"Ecologically and socially sustainable economic growth, high employment and sustainable public finances"
2 Finland as a sustainable economy
The key economic policy objectives for the government term:
- The employment rate will be raised to 75 per cent and the number of people in employment will increase by a minimum of 60,000 by the end of 2023
- *Given normal global economic circumstances, Finland’s general government finances will be in balance in 2023
- The Government’s decisions will decrease inequality and narrow the income gaps
- The Government’s decisions will put Finland on a path towards achieving carbon neutrality by 2035
- The aim of economic policy is to increase wellbeing and prosperity. This means ecologically and socially sustainable economic growth, high employment and sustainable public finances, as well as a level of stability in the economy would enable unforeseen impacts on people's wellbeing to be avoided.
The Government will pay particular attention to the effects of decisions in the long term. Indicators that describe economic, ecological and social wellbeing will be used as an aid in decision-making preparations, alongside and in support of conventional economic indicators.
| 2023 | |
|---|---|
| Employment rate, % | 75,0 |
| Unemployment rate, % | 4,8 |
| General government net lending, % GDP | 0,0 |
| General government debt, % GDP* | 57,1 |
*The debt ratio assessment is based on the assumption that the measures will be implemented evenly during the government term.
In economic policy decision-making, account will be taken of the target for carbon neutral Finland and Finland's objectives and commitments with respect to EU and global climate policy. An ambitious, consistent and predictable climate policy will create a stable investment environment, which will present opportunities for Finnish business and employment.
Economic growth in Finland is derived principally from productivity growth, and the key factors in this are skills and innovation. A successfully operating welfare state, effective infrastructure, education, training, research and close integration with the world economy together form the foundation for Finland’s economic success and growth. These factors reinforce each other. The Government's economic policy aims at strengthening this foundation.
It is essential that the employment rate is higher in the 2020s and beyond if we are to secure sustainable public finances as the population ages. To achieve the target, employment-boosting reforms will be introduced. These will be implemented in ways that increase trust and inclusion and reduce people's uncertainty about their jobs and income security, across all parts of the country. The reforms aim to boost equal opportunities and thus promote social mobility.
Increased exports provide room for sustainable growth in domestic demand and employment. The Government's objectives are to safeguard real competitiveness and cost-competitiveness, to ensure the stability and predictability of decision-making, to broaden the export base to include new enterprises, sectors and markets, and to boost added value.
Particular attention will be given to ensuring that the investment environment in Finland is attractive. The possibilities brought by climate technology and low-carbon production will be fully utilised. Sustainable economic growth and new kinds of exports will emerge as a result of Finland’s involvement in developing solutions to global issues and megatrends. We will pay careful attention to industrial competitiveness.
The Government will encourage self-employment and entrepreneurship. Society must ensure that there are incentives for this as well as for businesses to provide employment.
Sustainability of public finances
Protecting decent, high-quality services and ensuring everyone has the means to get by requires that public finances are on a solid foundation and managed in a sustainable manner.
The Government is committed to strengthening the long-term sustainability of public finances consistently so that we are not driven onto an unsustainable path of mounting debt, which would force us in future to cut spending or increase taxes.
The growth in age-related expenditure will continue throughout the 2020s and onwards. The size of the sustainability gap is estimated to be three to four per cent of GDP. The sustainability gap estimate is a ‘pressure projection’ by nature which involves considerable uncertainty as it is difficult to anticipate economic and demographic developments.
The decreasing number of people of working age weakens the economic dependency ratio and poses challenges for labour availability. The most sustainable means to strengthen general government finances in the long term is employment growth, including labour migration, in a way that also bolsters general government finances.
In addition to employment growth, sustainability can be strengthened most effectively by enhancing the productivity of publicly funded service provision. Productivity growth in health and social services and other public administration will be reinforced by organisational and technological measures. Efficiency will be improved in public procurement and facility management. Preventive measures in competence, health and social policy in particular will be used to curb growth in costs.
The Government will devise productivity measures that will be prepared and monitored as part of a negotiation procedure between the regions and the central government, implemented in the context of the General Government Fiscal Plan.
The Government is committed to continuing the implementation of the 2017 pension reform in cooperation with labour market organisations.
Decisions on expenditure and tax will be planned on the basis that, given normal global economic circumstances, Finland’s general government finances will be in balance in 2023 and the public debt-to-GDP ratio will decrease. In addition, the balance in the general government finances can be maintained by using the cumulative productivity gains to finance any increase in spending after the end of this government term as a result of the policies being determined now.
The decisions made will follow the principle that examination of the on-budget activities is based on figures that are adjusted for fighter aircraft acquisitions.
