Fighter procurement will increase defence budget

The 2021 budget proposal for the administrative branch of the Ministry of Defence amounts to EUR 4.87 billion. This is EUR 1.7 billion or 54% more than in the current budget.

The increase is to a large extent due to the funding proposed to procure multi-role fighters (HX project). Without the HX project, the increase in appropriations in the administrative branch will be 0.7%, and mainly due to cost level adjustments, including pay increases, which will account for EUR 50 million increase in expenditure.

Expenditure in the administrative branch in relation to the GDP forecast for 2021 will increase to more than two per cent. Depending on economic development, the GDP of the current year is around 1.4%.

Funding to procure multi-role fighters

The Ministry of Defence proposes a funding of EUR 10 billion to fully replace the capabilities of the Hornet fleet. The proposal is in line with the policy formulated by the Committee on Economic Policy in autumn 2019. Procurement expenditure will be scheduled for twelve years. The funding proposed for the 2021 budget is an authorisation order of EUR 9.4 billion to procure multi-role fighters; of this EUR 900 million is for 2021 and EUR 579 million for non-budgetary funding. A significant part of the funding outside the authorisation order is used for constructing infrastructure in Finland. This will also cover pay expenses of the fixed-term staff and project management expenses. The purchase of necessary expert services from domestic companies and organisations is also included here.

In the budget for 2020, EUR 20 million of the total funding has been allocated to prepare for the procurement decision. If necessary, financial arrangements will be specified in the budget for 2022.

The index and foreign exchange expenditure related to the procurement will be budgeted separately over the years 2022-2031.

Procurement and maintenance of materiel account for significant budget shares

The budget proposal includes expenditure on the Squadron 2020 project, which was previously decided, amounting to EUR 209 million (excluding VAT). In addition to the multi-role fighter and Squadron 2020 projects, a significant part of the military defence appropriations, about EUR 974 million or 38%, will be spent on material readiness. This covers the procurement of defence materiel, equipping troops from operating cost funding, and materiel maintenance costs.

An authorisation order of EUR 866 million is proposed for procuring defence materiel; this expenditure is scheduled for the years 2021-2028. The order authorisation will cover ammunition, ensure the life cycle of the aircraft and implement the development of the Defence Forces' operational guidance system.

It is also proposed that an authorisation order of about EUR 150 million be added for the Defence Forces to procure spare parts and conclude service and maintenance agreements for systems over the years 2021-2025.

Operating expenditure of the Defence Forces almost unchanged

The increase in the Defence Forces' operating expenditure, based on the Government Programme, will increase from EUR 5.5 million this year to EUR 7.8 million. The increase is mainly used to establish new jobs. In connection with the Government's supplementary budget in spring 2020, an additional EUR five million was agreed for 2021 to recruit contractual military personnel and other fixed-term personnel.

As Senate Properties reduces rents for premises, the operating expenditure of the Defence Forces will be reduced by nearly EUR 11 million. The increase in operating expenditure appropriations by about 1.2% of the budget for the current year is mainly due to cost level adjustments. Because of the changes in the cost-of-living index, the daily allowances for conscripts and reservists will be increased by 5 to 10 cents from the beginning of 2021.

Focus on Lebanon, Iraq and Afghanistan in military crisis management

A total of EUR 59 million is proposed for equipment and administrative expenses in military crisis management. The maintenance expenses of Finnish crisis management troops, EUR 53 million, are included in the appropriations of the Ministry for Foreign Affairs. It is estimated that the overall strength of crisis management troops will be slightly over 400 person-years.

Inquiries: Kristiina Olsson, Director of Finance, tel. +358 295 140 220; Lauri Puranen, Programme Director (HX project), tel. +358 295 140 403 ([email protected])