Government agreed on new investment for growth and employment

Century-old Finland is by many indicators one of the world’s leading countries. The rapidly changing, unstable operating environment is challenging us, however, to strengthen our ability to react to change and seize the opportunities it offers. In its mid-term policy review, Prime Minister Juha Sipilä’s Government has assessed the implementation of its Government Programme and the additional measures necessary to achieve its objectives. The Government also examined reform needs extending beyond the parliamentary term in line with the long-term vision of the Government Programme. In addition, the Government decided to increase the number of ministers by three.

Competitiveness, employment and services reforms continue to be at the heart of the Government’s economic policy. The economic policy is aimed at levelling off fiscal indebtedness and bridging the sustainability gap through savings as well as measures to boost growth and enhance public service provision.

The Government maintains its long-term objective of balancing public finances and closing the EUR 10 billion sustainability gap. The sustainability gap will be covered by EUR 4 billion in savings and EUR 4 billion in reforms to improve public finances. The remaining EUR 2 billion will be covered by measures to boost employment and growth.

The Government’s key themes at the mid-term policy review session were:

• knowledge, growth and employment
• caring
• reform
• security.

Additional measures and investments will be targeted at these areas in particular. The measures have been coordinated as part of the General Government Fiscal Plan 2018–2021 , which the Government has outlined in connection with the mid-term review. The Government will decide on new measures to promote growth and employment as well as taxation packages in the autumn budget session.

Knowledge, growth and employment

Updated employment and entrepreneurship packages

The main content of the updated packages consists of general principles for fair ground rules in zero-hours contracts, activation of the unemployed, enhancing the use of wage subsidies, shortening the waiting period for the entrepreneur’s sickness allowance and improving the unemployment security of the self-employed. Employment services resources will be increased by EUR 25 million.

Preparation of the rapporteurs’ proposal will be initiated on the possibility of the unemployed to engage in business activity for four months while simultaneously receiving unemployment benefit. The objective is to make a funding decision in the budget session. Preparations will also begin on the introduction of combination insurance.

It is proposed that unemployment security be reformed by introducing an activation model in which the waiting period for unemployment security would be reduced at the beginning of unemployment from seven to five days. When the period of unemployment continues beyond three months, there would be one waiting day per month in unemployment security, which individuals could avoid by being active. The active model would also apply to basic social security. The reform will reduce the central government transfer by approximately EUR 8 million on an annual basis.

The Government will combine into a single wage subsidy card the Sanssi card used for the employment of young people and the Duuni card directed at the hiring of over 30 year-olds. The intention is that, already at the interview stage, employers will have knowledge about the opportunity to use the wage subsidy in the case of the unemployed pension in question.

A law will be enacted on the bankruptcy of private individuals. This will offer and ensure a new beginning for entrepreneurs who have become bankrupt.

Shadow economy

The Government will examine how the steering authority of the Ministry of Economic Affairs and Employment can, in connection with the regional government reform, be strengthened in relation to testing for domestic availability of labour together with social partners. A vignette will be introduced in accordance with the Government Programme.

The tax number practice used in the construction industry will be extended to other sectors, such as shipyards and the catering and cleaning sectors, in accordance with the recommendations of a study to be conducted separately.

Incentive traps will be eliminated

To achieve the employment target, the Government has decided to reduce incentive traps. In total, the measures will increase the number of people in employment by approximately 5,000. The employment impact assessment is based on Ministry of Finance calculations.

Early childhood education fees will be lowered for low- and middle-income families.  An estimated 6,700 families will be subject to no fees, and fee revenue will decline by an estimated EUR 69 million in 2018. The weakening effect of the measures in municipal finances will be compensated by increasing central government transfers for basic public services, the municipalities’ corporate tax apportionment, and the lower limits of the real-estate tax.

A maximum limit on rent per square-metre will be restored to the housing allowance. Most of the net saving will be directed, in the autumn budget session, at improving the position of those who are over-indebted. The housing allowance index will be changed from a rent index to a cost-of-living index in order to curb growth of housing allowance expenditure.

