The goal of reducing the public finance deficit to 1 percent during the election period, which was written into the government program, seems to have run away.
The Ministry of Finance published its economic forecast on Monday morning. At the same time, it turned out that the prime minister is running away from the hard economic goal written in the government program Petteri Orpon (kok) of the government’s keys.
According to the government program, the goal is to reduce the deficit of the public finances to a maximum of one percent in relation to the gross domestic product during the current election period, i.e. by 2027.
– As I understand it, the government’s target hierarchy has been that when the government’s program has been drawn up, the starting point has been to stabilize the growth of the debt ratio during the election period, Director-General of the Ministry of Finance, Head of Department Mikko Spolander says Iltalehte.
Spolander believes that when the government program was drawn up in the spring of 2023, the debt ratio “in line” with the situation at that time would have been one percent of GDP.
– The situation has changed in the meantime, but the primary goal of reducing the debt ratio is what the overall adjustment program of nine billion euros has also been drawn up with in mind, Spolander says.
According to Spolander, the debt ratio could be stabilized in 2027 with that program.
In other words, instead of aiming for a certain deficit percentage, the government is now specifically aiming to stabilize the debt ratio. Monday’s forecast promises a 2.3 percent deficit in relation to GDP for 2027.
A difference of one percent would mean around four billion euros.
Mikko Spolander is the Director General of the National Economy Department of the Ministry of Finance. KIMMO HAAPALA
An exception for fighters?
The government has decided on 5.5 billion euros in savings, 1.5 billion euros in tax increases and 2.5 billion euros in structural reforms. Nevertheless, next year additional debt will have to be taken on and the one percent deficit goal seems to remain a dream.
– The deficits will decrease in 2025, because economic growth will recover and speed up considerably from this year and the unfavorable effects of inflation on spending will also be reflected, says Spolander.
The background is large expenditure items. For example, index increases will increase pension costs next year. The deficits of welfare regions weigh heavily on the state. The procurement of fighter jets will also start to put a strain on the public finances next year.
– The factor that will increase government spending in 2025 is our time-consuming defense equipment projects. Fighters will begin to be used in Finland during 2025. Their implementation will take several years. They are recorded as expenses in the state economy as they arrive, Spolander says.
Certain procurements have not been included, for example, in the framework of the state’s economy. Now, Finland is negotiating with the European Commission on whether Finland’s adjustment measures are sufficient for the Commission, or whether Finland may be placed in the so-called observation category, i.e. the deficit procedure.
Could an exception be made for fighter acquisitions so that they are not counted when assessing Finland’s debt sustainability?
– The EU’s excessive deficit procedure is not a mechanical procedure. In it, an overall assessment is made of whether the deficits are exceptionally large, whether they are temporary and how to get rid of the deficits, says Spolander, without taking a position on the outcome of the negotiations.
Spolander does not take a direct position on whether, for example, fighter acquisitions and other defense investments made due to the tightened security political situation can be overlooked in the commission.
– All relevant factors are on the table. Precisely because we are on the verge of risk in this public economy, it is necessary to open everything carefully. (…) I am absolutely convinced that all these issues will be brought up there, says Spolander.
On Monday, the government’s ministerial political committee approved the draft for Finland’s medium-term plan 2025–2028. It is supposed to be completed during October. No further adaptations are presented in the draft.
The European Commission evaluates the member countries’ plans and makes decisions on whether a member country will be subject to the excessive deficit procedure.
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