The Government of Prime Minister Antti Rinne has published the key figures of its proposed budget for 2020. In total, the proposal amounts to 57.6 billion euros in expenses and includes an increase in central government spending of approximately 1.1 billion euros next year.
On the revenue side, the central government's revenues in 2020 are estimated at 55.6 billion euros, of which fiscal revenues will represent 47.1 billion euros.
The proposal has been received with many criticisms from the main opposition parties. Especially by the leaders of the conservative National Coalition Party (Kokoomus) and the True Finns (Perussuomalaiset) because it foresees a rise of the state deficit (up to 2 billion euros, which is 0.3 billion more than in last year's budget), the sale of public assets and an increase in central government debt up to 109 billion euros.
"Money is being spent in a lot of different directions while there’s no certainty of what's coming in. This will lead to the state becoming more indebted," Kokoomus chair Petteri Orpo told Yle.
The Government justifies all the expense on the grounds that it will allow to build "a socially, economically and ecologically sustainable society" and to increase "competence and inclusiveness throughout Finland". For that purpose, the proposal includes what they call "significant future-oriented investments" in areas such as education, employment, wellbeing, security and the fight against climate change.
Support low and middle incomes
Government intends to "strengthen social justice" through measures oriented to improve the position of families, by raising the lowest pensions and also by cutting taxes on low and middle incomes by a total of 200 million euros in 2020. The benefit reduction element of the jobseeker activation scheme will be removed.
The Government 256 million euros in all levels of education in order to make it "more equitable and improve its quality, and to raise the level of skills and competence". The other great objective stated by Antti Rinne's team is to reach an employment rate of 75%. This includes to increase the total number of people employed by at least 60,000.
To attain those goals, in the Government’s employment package, services will be tailored for individual needs in order to shorten periods of unemployment, facilitate the matching of jobseekers and employers and provide companies with easier access to skilled labour. In addition, the measures are designed to reduce the bureaucracy associated with labour migration and education-based migration and to speed up the recruitment of foreign labour.
With this budget proposal, the Government also intends to accelerate productive investments, improve the business environment, encourage companies to go international and promote investments. There will be more money to improve safety and security by increasing the number of police officers, the technical preconditions for border control and the appropriations of the Defence Forces. Appropriations for nature conservation will also be increased by 100 million euros next year.
Below, you can read a summary of the key themes of the budget proposal 2020.
The tax increases
As agreed in the Government Programme, tax on earned income will be reduced by a total of 200 million euros. This measure concerns employees, pensioners and benefit recipients who are in the low and middle-income bands. A solidarity tax will continue to be levied until the end of the Government’s term of office. Earned income taxation will be subject to an index adjustment to keep pace with earnings growth.
The cap on tax deductions for mortgage interest payments will continue to be reduced gradually during the Government’s term of office. Next year, 15% of mortgage interest payments will be tax deductible. As set out in the Government Programme, there will be a moderate reduction in the maximum tax credit for domestic help, from 2,400 euros to 2,250 euros. The domestic help credit will decrease from 50% to 40% of payments for labour or service, and from 20% to 15% of wages paid.
The taxes levied on tobacco products will be increased, raising tobacco tax revenue by 50 million euros in 2020. The intention is to further increase the tobacco tax annually by 50 million euros.
The taxes levied on alcohol will also be increased, raising this revenue by 50 million euros.
The taxes on soft drinks will be increased next year too, raising this tax revenue by 25 million euros, with the focus on sugar-rich drinks.
The tax on transport fuels will be increased, raising the revenue by 250 million euros. This measure is intended to take effect in August 2020. For low-income earners, higher basic social security benefits and lower tax on earned income will offset the rise in fuel tax, Government says.
The Government plan says "migration of skilled labour will be increased and the processing times for work-based residence permits will be shortened by allocating 2.5 million euros for strengthening the resources of Finland’s missions abroad".