Employment and labour market policy
The objective of the Government's economic and employment policy is that the employment rate will reach a level of 75 per cent in the 15–64 age group in 2023, given normal global and related domestic economic circumstances. In the longer term, the sustainability of general government finances requires an even higher employment rate than this, which is why attention will be paid to measures whose employment impact will be visible only after some delay.
The trend in employment will be monitored using more detailed indicators. Analysis of the employment rate will also examine in parallel the employment rate for those aged 20–69. In assessing the employment trend, we will also review the number of hours worked, the full-time equivalent employment rate, and the type and nature of employment relationships. The aim is that the jobs created will be of high quality and will secure people’s ability to get by.
High employment also necessitates a well-functioning labour market and an active employment policy, and particularly support for those with poor employment prospects in regard to their accessing the labour market.
The greatest potential for employment growth lies in those groups where employment is now low either due to unemployment or being outside the labour market. These groups include older people, those with only basic education, people with partial work capacity, disabled people and some of those with an immigrant background.
The number of people employed could be increased by raising the employment rate of those having already migrated to Finland and by improving their educational opportunities, and by boosting labour migration particularly by skilled workers. Reinforcing labour migration requires well-functioning and equal rules on the labour market and efficient and comprehensive supervision of this.
In measures strengthening employment, particular attention will be paid to their cost-effectiveness, impact and social justice.
In order to ensure the coordination of economic and labour market policy, the Government will act in collaboration with labour market organisations and also in consultation with business organisations. In addition, company-level agreements will be encouraged within the extended tripartite arrangement. The aims of this collaboration are a stable labour market and growth in employment, balanced development of working life, a positive trend in household purchasing power and real competitiveness and cost-competitiveness. In addition, due consideration will also be given to preparedness for and reacting to cyclical fluctuations and structural adjustments. Reaching climate targets also requires sectoral evaluation in particular, and cooperation from the social partners as well.
Commitment to the employment goal
The Government is strongly committed to an employment goal of 75 per cent under normal international and related domestic economic circumstances. In comparison with the Ministry of Finance’s spring 2019 forecast, this means an estimated further 60,000 people employed in 2023. This higher employment rate is the most important individual element in the revenue base of the Government Programme.
The Government will continuously evaluate the employment trend and the attainment of this goal. This will include evaluation in every General Government Fiscal Plan session and government budget session and in the Government’s mid-term policy review. If it looks as if the goal will not be reached, the Government will take determined action to ensure its attainment. The Government will not exclude any employment-enhancing measures from the review.
Attaining the employment goal requires measures that support the supply of and demand for labour and alleviate the labour market mismatch:
- Employment of older people and others with poor employment prospects will be increased.
- Unemployment security will be reformed and active labour market policy measures increased, with the aim of shortening unemployment periods and preventing prolonged employment. The use of the pay subsidies will be expanded substantially.
- The labour market skills of those having already migrated to Finland will be improved and labour migration, particularly involving skilled labour, will be increased.
- Company-level agreements will be encouraged.
- Steps will be taken to accelerate the labour market entry of those with tertiary education.
The aim is that, under the normal economic circumstances described above, the combined effect of these and other measures will be at least an additional 60,000 people employed. Of the measures referred to above, half will be in place by the government budget session in August 2020. If this is not the case, the government budget session will assess the expenditure increases previously decided, which were made relative to the technical General Government Fiscal Plan. The Government will not take employment policy measures that have a negative employment impact without simultaneously taking more effective measures to improve employment.
The Government will start tripartite preparatory work to draw up proposals on measures that support the attainment of the Government’s employment goal. The tripartite preparation will include at least reforming the unemployment security system and the related labour market policy measures, improving employment of groups with poor employment prospects and company-level agreements. Of these measures, the company-level agreements will be discussed within the extended tripartite arrangement.
The preparation will progress in two stages, with the first part being completed by the government budget session in autumn 2019 and the proposals for the second part being available in connection with the discussion of the General Government Fiscal Plan in spring 2020. The labour market organisations will conduct sectoral pay and other collective bargaining negotiations in a manner and to a timetable agreed by them.
Fiscal policy
The Government will implement an active and responsible fiscal policy that is scaled in accordance with the economic conditions.
The Government’s discretionary permanent additional expenditure will be primarily covered by discretionary permanent additional revenue. By decisions of the Government, permanent expenditure at the level of 2023 will be EUR 1.230 billion higher than in the spring 2019 technical General Government Fiscal Plan. Permanent new expenditure will be allocated to, for example, strengthening competence and social justice and to climate policy measures. A list of expenditure changes is in Annex 1.
The Government is committed to the spending limits system concerning central government expenditure. The spending limits rule is described in Annex 3.