A relief will be added to the foreclosure process, which the enforcement officer would have to grant to employed persons following a long period of unemployment, if the debtor requests it.

Regional mobility will be improved by, for example, extending the time limit on tax-free daily allowances and by expanding mobility assistance.

Research, Business Finland and Key Government Project for Tourism

As part of this package, the Government will invest in companies’ product development, renewal, high-level research and research effectiveness by allocating to Tekes, the Finnish Funding Agency for Innovation a total of EUR 70 million for 2018 and 2019. The funding will be directed at joint projects of companies, research institutes and central government to boost growth. Correspondingly, a total of EUR 50 million will be allocated to the Academy of Finland to implement flagship research centres in 2018 and 2019. The flagships will be established in connection with universities and research institutes.

The Government will also seek additional investments in knowledge and education with the aid of capitalisation. Both Tekes and the Academy of Finland will be allocated EUR 60 million capitalisation finance. In addition, the central government will make provision to capitalise, with a total of EUR 80 million, a centre of excellence or other company possessing and maintaining learning environments and tools for vocational education and training. 

Companies’ export activities and tourism promotion will be supported by EUR 50 million of additional funding in 2018 and 2019. Business Finland, to be launched at the beginning of 2018, will gather under the same roof Tekes and Finpro services related to innovation funding, exports, investment and tourism promotion.

The Talent Boost programme will attract international experts to Finland. Companies’ business services will also be made available in the future in the English language. Employment and growth will be supported with a startup entrepreneur residence permit.

Reform of general upper secondary education

The Government will implement a reform of general upper secondary education. The objective is to increase the attractiveness of general upper secondary education as a general form of education providing eligibility for further studies in tertiary education, as well as to strengthen education quality and learning outcomes, and to smooth the transition from secondary to tertiary education.

Caring

The Government will launch new measures to promote the wellbeing of children and young people, prevent exclusion, and reduce the number of young people not in employment, education or training. The measures will be funded within the ministries’ own administrative branch budgets and key Government projects currently under way. EUR 45 million in funding will be allocated to these measures in 2018 and 2019.

The staff structure of early childhood education will be developed. The goal is to strengthen the quality and pedagogics of early childhood education and to increase the multi-professional support received by children and families.

Additional funding of EUR 15 million will be allocated to strengthening equality in comprehensive schools. This support will be directed at schools in the most challenging areas, for example to special needs education and to reduce the size of teaching groups.

EUR 15 million will be allocated in 2018 and 2019 to support the implementation of the reform of vocational education and training. The funding will be used to strengthen the digitalisation of vocational education and training, reduce drop-out rates, prevent social exclusion and build together with working life paths to education and employment.

Funding for Ohjaamo (counselling centre) activity providing low-threshold services for under 30 year-olds will be consolidated.

The Government will allocate EUR 3 million of additional funding to the care of mothers with substance abuse problems.

Reform

In the Government’s Energy and Climate Strategy, Finland has decided to abandon the use of coal in energy production, halve the use of imported fuel and increase the share of renewable energy to more than 50%. With these measures, Finland will meet its commitments to the Paris Climate Agreement.

An additional EUR 25 million will be allocated for this purpose in 2018–2021. This additional funding will be used to promote low-emission transport such as electricity and gas vehicles, renewable energy production, wood construction and experiments to promote the goals of the strategy. In addition, experiments relating to the circular economy, artificial intelligence and employment will be prioritised in experimental activities.

Health, social services and regional government reform

The Government decided to establish the development company SoteDigi to develop national client and patient information system solutions in healthcare and social welfare as well as other digital solutions for the future. A key goal of the company is to increase the productivity as well as the cost-effectiveness and efficiency of the counties, to ensure that the counties can achieve the saving target set for them.

The Government will make provision in the spending limits for health and social services’ ICT development expenditure. The issue will be discussed in more detail in the Ministerial Committee on Economic Policy in July.

