studying the further use of peat production areas and afforestation support.

Finland begins implementing a national sustainable growth programme

The third draft supplementary budget for 2021 will launch reforms and investments under the European Union Recovery and Resilience Facility (RRF). Additional appropriations of EUR 117 million are proposed for 2021. The authorisations will increase appropriations by EUR 121 million after 2021. The measures will boost research, employment, relief of the care debt and the green transition.

A total allocation of some EUR 238 million (total appropriations and authorisations) is proposed for implementing the national Recovery and Resilience Plan, of which the additional appropriations for 2021 would be approximately EUR 117 million. The authorisations and appropriation may only be used after the European Union Council Decision on the system of own resources has taken effect.

EU funding will be recognised in the budget of Finland as the reforms take place. 13 per cent of the funding will nevertheless be received in the form of an advance. The investments of the supplementary budget correspond to this share.

Funding will be divided into four pillars:

  • a green transition supporting economic restructuring and an affluent carbon-neutral society (pillar 1)
  • digitalisation and a data economy to help boost productivity (pillar 2)
  • a higher employment rate and enhanced skills to boost sustainable growth (pillar 3)
  • reinforced access to health and social services with greater cost-effectiveness (pillar 4).

Investments in the green transition (pillar 1) will be launched with an initial appropriation of EUR 48.5 million, of which EUR 31.4 million will be allocated in 2021. Funding will be allocated to reusing and recycling key materials and industrial sidestreams, replacing oil-fired heating systems, and promoting the charging infrastructure.

To promote digitalisation and the data economy (Pillar 2), a total appropriation of EUR 9.5 million is proposed for preventing money laundering, a digital economy for businesses, development of a housing information system, commencing digirail development work and cybersecurity.

A total appropriation of EUR 134.9 million is proposed for reforms to promote employment and skills (Pillar 3), of which EUR 30.9 *) million will be budgeted for 2021. The largest allocations will go to the Academy of Finland (authorisations of EUR 45 million) to national infrastructure, and to boost key areas and strengthen expertise in support of the green transition. The funding will also initiate reforms in continuous learning and strengthening the multidisciplinary character of Ohjaamo One-Stop Guidance Centres supporting young people.

Authorisations for Business Finland grants in key sectors, leading companies projects and innovative growth businesses (EUR 62 million) will boost industrial renewal. Structural support for creative sectors and support for sustainable tourism will help sectors affected by the coronavirus crisis.

A total allocation of EUR 45 million for the health and social services package (pillar 4) in 2021 will promote treatment guarantees, digitalisation and relief of the service and care debt.

The supplementary budget also sets aside a total of EUR 91.65 million to pay costs incurred from measures financed through the European Agricultural Fund for Rural Development (EAFRD). This sum is entirely financed by the European Union.

Impact on central government debt and the balance of central government finances

The increase in appropriations in the third supplementary budget proposal for 2021 amounts to approximately EUR 2.2 billion and the decrease in revenue is approximately EUR 185 million. The need for net government borrowing will increase by about EUR 2.4 billion for this year, bringing estimated net government borrowing in 2021 to approximately EUR 14.4 billion. Central government debt is expected to be approximately EUR 139.3 billion at the end of 2021, or about 56 per cent of GDP.

At the time of the 2021 budget proposal in autumn 2020 the Government decided to set aside an additional margin of EUR 500 million to cover non-recurrent fiscally mandatory coronavirus expenditure needs in 2021 due to the uncertainty of conditions arising from the epidemic. The persistence of a difficult coronavirus situation and such aspects as the associated restrictive and supportive measures have led to conditions in which this margin has proved to be too small. The margin will accordingly be increased by EUR 1,350 million to a total of EUR 1,850 million. EUR 650 million of this EUR 1,350 million increase has been set aside for transfer to the State Guarantee Fund for capitalisation of the export credit and special guarantee operations of Finnvera plc, and is not available to cover other costs. Any difference will not be used to increase other expenditure if the foregoing costs fall below the spending limit margin.

The supplementary budget proposal will be submitted to Parliament at a Government plenary session commencing at 10 a.m. on Thursday 27 May, after which it will be wholly available online at budjetti.vm.fi.


Inquiries: Joonas Rahkola, Special Adviser to the Prime Minister in Economic Policy Affairs, tel. +358 29 516 0998, and Tuomas Vanhanen, Special Adviser to the Minister of Finance in Economic Affairs, tel. +358 29 553 0417

*) Number corrected (in bold), 26 May 2021

 
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