The discretionary additional decision-based expenditure of EUR 1.230 billion will be funded in such a way that tax revenue will increase by EUR 730 million and EUR 200 million of on-budget revenue and expenditure will be reallocated, including EUR 100 million in business subsidies. In addition, attaining the 75 per cent employment goal will strengthen general government finances to the extent that part of this strengthened level can be allocated to additional expenditure, thus reaching the goal of balancing general government finances.
During the parliamentary term, the Government will implement a one-off programme of future-oriented investment that supports the attainment of the Government Programme’s objectives and long-term sustainability of general government finances. Within this investment programme, up to EUR 3 billion will be targeted at one-off investments and socially important experimental schemes. The measures are non-recurrent and they will not increase central government expenditure in 2023. The measures will be funded for the most part through property income so that they will not lead to an increase in the debt burden in 2023. The Government plenary session will decide on the use of these funds based on the preparations of the Ministerial Committee on Economic Policy. A list of the content of the investment programme and procedures is given in Annex 2.
Scaling fiscal policy to accord with the economic conditions means above all that general government revenue and expenditure can be adjusted automatically according to the economic conditions. The resources for active labour market policy will be scaled as required by the economic situation.
Where necessary, demand will also be supported by discretionary measures. Discretionary cyclical adjustment tools include extra-budgetary funds, financial investments, tax measures and phased infrastructure projects. As part of the spending limits rule, a mechanism will be introduced for dealing with an exceptional economic situation. The mechanism will help safeguard the ability of economic policy to respond in the manner required by the economic situation, and it can be deployed in the case of an exceptionally serious economic downturn.
With this mechanism, up to EUR 1 billion, but not more than EUR 500 million per year, can be allocated to one-off expenditure in a situation where the requirements for using the mechanism are fulfilled. The use of the mechanism will not be automatic but based on discretion regarding the nature of the economic situation and the efficiency of various measures to balance the cyclical situation. The Ministerial Committee on Economic Policy will decide whether the definition for an exceptional economic situation is met and will make a recommendation to the Government on the use of the mechanism. The scale of the mechanism and the principles for its use are set out in the spending limits rule in Annex 3 and the definition of an exceptional economic situation is specified in the minutes in Annex 6.
Better adjustment of the unemployment security system to economic circumstances will be examined together with the labour market organisations, in addition to looking at other aspects of the system. One way to prepare for threats to the international economy is to strengthen the cyclical buffers of the Employment Fund.
Economic policy decision-making
The Government will monitor the economic situation and implementation of the employment and balancing goals and react as required by the economic situation. The measures set out in the Government Programme and elsewhere will be implemented within the spending limits established for the electoral term while paying due attention to the Government’s goal for the general government finances (balance in general government finances in 2023). The Government is committed to reviewing the measures set out in the Government Programme should their implementation jeopardise the objectives for the general government finances.
The economic policy package will be reviewed yearly in the General Government Fiscal Plan session and government budget sessions. A review will be made of the policies half way through the Government’s term of office, when decisions will be taken on any extensive further measures required.
The goals related to employment and to the balance in general government finances will not prevent a policy of balancing cyclical fluctuations. The goals are structural in nature. A weakening of growth, employment and general government finances as a result of poorer than expected performance in the global economy need not be interpreted as a deviation from the goals. In contrast, such a situation caused by domestic circumstances would be interpreted as this kind of deviation and would lead to a review of the policy.
To ensure high-quality decision-making, decisions will be prepared with care and based on research data. For this reason some of the economic policy outlines require further preparation to establish the most appropriate means and details for achieving the agreed goals. Detailed decision-making may then take place, for example in connection with the first General Government Fiscal Plan session and after Finland's Presidency of the Council of the European Union at the beginning of 2020.
Phenomenon-based budgeting and particularly sustainable development budgeting will be developed on the basis of the proposals of the working group report published by the Ministry of Finance. They will be used as a practical and helpful tool.
Financial market
Preventing excessive household indebtedness
The household sector's fast growing indebtedness makes it vulnerable to a fall in incomes and a rise in the level of interest rates. Based on the preparations of a working group, decisions will be taken on the measures required to curb growing direct and indirect indebtedness of households and to secure financial stability.
Fight against money laundering and terrorist financing
Sufficient resources will be secured for the authorities, exchange of information will be improved and surveillance intensified to combat money laundering and terrorist financing.
Preparedness for serious incidents in the financial market
Preparedness for serious incidents and emergencies in the financial sector will be improved by developing the regulation of national backup arrangements in a cost-effective manner.
Strategic-level management in government will be made more effective and measures outlined concerning information, information networks and information systems critical for securing the functioning of society in a digital operating environment.