Specifically, an increase of 1 million euros is proposed for the operating expenses of the Ministry for Foreign Affairs to strengthen the network of Finland’s missions abroad. "In 2020–2022, the network will be expanded by opening four new missions", the Government said.
The refugee quota will be raised annually by one hundred people to 850. In this context, a total increase of 0.9 million euros is proposed for the administrative branches of the Ministry of Economic Affairs and Employment and the Ministry of the Interior for 2020. By 2023, the proposed increase will rise to 4.2 million euros. Most of the increase will be directed to integration compensation.
A sum of 13 million euros is proposed for the Finnish Immigration Service (Migri) for 2020 and again for 2021 to ensure high-quality and smooth operations and to reduce the backlog in asylum applications.
An increase of 2 million euros will be allocated to increasing the number of shelters and developing their activities. A total of 200,000 euros will be allocated for establishing a post for an independent rapporteur on violence against women.
To improve people’s safety and security, the Government proposes additional appropriations for the police in order to increase the number of police officers gradually to a level of 7,500 person-years by 2022. The budget increase proposed for this purpose is 7.5 million euros in 2020, reaching 18 million euros in 2023.
An appropriation of 15 million euros is proposed for reforming the Border Guard’s technical surveillance system for land and sea borders in 2020.
Additional funding of 5.3 million euros will be allocated to the prosecution service, the courts, legal aid and the Criminal Sanctions Agency.
Furthermore, the Government proposes a one-off sum of 7.5 million euros for crime prevention measures over the years 2020–2022 and a one-off increase of 4.5 million euros in 2020 and 2021 for centralising the taking of evidence into district courts.
Speeding work permits, remove activation model
To increase the use of pay subsidies by businesses, the Government proposes an increase of 10 million euros for public employment services in 2020. By 2023, the proposed increase will amount to 16 million euros. In addition, 3 million euros a year in 2020 and 2021 and 2 million euros a year in 2022 and 2023 would be allocated to pay subsidy payments and digital services.
It is proposed that the operating expenditure of the Employment and Economic Development Offices receive 5 million euros in 2020 and 9–10 million in 2021–2023 for implementing regular interviews with unemployed jobseekers and for promoting the youth guarantee. 5 million euros per year is proposed for developing public employment services in 2020–2022. A total of 10 million euros is proposed for the completion of the digitalisation project in the Employment and Economic Development Offices in 2020.
The Government proposes to fund the working capacity programme for people with partial working capacity through the allocation of 10 million euros in 2020, by 12 million euros in 2021 and 11.2 million euros in 2022. A total of 0.5 million euros per year is proposed for the Action Plan for Gender Equality and the Equal Pay Programme.
The benefit reduction element of the jobseeker activation scheme will be removed as of 1 January 2020. The Government will prepare and decide on measures for balancing the employment impact of the scheme, and in such a way that the employment impact of research institutions is taken into account.
To improve the availability of labour, the Government intends to make it easier for foreign researchers, students and graduates in higher education and their families to stay in Finland by reforming permit practices, speeding up processes for work-based residence permits and reinforcing connections between higher education and working life.
The aim is to achieve a swift and smooth processing of work-based residence permits within one month during the government term. Students would be granted a residence permit for the full period of their studies, and after graduation it would be extended for a period of two years.
An annual appropriation increase of 11 million euros is proposed for integrating migrants and promoting their employment.
Increased support to families and pensioners
The single parent increment to the child benefit will be increased. Child benefits for the fourth and each additional child will also be raised by 10 euros. The child maintenance allowance will be increased by 7 euros. An appropriation increase totalling 36.3 million euros is proposed for these reforms. An increase of 25 euros per month is proposed for the family provider increment to student financial aid.
