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Government amendments to 2009 budget proposal: Government continues to stimulate the economy

18.11.2008  |  Press release 189/2008

The Government is responding to the cyclical downturn with both tax cuts and fiscal measures. In the ordinary budget proposal for 2009, fiscal policy will be eased by a sum corresponding to about one percentage point of GDP. Besides the measures already adopted, the Government reached agreement on Tuesday on new action to stimulate the economy, for instance by promoting housing construction and renovation, and by boosting exports. The Government's proposal will be submitted to Parliament on Friday.

Slower inflation and tax cuts will boost purchasing power

The budget proposal presented in September was based on the September Economic Bulletin published by the Ministry of Finance. With global economic prospects having become much gloomier in the autumn months, the Ministry of Finance has now revised the forecast figures used in the budget proposal. A new economic forecast will be released in December.

Economic growth will slow down considerably in Finland next year. With international demand diminishing and owing to slacker demand and higher financial costs in investments, Finnish exports are estimated to decline. However, the tax cuts proposed by the Government, apt in the current cyclical position, will perk domestic demand. Thanks to falling world market prices in raw materials, lower house prices and lower interest rates, inflation will slow down significantly in the course of 2009. Unemployment will start rising as economic growth continues to lose steam.  

Public finances are under the strain of the overall cyclical downturn, most clearly reflected in a drop in cyclically sensitive tax receipts. In 2009, the budgetary position in central government will slip into deficit (as defined in national accounts terms) for the first time this decade. The budgetary position in general government will remain in surplus thanks to the surplus in the employment pension funds. Local government finances will remain close to balance next year, with slower growth only impacting local government properly in the following years.

In spite of the economic downturn, Finland's general government budgetary position will remain one of the strongest in the euro area.  

Trends in the national economy

 

2005

2006

2007*

2008**

2009**

 

 

 

 

 

 

GDP, change in volume, %

2.8

4.9

4.5

½

Unemployment rate, % of labour force

8.4

7.7

6.9

7

Real disposable income of households, change in vol., %

1,2 1,7 2,9 4

Consumer price index, change, %

0.9

1.6

2.5

4

2

General government net lending, % of GDP

2.7

4.0

5.3

2

Central government net lending, % of GDP

0.4

0.9

2.1

1

- ½


Government to boost construction

It is proposed that the maximum investment volume of  Senate Properties is raised by EUR 30 million to allow Senate Properties to accelerate its investment programme now that housing construction is slowing down generally.

Altogether EUR 20 million will be allocated to equity-like financial instruments, in order to ensure that loans to Municipality Finance remain available for state-subsidised housing production.

The Government also decided to make the start-up subsidy for rented and right-of-occupancy housing available throughout the country.

It is proposed that projects for general education institutions are accelerated by increasing the appropriation authority by EUR 30 million. The extra resources will be used to renovate school buildings with mould problems.

Government to perk business operating potential and financing options

To safeguard business operation and job opportunities, the Government is introducing measures to improve financing options for companies. Aloitusrahasto Vera Oy and Veraventure Ltd will be capitalized for a total of EUR 30 million and Finnish Industry Investment Ltd for EUR 50 million.

 The budgeting of EU Structural Funds commitments would be brought forward on a one-off basis so that 10% of the resources for 2013 involving competitiveness and employment objectives would be budgeted in the 2009 Budget. This would help accelerate the implementation of programmes related to developing businesses, competitiveness and employment and to meet the challenges of economic developments. This change in the budget scheduling would not alter the overall commitments for the programme period of 2007-2013. 

Financial resources for export companies will also be secured by introducing a new refinancing model.

The Government will boost the authority of the Finnish Funding Agency for Technology Innovation for the environmental and energy sectors by EUR 15 million to help implement demonstration projects.

Government focus on job creation 

The Government proposes an increase of EUR 1.2 million to implement the trial system of supplements and subsidies for employability. Unemployed people taking part in the trial would receive either a supplement or subsidy if employed for at least 6 months on a full-time basis. The Government intends to submit a government bill to Parliament related to the budget proposal to amend the Act on the Public Employment Service. The overall cost of the trial system is calculated to amount to EUR 2.2 million. 
Other selected adjustments in appropriations

Following the school bloodshed in Jokela and Kauhajoki, the Government proposes appropriations totalling EUR 1.0 million to the Ministry of the Interior for 2009 to set up a register for firearms and a permanent appropriation of EUR 881,000 for the police to monitor Internet activities. It is suggested that a one-off approriation of EUR 500,000 be granted to the Ministry of Education for youth networking activities, to be carried out in collaboration with the Ministry of Transport and Communications. Additional appropriations totalling EUR 200,000 is to be allocated to the Ministry of Justice to cover the extra costs incurred by the fatal school incidents, and once the extra expenses of the local authorities have been specified, the Government will decide on additional appropriations for the municipalities in the first supplementary budget for 2009.

