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Government reaches agreement on fifth supplementary budget proposal for 2020

Government Communications DepartmentMinistry of Finance
Publication date 3.9.2020 13.36
Press release 550/2020

On Thursday 3 September, the Government decided on its fifth supplementary budget proposal for 2020. In its proposal, the Government proposes EUR 60 million in temporary financing to compensate for the costs incurred due to the COVID-19 epidemic. The proposal focuses only on the essential appropriations that must be processed before the sixth supplementary budget proposal for 2020, which the Government plans to submit to Parliament on 29 October 2020.

Temporary compensation to deal with the effects of the epidemic

An appropriation of EUR 60 million is proposed in temporary compensation to help mitigate the effects of the epidemic. The compensation would be used to support the most economically disadvantaged people and families in society in situations where the restrictive measures imposed due to the COVID-19 epidemic have generated additional costs. The aid would cover persons who have received basic social assistance during the period of restrictions, if they continue to receive basic social assistance during the payment period in autumn 2020.

Other changes to appropriations

A new variable appropriation of EUR 2 million is proposed for compensation related to the bankruptcy of tour operators. It would be used to compensate consumers for cancellations of travel packages due to the COVID-19 situation if they cannot be reimbursed from the guarantees provided by tour operators. 

An appropriation of EUR 30 million is proposed to supplement the compensation for costs incurred to agriculture, horticulture and rural businesses. Conversely, the expenditure estimate for support for the cost of business will be reduced by EUR 30 million.

Increase in revenue estimates as payment reductions used less than anticipated

During the spring, tax-related payment arrangements were made more flexible as part of the measures aimed at mitigating the effects of COVID-19 on businesses and economic activity. The interest on late tax payments was reduced, and value-added tax paid early in the year could be returned and included in the tax payment scheme. Based on the information obtained on the development of the situation, the payment reductions were used less than what was anticipated earlier. This will increase tax revenue for the current year, as the amount of tax revenue transferred to next year in connection with the payment arrangements will be less than previously expected.

As a result of the change in estimate on the use of the payment reductions, the Government proposes increasing the estimate of revenue from value-added tax, corporation tax and tax on insurance premiums. The most significant increase, EUR 992 million, concerns value-added tax revenue. This also includes extending the use of the fixed rate of 0 per cent applicable to domestic sales of goods needed to combat the COVID-19 epidemic and intra-Community acquisitions in the EU territory under certain conditions to cover the period of August–October 2020.

Due to the payment arrangements, the central government compensation to municipalities for loss of tax revenue due to changes in tax criteria was increased in the second supplementary budget for 2020. According to the latest estimates, changes in tax payment arrangements will reduce municipalities’ tax revenue less than estimated in the spring, which is why the Government proposes reducing compensation to municipalities for losses in tax revenue caused by tax criteria changes by EUR 429 million.

Fifth supplementary budget proposal reduces net borrowing requirement to EUR 17.6 billion

Taking into account the increase of EUR 1,021 million in actual revenues and the reduction of EUR 234 million in appropriations proposed in the supplementary budget proposal, the fifth supplementary budget proposal for 2020 will reduce the central government’s net borrowing requirement by EUR 1.3 billion. The Government’s net borrowing in 2020 is expected to total about EUR 17.6 billion. The amount of Government debt at the end of 2020 is estimated to be approximately EUR 124 billion, which is around 52 per cent of gross domestic product (GDP).

The Ministry of Finance will publish its new macroeconomic forecast on 5 October 2020.

Inquiries: Joonas Rahkola, Special Adviser to the Prime Minister in Economic Policy Affairs, tel. +358 295 160 998 and Markus Lahtinen, Special Adviser to the Minister of Finance in Economic Affairs, tel. +358 295 530 417