An additional 23 million euros for 2020–2022 is proposed for the development of child and family services and to continue the programme addressing child and family services. A supplementary annual appropriation of 2 million euros is proposed for the preparation of a cross-sectoral strategy for children between 2020 and 2022. It is proposed that 1.5 million euros per year be allocated in 2020 and 2021 to improve the services of mothers using drugs.Altogether, a net figure of 183 million euros is proposed to be spent on increasing the lowest pensions. The increase is designed for those whose pension is below about 1,300 euros per month. The full national pension will be raised by about 34 euros and the full guarantee pension by 50 euros per month. An increase of 20 euros is proposed for basic social security (minimum rehabilitation allowance, sickness and parental allowance, basic unemployment allowance and labour market support). The effect of this on central government expenditure is approximately 40 million euros.
A total of 80 million euros is proposed for the development of health and social services in 2020, 130 million euros in 2021 and 150 million euros in 2022. The objective of the development projects is to improve the availability, accessibility, effectiveness and quality of basic services. Under the Government Programme, personal budgets for people with intellectual disabilities will be tested, in addition to a reform of the legislation on services for people with disabilities. A supplementary annual appropriation of 2.5 million euros is proposed for the testing in 2020 and 2021.
Additional annual funds of 5 million euros in 2020–2022 are proposed for the preparation of a programme to promote the wellbeing and health of older people. An ombudsperson on older people’s rights will be established. A further 2 million euros per year is proposed for the same period for a project to enhance home care.
It is proposed that a supplementary appropriation of 10 million euros be allocated for trialling free contraceptives for everyone under the age of 25 in 2021–2022.
The Government will implement a treatment time guarantee. The aim is to ensure that, in non-urgent situations, people have access to treatment within seven days of the assessment of the need for treatment. 60 million euros will be reserved for this purpose next year. 160 million euros have been reserved for 2020–2022 for improving the treatment time guarantee, and 50 million euros in regular annual expenditure have been reserved for 2023 onwards for central government transfers concerning basic services.
Other 60 million euros have been allocated for the preparation of a national mental health strategy and for improving access to mental health services in 2020–2022, and 18 million euros in regular annual expenditure have been reserved for 2023 onwards for central government transfers concerning basic services.
In order to accelerate research and innovation in the health sector and promote individualised healthcare, national centres of expertise are being set up in Finland, such as Cancer Centres and the Drug Development Centre.
Education, culture and sports
The Government will allocate a total of 256 million euros for education and skills in 2020.
The restrictions on the subjective right to early childhood education and care will be abolished and the maximum size of groups in early childhood education and care will be reduced as of 1 August 2020.
To foster opportunities for recreational activities free of charge in connection with the school day, a sum of 5 million euros is proposed for 2020 with a view to creating an ‘Icelandic model’ in Finland. The Government is also preparing to increase the funding for before-school and after-school activities and for leisure activities in connection with the school day by 14.5 million euros from 2021 onwards.
Compulsory education will be extended to the upper secondary level and the minimum school leaving age to 18 years. At the same time, upper secondary education will become completely free of charge.
The reform will start with extensive research and will respond to the increase in skills requirements brought about by technological development. The reform aims at achieving a systemic change, requiring society to keep every young person engaged in their studies until they complete an upper secondary qualification. The reform of compulsory education is due to enter into force in 2021. Therefore, 22 million euros will be reserved in 2021, 65 million euros in 2022 and 107 million euros in 2023 for extending compulsory education and for making upper secondary education free of charge for students. In addition, 10 million euros will be allocated in 2021, EUR 20 million in 2022 and EUR 29 million in 2023 to improve student welfare in comprehensive school education and upper secondary education.
In line with the Government Programme, an increase of 7.5 million euros is proposed for student-specific financing for general upper secondary education, which, taking into account the municipalities’ self-financing proportion, will increase the level of financing for general upper secondary education by 18 million euros. For next year, a supplementary appropriation of 80 million euros is proposed for the recruitment of teachers and instructors and for support measures in teaching and instruction in vocational education and training, and funding of 2.5 million euros for increasing workplace instructors.