It is proposed that extra resources amounting to EUR 135,000 go to Crisis Management Initiative, bringing the total financial aid to EUR 335 000 for 2009.

Tax-related subsidies for energy are to be cut by EUR 30 million, as the refunds on tax-exempt fuel are expected to be lower than previously anticipated. Owing to the Government proposal on excess refunds on excise duties on certain energy products used in agriculture, additional appropriations of EUR 600,000 will be granted to excise duty refunds on heavy fuel oil.

The operating expenses of the Emergency Response Centre are to increase by EUR 276,000 due to rental charges in the emergency response centres in eastern and central Uusimaa.

An increase of EUR 3 million is proposed for the operating expenses of the service centre for universities, Certia.

To upgrade the IT hardware and software, EUR 750,000 is to be allocated from productivity appropriations to the operating expenses of the Finnish Maritime Administration. An increase of EUR 350,000 will be granted towards the programme to reduce the administrative burdens of companies.  

Technical revisions in the appropriations and revenue estimates in the 2009 budget proposal

The Government proposes a net increase of EUR 463 million in appropriations and a net reduction of EUR 2,028 million in the budget proposal. This brings the supplementary proposal into a deficit of EUR 2.5 billion. Central government net borrowing is proposed to amount to EUR 2.3 billion.

The Government suggests to Parliament that the estimates for ordinary revenue be reduced by EUR 2,028 million in net terms. Tax revenue estimates would decrease by EUR 1,584 million. Income tax revenue estimates account for EUR 1,150 million, with corporate income taxes amounting to EUR 650 million. Corporate tax receipts are expected to fall because business performance has been weaker than anticipated. Revenue estimates for earned income and capital income will be lowered by EUR 500 million, because earned income and capital gains subject to tax are both expected to decrease.

The tax rates for inheritance and gift taxes will be lowered by 3 percentage points, which is estimated to reduce tax receipts by EUR 15 million in 2009. Levies on alcoholic beverages will be increased by 10 percentage points, which is calculated to increase tax revenue by EUR 65 million.

It is proposed that VAT revenue estimates be reduced by EUR 388 million and receipts from car taxes by EUR 25 million. Amendments to the Car Tax Act and Value Added Tax Act will enter into force in March 2009, when taxes of the same magnitude as VAT will no longer be levied on car taxes and car taxes will be increased by an equivalent sum. Besides the impact of the legislative amendments, VAT revenue estimates will be affected by slacker growth in private consumption, and falling sales in new cars will bring revenue estimates in car taxes down. Estimated revenues in taxes on energy will be lowered by EUR 71 million mainly based on accrued data. Owing to weakening economic prospects, revenue estimates for dividend income will be brought down by EUR 450 million.

The expenditure estimates for 2009 will increase by about EUR 250 million owing to the revised economic figures of the Ministry of Finance and because the national pension index and the employees' pension index were both fixed at a higher rate than anticipated. On the other hand, government debt interest expenses are expected to drop by EUR 223 million mainly due to lower interest rates. Owing to the adjustment in the employment pension index, it is suggested that the appropriations for regular pensions, survivors' pensions and rehabilitation subsidies be increased by EUR 9.4 million. 

With economic prospects looking gloomier, it is proposed that the estimate requirements for appropriations be increased in the different items of unemployment security in the budget by EUR 174 million altogether and in the item of housing allowances by EUR 20 million. The cyclical downturn is also expected to increase the government's contribution in the expenditure generated by the Self-Employed Persons' Pensions Act by EUR 14 million. The government's share of health insurance expenditure is calculated to be EUR 6 million lower than in the ordinary budget proposal.  

The appropriations for expenditure derived from the National Pensions Act are to be raised by EUR 17.9 million, as the national pension index effective as of 2009 was fixed at a higher level than anticipated, the revenue estimates for employers' employment pension contributions have been brought down and expenditure estimates for housing allowances for pensioners have been raised. The higher-than-expected national pension index also increases the appropriation requirement for war front veterans' supplements by EUR 200,000. It is suggested that the appropriations for compensations for military injuries be increased by just under EUR 7 million, owing to higher than expected rehabilitation and institutional care allowances and due to the higher than anticipated employees pension index. Central government transfers for basic living allowances are to be raised by EUR 20 million because expenditure on basic living allowances has increased more than predicted. 

 

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