An appropriation of EUR 100 million will be allocated in 2018 for the implementation of freedom of choice experiments in health and social services.

In addition, the Government decided on funding of EUR 58 million in 2018 to prepare and support the implementation of the health, social services and regional government reform.

Security

Responding to change in the security environment requires the ability to anticipate and analyse, a shared situation awareness, legislative measures to revise powers, and measures to safeguard the performance capability of the national security authorities. An additional EUR 98 million will be allocated to security in 2018 (Ministry of Defence EUR 52 million and Ministry of the Interior EUR 46 million).

The Government will strengthen the operating model in order to produce and process shared security situation awareness. The Government will reinforce capacity to identify and analyse hybrid threats. The Government will implement legislation projects to prepare for hybrid threats, terrorism, extremist movements and organised crime. The Government will continue the implementation of its action plan on asylum policy.

Measures required by change in the security environment will be implemented in, for example, the following areas: improving preparedness, materiel acquisition and strategic projects.

The measures will improve society’s crisis resilience as well as proactively mitigate and respond to threats.

Starting preparation of a comprehensive reform of social security

The Government will initiate the preparation of a comprehensive reform of social security to improve employment and activity and to reduce inequality. The preparations will take into account, among other things, the results of the basic income experiment, the participation income experiment, other research to be initiated, an extensive consultation round and studies as well as the opportunities offered by a national income register.

In addition, a study will be undertaken into the cost, employment, income distribution and other effects if support for housing is separated from social assistance and handled merely via housing allowances. Preparatory work examining various options will be coordinated by the working group on equality, led by Juho Saari, and it will be completed in February 2019. Preparation will be the responsibility of the Ministry of Social Affairs and Health, the Ministry of Economic Affairs and Employment and the Ministry of Finance.

Highlights of the appropriations

• A development project will be launched at Laajalahti on Ring Road I in connection with the construction of the Raide-Jokeri light rail link. The estimated cost of the project is EUR 30 million, of which the central government’s funding contribution is a maximum of EUR 20 million. The project will be funded by a re-allocation of basic transport infrastructure maintenance appropriations.
• The Government will invest a total of EUR 33 million in the development of data management and high-performance computing. The development programme will raise the field’s research infrastructure to an international level and strengthen research and education relating to artificial intelligence.
• An additional EUR 34.5 million will be allocated in 2018 to the Police to safeguard core operations.
• The appropriations of the Finnish Security Intelligence Services (Supo) will be increased by EUR 3.5 million.
• The appropriations of the Border Guard will be increased by approximately EUR 8 million in 2018 for, among other things, enhancing inspections conducted at external borders.
• The Government will allocate an additional EUR 52 million to defence.
• The Government will earmark EUR 15 million in additional funding for enhancing equality in comprehensive schools.
• EUR 5 million will be allocated to developing the staff structure of early childhood education. The goal is to strengthen the quality and pedagogics of early childhood education and to increase the multi-professional support received by children and families.
• EUR 15 million will be allocated to support the implementation of the reform of vocational education and training. The funding will be used to digitalise vocational education and training operating processes in line with the goals of the reform, lower drop-out rates, prevent social exclusion and build together with working life paths to education and employment for young people and adults not in employment, education or training.
• A EUR 75 provider supplement will be made to safeguard the income of students with families. The change is expected to increase central government by approximately EUR 10 million on an annual basis.
• The basic component of the pensioners’ care allowance will be increased by EUR 10 million.
• The Government will strengthen protection of forest biodiversity by increasing by EUR 5 million the annual investment in the implementation of the Forest Biodiversity Programme for Southern Finland (METSO). METSO is focused primarily on the protection of old forests. The objectives of the programme also include the protection of wooded mires and bogs.
• An additional appropriation of EUR 2 million per year will be allocated to the Finnish Communications Regulatory Authority to safeguard the reliability of information security and protection of privacy, with the objective, among other things, of ensuring the smooth interoperability of digital platforms and services.
• A total of EUR 70 million in 2018–2020 has been earmarked in the spending limits for overall expenditure relating to the EU Presidency. In addition to this, the main title of the Ministry of the Interior includes an increase in security expenditure appropriations for the Presidency.

