The Ministry of Finance has proposed that future Finnish governments should be legally bound to reduce government debt through statutory savings commitments.
The ministry has previously reported that Finland will need to find 9 billion euros in spending cuts and tax rises over the next two governmental terms — including some 6 billion during this coming term — as Finland's state debt hit record levels.
In order to meet these targets, the ministry suggests a legislative change which would ensure successive governments keep their spending and savings within a pre-agreed framework — a move that would require broad support from all parliamentary parties.
"We are proposing a multiannual approach so that the burden of the fiscal adjustment is not spread too thinly over the short term," Mikko Spolander of the Ministry of Finance's Economic Affairs Department explained.
The ministry's proposal would see a change to the current system, which in recent years has led to the government led by Juha Sipilä (Cen) introducing tough austerity measures, some of which were then reversed during Sanna Marin's (SDP) term in office.
Instead, the newly-proposed system would see each government set a strict fiscal framework at the outset of its term in office, effectively committing to spending a certain amount of money during its governmental term. A similar framework has been in use previously, but has not been legally binding.
This is to allow for the government of the day to deal with unforeseen circumstances, such as Russia's war in Ukraine, which led to Marin's government increasing state spending by about 800 million euros.
Orpo plans austerity measures
As Finland's prime minister-designate Petteri Orpo (NCP) begins government formation talks on Tuesday, media reports suggest the requirement to find 6 billion euros in savings over the next four years will be a central theme in the negotiations.
Finland's level of state debt is just below the EU average, but has been rising noticeably. The Ministry of Finance has estimated that the nation's debt will accelerate significantly during the 2030s if structural changes are not made.
Spolander noted that excessive government debt is a particular problem because it weakens the resilience of public finances.
"The higher the debt, the higher the sensitivity to risk. We have now seen in very concrete terms that rising interest rates will cost Finland several billion euros more in taxpayers' money," Spolander said.
The root cause of Finland's rising level of state debt is an ageing population, and widening dependency ratio gap, which means that there are not enough taxpayers to maintain the current services provided by the welfare society.
Economists lukewarm on ministry proposal
Anni Marttinen, the chief economist at SOSTE — the umbrella group for social affairs and health sector organisations — told Yle she does not support the introduction of a strict legislative framework for setting out government expenditure, because in a crisis-prone world the state budget requires more flexibility.
Marttinen noted that tying the government's hands is not a good idea.
"It is not a good starting point if you take a civil servant approach to restricting policy measures such as social or green transition investments," Marttinen said, but agreed that adjustment measures are needed.
However, she did not share the ministry's bleak outlook for the Finnish economy, arguing that the future is potentially brighter.
Meanwhile, Professor of Economics at the University of Helsinki Roope Uusitalo told Yle that there is already a law in place to govern debt: the EU's fiscal compact, which is currently being reformed.
Uusitalo further noted that Orpo's plans to introduce tough austerity measures will be difficult to achieve if there are no changes made to Finland's taxation system, as the incoming government will otherwise need to make very unpopular cuts to defence, education or pensions.
"I fear that when the difficulties come, there will be a temptation for some creative accountancy, where the effects of different measures are calculated through the lenses of rose-tinted glasses," Uusitalo said.