Government reaches agreement on second supplementary budget proposal for 2024
In its meeting on Tuesday 21 May, the Government agreed on the second supplementary budget proposal for the current year. The proposal supports the Government’s objective of keeping the general government deficit under 3.5 per cent of GDP in 2024.
The second supplementary budget proposal for 2024 will reduce the need for appropriations for the current year by EUR 53 million, while actual revenue will increase by EUR 141 million. Together, these will reduce the central government’s net borrowing requirement by almost EUR 194 million, with net borrowing expected to total around EUR 12.7 billion in 2024. The budgeted amount of government debt at the end of 2024 is estimated to be approximately EUR 169 billion, which is around 60 per cent of gross domestic product (GDP).
Strengthening general government finances to avoid the EU’s excessive deficit procedure
In line with the commitment made by the Government in the spending limits discussion this past spring, the second supplementary budget proposal for 2024 includes measures to strengthen general government finances in order to avoid triggering the EU’s excessive deficit procedure. These include raising the general value-added tax rate and making adjustments to energy subsidies, costs arising from migration and the EU membership fee, for example, based on revised needs assessments and payment schedules. Necessary investments will be made within the limits of the room for manoeuvre in general government finances. Finland can avoid triggering the EU’s excessive deficit procedure if the amount of deficit exceeding the 3 per cent reference value is minor and temporary. This means that the planned central government deficit for this year has to remain below 3.5 per cent of GDP. The excess deficit is temporary because according to the European Commission’s forecast, Finland’s deficit will fall below the 3 per cent reference value in 2025 to 2.8 per cent of GDP.
Government decides on additional investments in transport projects within the spending limits and in line with the investment programme outlined in the Government Programme
The Government will launch several significant transport projects across Finland to boost regional growth and accelerate the recovery of the construction sector from the economic downturn.
As part of the investment programme outlined in the Government Programme, the Government proposes the following projects: 1) main road 5 Leppävirta–Kuopio (proposed authority EUR 180 million), 2) main road 8 Edsevö–Lepplax (EUR 24 million), and 3) coastal railway development Kauklahti–Karis (EUR 30 million). The projects included in the investment programme will not increase the central government's borrowing requirement.
Finland will recognise a total of EUR 51.1 million from the EU’s Connecting Europe Programme as revenue for transport projects. Of these funds, a total of EUR 11.2 million will be allocated to the Western Main Line (Länsirata Oy). With respect to need for appropriations for 2024, the Government also proposes using the programme’s funds for the following projects: Koivisto and Pikkuhaara bridges to be built on main road 11 (Pori and Ulvila), improvements to main road 21 at Ailakkalahti–Kilpisjärvi and Enontekiö and the construction of an interchange on main road 3 at the border between Hämeenlinna and Janakkala.
An authorisation of EUR 8.17 million and an appropriation of EUR 1 million are proposed for the Kotka entrance road to main road 15 (Hyväntuulentie) in 2024. In addition, the intersection of main roads 3 and 19 will be improved in Jalasjärvi, Kurikka. A budget authority of EUR 11 million and an appropriation of EUR 1 million are proposed for project in 2024.
In addition, the Government proposes granting a budget authority of EUR 1.45 billion for long-term service contracts (20–21 years) for ferry services. The proposed authority and service agreements will not require additional appropriations as the funding is included in the annual spending limits for basic transport infrastructure management.
Necessary additional appropriations to cover costs of instrumentalised migration and compensate for support provided to Ukraine
EUR 3.3 million is proposed for the Border Guard, approximately EUR 0.5 million for the police and approximately EUR 0.7 million for Customs to cover the costs incurred due to instrumentalised migration. A further EUR 11 million is proposed for the Border Guard for the cost of investments in a surveillance system based on radio technology.
A total of approximately EUR 1.5 million is proposed to the Finnish Immigration Service for costs outlined in the government proposals on the border procedure and amendments to the Nationality Act.
