Annex 3. Spending limits rule
The Government is committed to observing the General Government Fiscal Plan and the first spending limits decision included in it. The General Government Fiscal Plan aims to ensure responsible, long-term fiscal policy that promotes economic stability.
The Government declares that the expenditure ceiling in central government finances will be increased in accordance with the policies detailed in this programme. The measures in the Government Programme and other measures will be implemented to the extent possible within the spending limits framework. In 2023, the expenditure ceiling will be EUR 1.4 billion higher than in the technical spending limits (4 April 2019) at the 2020 price level, including unallocated reserves of EUR 0.1 billion and a supplementary budget provision of EUR 0.1 billion, which were not included in the technical spending limits. In addition to structural adjustments, the overall spending limits level will be revised to reflect changes in price levels.
The expenditure ceiling in 2020–2022 will take into account a reserve of EUR 300 million for the purpose of supplementary budgets. If the level of expenditure falls below the spending limits even after supplementary budgets, the difference can be used the following year on one-off expenditure items without reference to the spending limits.
A mechanism will be introduced for dealing with an exceptional economic situation (the ‘exceptional situation mechanism’). The aim of the mechanism is to ensure that economic policy can respond as needed to deal with the economic situation. For the purposes of the mechanism and in view of the employment goal and the objective of balancing general government finances, the following constitute an exceptional situation:
- the global economy and especially the euro area experience a serious economic downturn and this pushes Finland’s economy into the same situation, or
- Finland’s economy experiences a serious economic downturn due to a temporary disturbance that is independent of the Government’s actions.
The Ministerial Committee on Economic Policy will decide when the definition of an exceptional situation is met and will decide about issuing a recommendation to the Government on the use of the exceptional situation mechanism, and will do so on the basis of preparatory work by the Economics Department of the Ministry of Finance and an assessment of the situation by the Bank of Finland and economic research institutes. Procedures for ascertaining whether there is an exceptional economic situation are described in further detail in a supplementary protocol to the Government Programme.
With the exceptional situation mechanism, up to EUR 1 billion, but not more than EUR 500 million per year, can be allocated to one-off expenditure altogether in 2020–2022 without reference to the spending limits.
The purpose of the spending limits in central government finances is to limit the total amount of expenditure to be met by taxpayers. When changes are made in the Budget that are neutral from this perspective, corresponding adjustments may be made in the spending limits of the parliamentary term. The spending limits system carries no restrictions on the re-budgeting of expenditure, on changes to the timing of expenditure items or on refunds or compensation of revenue collected during the parliamentary term that has turned out to be unjustifiably high, or other similar items. If spending arising from an expenditure item already under way is technically transferred to the next parliamentary term, the expenditure ceiling will be correspondingly reduced.
The Government will not use tax concessions or tax subsidies to circumvent the spending limits.
If fighter aircraft acquisitions and the energy tax refund scheme give rise to less expenditure than was reserved within the spending limits, the difference will not be used to increase other expenditure.
The following items will be excluded from the spending limits:
- cyclical expenditure i.e. unemployment security expenditure, social assistance expenditure, wage guarantee and housing allowance. Unemployment security expenditure will also be used to finance the pay subsidy. However, the expenditure effects generated by changes to the criteria for these items and by other discretionary decisions affecting their level will be included in the spending limits.
- Interest expenditure on central government debt.
- Compensation to other tax recipients for changes in taxation (including social security contributions) decided by central government.
- Expenditure corresponding to technically transmitted payments and external (including EU) funding contributions.
- Expenditure corresponding to the return on profits gained from gambling activities.
- Financial investments.
- Appropriations for VAT expenditure.
- Funding for the Finnish Broadcasting Company (“transfer to the State Television and Radio Fund”)