Govt proposes EUR 55.4b budget for 2018

The Ministry of Finance on Wednesday proposed budget appropriations of EUR 55.4 billion for the year 2018.

The amount is EUR 400 million less than the budget of this year, said an official press release.

The total sum is reduced by, among other things, consolidation measures in accordance with the Government Programme, while the appropriation level is increased by growth in pension expenditure as well as the preparation of the health, social services and regional government reform.

Minister of Finance Petteri Orpo announced the budget proposal, which creates room for growth and employment.

The goal is to safeguard the financing of public services and the welfare state. The proposal will be published in full on the Ministry of Finance’s website on Thursday.

“It is now important to ensure the continuation of economic growth and give everyone the chance to work,” the finance minister said.

The budget deficit is EUR 3.4 billion, which is clearly less than what was budgeted for this year. The central government’s debt will rise next year to an estimated EUR 111 billion.

The central government’s revenue is estimated at EUR 52.0 billion, of which EUR 43.3 billion will come in tax revenue. The ministry estimated in its June forecast that tax revenue will grow approximately 3 per cent from the figure budgeted for this year.

The development of employment services will continue in next year and for such services a EUR 25 million appropriations increase has been proposed, which will be used to develop services for the unemployed, such as interviews conducted at three-monthly intervals.

It is proposed that unemployment benefit expenditure will decline by EUR 133 million, as the unemployment rate is projected to fall.

The budget proposal will remove incentive traps through changes to early childhood education fees and the housing allowance. Early childhood education fees for low- and middle-income families will be reduced. An additional 6,700 families will be brought under the umbrella of free early childhood education.

The housing allowance takes into account the maximum limit on housing expenses per square metre outlined in the General Government Fiscal Plan and the linking of housing expenses to the Cost-of-Living Index instead of the Rent Index. The reforms will reduce housing allowance expenditure by a total of EUR 30 million next year.

It is proposed that EUR 1.4 billion be allocated to basic transport infrastructure maintenance. New transport route projects to be initiated next year include the Ring Road I at Laajalahti, the Vuosaari fairway, and park & ride arrangements on the Western Metro extension.

“Strengthening skills will have a key role in achieving sustainable economic growth. A lack of skilled labour must not put the brake on positive development. To ensure the sustainability of growth, we must invest in skills at all levels,” said Orpo.

The staff structure of early childhood education will be developed. The goal is to strengthen the quality and pedagogies of early childhood education and to increase the multi-professional support received by families. A total of EUR 5 million will be allocated for this purpose.

An additional funding of EUR 15 million will be allocated to strengthening equality in comprehensive schools. The funding will be allocated to support schools operating in challenging areas. They will be able, for example, to reduce the size of teaching groups and hire additional staff.

The implementation of the reform of vocational education and training will be supported with an additional funding totalling EUR 15 million. The funding will be used to support, for example, the construction of new paths in education and working life as well as to reduce the drop-out rate from educational institutions.

Business Finland, to be launched at the beginning of next year, will gather under the same roof of current Tekes and Finpro services relating to innovation funding, exports, investments and tourism promotion. Approximately EUR 270 million is proposed as Business Finland’s grant authorisation, which is EUR 30 million more than this year. This will improve the conditions for increasing the exports of small and medium-sized enterprises.

Total additional funding of EUR 8 million is proposed for the implementation of the Tourism 4.0 key project. The additional funding is intended to be allocated to tourism marketing, improving the digital skills of tourism companies and developing all-year-round provision.

A total appropriation of EUR 7 million is proposed for circular economy investments, developing growth ecosystems and promoting innovative procurement.

It is proposed that the operating expenditure of the Defence Forces be increased by a net EUR 27 million from last year’s budget. The money will be used, among other things, to improve preparedness as required by the change in the security environment and to hire contractual military personnel.

The police operational activities and the number of police can be maintained at the current level, i.e. approximately 7,200 police (excluding the Finnish Security Intelligence Service). The police operating expenditure appropriations will rise by a net EUR 14 million from the level of last year’s budget. The increase will be directed to, among other things, internal security and safeguarding operations. An additional funding of EUR 3 million will be directed to the information systems of the Rescue Services, and information systems will be developed to be interoperable with the information services of the health, social services and regional government reform.

An increase will be allocated to the appropriations of the Border Guard for the purpose of, among other things, external border inspections and improving internal security.

The level of immigration costs has been set according to a scenario of 7,000 new asylum seekers arriving in Finland, as was previously estimated. The reduction of expenditure is restricted by the fact that processing of asylum applications is taking longer. The judicial system will accordingly receive additional resources to accelerate the processing of appeals.

An additional appropriation of EUR 4 million is proposed to ensure the availability of shelter places. It is proposed that an appropriation of EUR 3 million be allocated to the treatment of mothers with substance abuse problems.

A total of EUR 8.8 million is proposed to increase the guaranteed pension and EUR 10 million to increase the basic element of the care-allowance for pensioners next year.

Students will be transferred within the scope of the general housing allowance, which will result in a EUR 193 million reduction in financial aid for students’ appropriations and a EUR 167 million increase in housing allowance appropriations.

The financial aid for students will be added a provider supplement for students caring for an under 18-year-old child, which will increase the appropriation requirement by EUR 10 million.

For the preparation of the health, social services and regional government reform, an appropriation of EUR 166 million is proposed for the launch of the counties’ administration, the establishment of service centres, and support for ICT changes. An appropriation of EUR 100 million will be allocated in 2018 for the implementation of freedom of choice experiments in health and social services. The change in the timetable of the health, social services and regional government reform will shift preparation funds to future years.

The participation of the municipalities in developing heath and social services being transferred to the counties will be strengthened by a EUR 40 million transfer from central government, corresponding to the estimated costs saved from the municipalities.

The budget proposal will include for the first time an examination of taking sustainable development into account. More extensive budgeting of sustainable development will be launched in connection with the 2019 budget.

The budget proposal strengthens the protection of forest biodiversity by investing EUR 5 million in the protection of old forests (METSO programme).

In accordance with policies outlined earlier by the government, the lowering of the car tax will be continued, the tobacco tax tightened and deductibility of home loan interest expenses reduced. The suspension of the rail goods transport tax and the halving of fairway dues will be continued until the end of 2018. An inflation adjustment will be made to earned income tax criteria to correspond with the rise in consumer prices.

The real estate tax will be increased in 2018 and 2019 in accordance with decisions made earlier.

In accordance with the Government Programme, municipalities will be compensated for the revenue impact of changes in tax criteria.

Other tax changes will be decided on in the government’s budget session at the end of August. The matter will be prepared between the ruling parties under Minister Orpo’s leadership.

The proposal of the Ministry of Finance is based on decisions made in April in the General Government Fiscal Plan. The finance minister will hold bilateral negotiations on the budget proposal with ministries on 16-17 August.

The government will consider the budget proposal in its budget session on 30-31 August. The government’s proposal will be published after the government’s consideration on 19 September Tuesday.