From 2020 onwards, the core financing for universities will be increased by 40 million euros and the core financing for universities of applied sciences by 20 million euros.
For reforming the system of central government transfers for performing arts, an increase of 1 million euros is proposed in 2020, and 1.5 million euros will be allocated for this purpose in 2021, other 7 million euros in 2022 and 10 million euros in 2023. It is also proposed that discretionary government transfers to culture be increased by a total of 5.1 million euros in 2020, by 7.5 million euros in 2021 and 1.5 million euros annually in 2022–2023. The proposed increase in the level of artist grants is 1.4 million euros in 2020 and 2021, and 1.8 million euros in 2022 and 2023. It is proposed that additional financing totalling 200,000 euros be allocated to Svenska Finlands Folktinget.
A total of 50 million euros is allocated for the renovation of the National Theatre, of which EUR 40 million derives from undistributed betting and lottery profits.
An appropriation of 6 million euros is proposed for the cross-administrative physical activity programme and 2 million euros for the construction of sports facilities in 2020. An increase of 4.8 million euros is proposed for promoting sports, physical activity and elite sports in 2020. Another 6.2 million will be reserved in 2021, and 4.5 million euros in 2022 and 2023, for the implementation of the Report on Sports Policy.
An increase of 1.5 million euros is proposed for supporting young people’s workshop activities in 2020 and 1.8-2 million euros will be allocated for this purpose annually between 2021 and 2023. A total of 1.2 million euros is proposed for developing a national digital system for outreach youth work in 2020.
Central government deficit 2 billion next year
Central government revenue in 2020 is estimated to be 55.6 billion euros, of which tax revenue will account for 47.1 billion euros. Central government tax revenue in 2020 is expected to be up by around 2.4%, or about 1 billion euros, compared with the budgeted figure for 2019. Total on-budget revenue is expected to increase by an annual average of 2.1% during the budget planning period.
The total amount of the budget proposal for 2020 is 57.6 billion euros, representing an increase of approximately 2.1 billion euros on the budget for 2019. On the other hand, interest expenditure on central government debt is expected to decrease.
On-budget expenditure is expected to grow in the 2020–2023 budget planning period at an average annual nominal rate of approximately 3%.
The Government's budget proposal is 2 billion euros in deficit. The deficit is expected to grow by around 0.3 billion euros next year compared with the 2019 budget. Central government debt in 2020 is estimated to be about 109 billion euros.
The on-budget deficit is expected to grow further to around 4 billion during 2021–2023.
Fiscal Plan and Stability Programme 2020-2023
The General Government Fiscal Plan incorporates Finland’s Stability Programme, which sets a medium-term budgetary objective (MTO) for general government finances in accordance with domestic and EU legislation. The objective for the structural budgetary position of general government finances is set at -0.5% of GDP.
The Plan also sets national budgetary objectives for central government finances, local government finances, employment pension funds and other social security funds up to 2023, and presents measures for achieving these.
The goal is that, given normal global economic circumstances, Finland’s general government finances will be in balance in 2023.
Achieving the objective of balancing general government finances requires reforms to improve employment and productivity as well as measures to increase productivity in public administration. As the population ages, the public finances will not be on a sustainable footing in the long term unless there are measures for strengthening these and for increasing competence and boosting employment.
Debate on 2020 budget proposal
The budget proposal and the General Government Fiscal Plan are being prepared in a situation where economic growth will level off over the next few years, after the end of the highest growth phase in the current cycle. When international trade is experiencing a weaker phase or downturn, growth will become reliant on domestic demand.
In 2018, the general government deficit was 0.8% of GDP, and general government debt fell slightly to below 60%. The slowdown in economic growth will gradually increase the general government deficit.
The estimates given above are preliminary. The Government will debate the budget proposal and the General Government Fiscal Plan on 7 October.
Besides the budget proposal, the General Government Fiscal Plan and the Ministry of Finance’s Economic Survey will also be published on 7 October.