Finland’s centre-right government coalition announced Tuesday evening that it had reached an agreement on the budget for the next 2017-2020 financial term. The plan included 400 million euros more in spending cuts, on top of an already existing plan to enact 4 billion euros in adjustments.
More spending cuts
Among other things, Finance Minister Alexander Stubb said a failed tax on sweets would be replaced with a petrol tax increase. By 2018, 25 million more will be deducted from development aid in Finland, along with another 35 million in road maintenance savings starting in 2019.
An income bracket change will usher in 22 million in savings for sick day compensation, while 47 million will be cut from an Employment Ministry-funded programme for self-directed education.
Up to 195 million euros will be shaved off of index-related increases, as low inflation ruined original savings plans, and a further 130 million will be cut from municipal coffers via direct savings, hiked customer fees for social and health care services and an increase in property tax thresholds.
Financial aid for university students will be lowered to secondary student levels, and the period that the aid is available will be shortened.
Economists’ reaction
All in all, half of this new 400 million euros in savings will be directed at social benefits, services and customer fees.
“I think it is a brutal approach,” said economist Joonas Rahkola of the SAK labour confederation.
Both economists said the latest budget plan of the conservative government did not come as a surprise.
“If the government wouldn’t have stood its ground, it would have led to a credibility problem. Despite its shortcomings, [austerity measures] have still functioned reasonably well to anchor financial discipline in the past,” said Korkman.
Korkman said the renamed “competitiveness agreement” to bring down unit labour costs is in any case more significant than the budget plan.
“It has already had a positive impact on the expectations and trust of small businesses,” he said.
“Business subsidies should also be subject to cuts”
Korkman says one important area is missing from the government’s chopping block: business subsidies. He says one government after another has amped up support systems for commerce in Finland, in the hopes that it will create jobs and entrepreneurship.
“Their impact is very limited, and they contain many elements that actually discourage economic efficiency,” he said.
Professor Korkman said the government has kept its hands off the business subsidies for reasons of regional politics.
The new budget plan contains an entrepreneurship and employment package, but Korkman says its role with regard to larger unemployment in Finland will be negligible. Rahkola agrees.
“The biggest problem in our economy is unemployment and the rapid proliferation of long-term joblessness. It threatens all of our future growth,” the SAK representative said.
Infrastructure investment
The government also announced some new investment projects on Tuesday, including money for strengthening digital learning environments in higher education, improving the conditions for year-round learning, and promoting the scientific work of young researchers.
The plan also included details about 700 million euros in infrastructure projects slated for before 2020. In terms of the roads, improvements will be made to motorways 4, 5 and 12 and the eastern Luumäki-Imatra connection will be expanded with more lanes. A tram network will be built in the southern hub of Tampere, and funding will support development of a cross-town Raide-Jokeri route in the capital city region. A fast train service between the cities of Turku and Helsinki also got the green light.
Government will grant 5 million euros more in police appropriations, growing to 10 million by 2020. Additional funds of 2 million euros a year will be added annually to the Finnish Security Intelligence Service’s funds.
Guaranteed pension will be shored up by 10 million euros in extra funds starting in 2018, translating to an 8 euro per month increase in pension payments for persons that qualify.
“Efficient use of public funds”
The economists interviewed on Tuesday said the government’s projected investments were both expected and good. Rahkola says the infrastructure funding in particular will alleviate the housing shortage in the metropolitan area, among other things.
“It is an efficient use of public funds. I consider them wise monetary decisions,” he said.