Municipal finances close to balance

Both the municipalities’ own consolidation measures and the measures of Prime Minister Juha Sipilä’s Government have strengthened municipal finances. The balancing of municipal finances requires, however, that the municipalities utilise the savings potential offered by Government Programme measures and the Competitiveness Pact. Despite the consolidation measures, the municipalities’ loan portfolio is growing.

Consolidation measures

The Government’s consolidation package, aimed at directly strengthening public finances, consists of measures to curb growth of public expenditure as well as expenditure re-allocations, such that together the measures will strengthen public finances by approximately EUR 4 billion. The effects of the consolidation measures have been specified during preparation, in addition to which discretionary changes have been added to the list of savings. To maintain the impact of the consolidation measures at EUR 4 billion, the Government has decided that only half of the 2020 index increase for county finances will be implemented.

In accordance with the Government Programme, the Government will reduce municipalities’ costs by EUR 1 billion by cutting statutory duties and related obligations in the long term, namely by 2029. The Government has decided that the assessment of the savings target will take into account the whole of general government finances and the updated packages of measures, whose combined savings potential exceeds EUR 1 billion.

Central government deficit falling, but new debt still being taken

On-budget revenue is expected to be EUR 51.3 billion in 2018. Compared with the previous spending limits decision, revenue before net borrowing will be approximately EUR 0.7 billion higher in 2018. Actual revenue is expected to grow in the spending limits period by an average of approximately 8.2% per year. On-budget revenue is expected to be EUR 68.3 billion in 2021. A significant change in central government tax revenue will result from the tax reform associated with the health, social services and regional government reform, which will increase budget tax revenue by approximately EUR 13.4 billion on an annual basis. Excluding the impact of the health, social services and regional government reform, revenue would grow by an average of 1.9% per year.

Central government on-budget revenue, expenditure and balance, EUR billion

On-budget expenditure is expected to be EUR 55.4 billion in 2018. Compared with the previous spending limits decision, expenditure will be approximately EUR 0.5 billion higher in 2018. The expenditure level will be raised by, among other things, the Competitiveness Pact and the costs of implementing the health, social services and regional government reform. The level of expenditure will be lowered, on the other hand, by the estimate of expenditure arising from asylum seekers. Appropriation estimates relating to immigration have been reduced annually by approximately EUR 300 million compared with the previous spending limits decision. The assumed number of asylum seekers has been reduced to 7,000 from the 10,000 asylum seekers estimated in autumn 2016. In addition, family reunification estimates have changed since the preparation of the previous spending limits decision.

In addition, the adjustment of the division of costs between the central government and the municipalities will be lower than estimated, and the estimate of interest expenditure has also been reduced. Excluding changes caused by the health, social services and regional government reform, on-budget expenditure is expected to grow nominally by an average of approximately 1% per year during the spending limits period.

The central government on-budget deficit is projected to be approximately EUR 4.1 billion in 2018, whereas for 2017 the deficit estimated according to the budget is EUR 5.6 billion. The deficit will fall in 2020, but it will grow again in 2021 due, in particular, to Defence Forces’ strategic performance capability projects. Central government debt is assumed to grow by approximately EUR 14 billion during the spending limits and to reach EUR 123 billion in 2021.

The economy is growing, general government debt accumulation will continue

According to Statistics Finland provisional data, Finland’s economy grew by 1.4 % in 2016. The sources of growth were private consumption and private investment. This year, growth is continuing and is more broadly based. In 2017–2019, growth is expected to remain at just over 1%. Over the past decade, Finland’s economy has suffered from industrial restructuring, which has weakened opportunities for economic growth. The growth outlook for the coming years will also be undermined by the declining number of the working-age population.