The Government also proposes that additional appropriations related to the replacement of defence materiel delivered to Ukraine be included in the authorisation under the Defence Forces’ development programme (UKR 2023), the total amount of which would increase by EUR 575.4 million. The costs of replacement procurements will be incurred in 2024–2032. In this context, the Government proposes increasing appropriations for defence materiel procurement by approximately EUR 1.1 million to cover the costs of support to Ukraine in 2024. In addition, an increase of EUR 6.1 million is proposed for the operating expenses of the Defence Forces to cover the costs of support to Ukraine. The Government further proposes adding EUR 152.8 million to appropriations for the administrative branch of the Ministry of Defence in accordance with the index adjustment.
An increase of EUR 1 million is proposed for the National Land Survey of Finland to renew its aerial image camera system, which also serves the needs of the Defence Forces.
The supplementary budget proposal also proposes an increase of approximately EUR 0.7 million to the operating expenses of the National Supervisory Authority for Welfare and Health to bring its service provider register (Soteri) up to the level required by the Act on the Supervision of Health and Social services.
Changes in needs estimates and payment schedules to reduce need for appropriations
The supplementary budget proposal includes several changes to payments and schedules, which will reduce the need for appropriations this year. For example, the Government proposes reducing the estimated appropriation for energy subsidies by EUR 141 and the estimated appropriation for renewable energy production subsidies by EUR 114 million. It also proposes reducing the appropriation reserved for projects under the EU Structural Fund by EUR 100 million due to lower payments than anticipated.
The Government proposes reducing Finland’s EU membership by EUR 136 million based on a revised estimate. Expenditure related to migration has also been reduced. In line with the proposal, the appropriation reserved for the costs of receiving refugees and asylum seekers will be reduced by EUR 59.8 million based on revised projections of the number of migrants to Finland. It is proposed that the appropriation reserved for subsidies paid to customers of reception services be reduced by EUR 28.7 million due to revised projections.
As outlined in the Government Programme, the savings allocated to rural development will be compensated for by re-budgeting unused appropriations from the CAP transition period. This will make it possible to secure EU allocations to the fullest extent.
Interest expenditure to increase
The interest rate estimate has been revised in accordance with actual interest expenses, borrowing and the development of interest rates. The Government proposes increasing debt servicing expenditure by EUR 73.1 million. Interest expenditure is expected to total just over EUR 3.2 billion in 2024.
Decreasing tax revenue estimates due to weaker economic outlook
The Government proposes decreasing the tax revenue estimate by EUR 261 million. The new tax revenue estimate is based on the macroeconomic forecast published by the Ministry of Finance in April 2024.
The Government proposes increasing the general value-added tax rate and the tax payable on certain types of insurance from 24 per cent to 25.5 per cent as of 1 September 2024. These increases are expected to increase tax revenue by a total of EUR 182 million. On the other hand, the weakened economic outlook will reduce the amount of value-added tax revenue.
The Government proposes reducing the corporate tax revenue estimate EUR 469 million due to the weakened economic outlook. A reduction of EUR 150 million is also proposed to the estimated revenue from the temporary profit tax in the electricity and fossil fuels sectors based on the tax return data from electricity companies. By contrast, an increase of EUR 115 million is proposed to the revenue estimate for inheritance and gift tax and an increase of EUR 106 million to the revenue estimate for withholding tax on interest income based on accrual data.
An increase of EUR 412 million is proposed for the estimate of miscellaneous revenue. Revenue from the EU’s Connecting Europe Facility will increase, and the proposal also includes an increase of EUR 300 million in the estimate of cancellations of appropriations carried over from previous years.
The second supplementary budget proposal for 2024 will be submitted to Parliament on Thursday 23 May at a government plenary session, after which the proposal will be published (in Finnish) on the Government budget proposals website.
Inquiries: Mikko Martikkala, Special Adviser to the Prime Minister in Economic Affairs, tel. +358 295 161 171, mikko.martikkala(at)gov.fi, and Jussi Lindgren, Special Adviser to the Minister of Finance in Economic Affairs, tel. +358 295 530 514, jussi.lindgren(at)gov.fi