Finland’s general government finances deteriorated into deficit at the end of last decade, but in the past couple of years the general government budgetary position has improved. This year, however, the general government deficit will grow, particularly due to the Competitiveness Pact and related tax reductions. Consolidation measures and stable economic growth will strengthen the general government budgetary position in the coming years. General government finances will remain in deficit, however, and the general government debt-to-GDP ratio will continue to grow and will level off only temporarily at the turn of the decade. For general government finances to be on a sustainable base, the budgetary position would have to be significantly in surplus in 2021. Growth of pension, healthcare and long-term nursing expenditure resulting from population ageing will pose a challenge for the management of public finances far into the future.

The economic assessments presented above are preliminary. The Ministry of Finance’s Economic Survey will be published simultaneously with the General Government Fiscal Plan.

The General Government Fiscal Plan includes the Stability Programme, which Finland submits to the EU. In the programme, the Government outlines its General Government Fiscal Plan. The programme is part of the European Semester for economic policy cooperation.

Supplementary budget

The Government will discuss the 2017 first supplementary budget proposal on 19 May 2017. The discussions will cover, for example, the following issues:

Savonlinna

In autumn 2016, the Prime Minister’s Office established a working group to study means to support Savonlinna due to the closure of the Savonlinna teacher training campus. The measures now outlined by the Government aim to promote active renewal in order to strengthen education and skills and promote networking.

The Government proposes the development of expertise in mechanical wood construction in the area as well as the establishment of a mechanical wood construction network project. In addition, the Government proposes developing the activities of the Natural Resources Institute of Finland and the operating conditions of Olavinlinna castle to promote tourism. The proposed measures will strengthen economic vitality, the business structure and business development opportunities. In addition, flight traffic between Helsinki and Savonlinna will be secured.

An additional appropriation of EUR 1.6 million for the Natural Resources Institute of Finland will be decided on later in connection with the supplementary budget. The Government has decided to transfer financial and debt counselling activities to the legal aid offices. A remote service unit will be established in Savonlinna.

The Government has already increased the archipelago supplement received by Savonlinna. The annual partial archipelago supplement granted to Savonlinna has been EUR 1.5 million since 2017.

The Ministry of Education and Culture has earlier granted the Tanhuvaara Sports Centre central government aid totalling EUR 855,000 in 2019–2020 for the construction of a new residence as well as EUR 140,000 in 2020 for a main access road development project. The Ministry of Education and Culture has also granted Savonlinna Jäähalli Oy EUR 750,000 support for the construction of a training rink.

Support for the positive restructuring of Southwest Finland

The positive influence of manufacturing growth industries will be extended in Southwest Finland into the 2020s. The area is in significant need of expertise and additional labour.

To ensure long-term growth, the Sipilä Government agreed in connection with its mid-term policy review session that funds to strengthen positive restructuring in Southwest Finland will be allocated in the 2017 first supplementary budget.

Additional resources will be a directed mainly at the training and availability of expert labour. A particular area of emphasis is technical sector expertise. The more precise allocation of the additional funds will be assessed by rapporteur Jari Jokinen, adapting Esko Aho’s report assessing the growth of the maritime cluster and the automotive industry, which is under preparation.                                                            

Efficient international connections

To support Finland’s competitiveness and sustainable growth, Finland’s accessibility and efficient connections make be ensured. In exports and imports, Finland is dependent in terms of sea transports on the traffic flow quality and capacity of important routes.

The Government has decided to initiate projects to deepen the Oulu and Vuosaari fairways. The central government contribution for implementation of both projects will be a total of EUR 22.5 million. Funding will be granted via the supplementary budget.

Inquiries: Markus Lahtinen, Special Adviser to the Prime Minister (Economic Policy), tel. +358 295 160 404; Juha Halttunen, Special Adviser to the Minister of Justice and Employment, tel. +358 50 574 0236; and Ville Valkonen, Special Adviser to the Minister of Finance, tel. +358 44 567 2201