Govt approves €64.8b budget for 2022

The five-party alliance government on Thursday approved the proposal of EUR 64.8 billion budget for the year 2022.

The level of appropriations is EUR 3.3 billion lower than budgeted for 2021, said an official press release.

The budget proposal of the gvernment for 2022 builds sustainable growth for the future in the wake of the COVID-19 crisis.

The budget proposal aims to support post-pandemic recovery, accelerate investments, enable environmentally sustainable growth and increase the availability of skilled labour. The goal is to safeguard people’s wellbeing and to ensure favourable conditions for sustainable economic growth in the long term.

As outlined in its Programme, the Government will continue building the welfare state in ways that are socially, economically and ecologically sustainable.

The government budget session decided on significant investments with a view to fostering growth, mitigating climate change, boosting employment and dismantling the backlog in treatment and services.

The successful management of the COVID-19 crisis and a properly scaled fiscal policy have enabled the Finnish economy to recover swiftly from the damage caused by the crisis.

Safeguarding production capacity in the economy and boosting total demand have rapidly improved employment in the wake of the crisis. For this positive trend to continue, the Government considers it important to invest in research, product development, education and training while also pursuing a determined growth policy and safeguarding predictability in the investment environment.

The Government decided on expenditure within the framework of the central government spending limits adopted last spring.

In its budget session, the government agreed on measures to ensure that Finland will be carbon neutral by 2035.

The Government decided on emission reductions totalling about 14 to 15 Mt of carbon dioxide equivalent, which together with the climate programme for the land use sector that will be adopted later will be sufficient to achieve the carbon neutrality target.

Sustainable economic growth and the green transition will be accelerated by increasing the budget authority for energy support by EUR 453 million.

The Government proposes an appropriation of EUR 35 million for grants to households (detached, semi-detached and terraced houses), municipalities, parishes and associations for phasing out heating oil.

A total of EUR 23.3 million is proposed for expanding the charging infrastructure network for electric vehicles and the natural gas filling network.

The government will support research and development activities with an additional tax deduction of 150% in 2022–2027. This deduction can be made for research and development expenditure that is based on research and development cooperation between companies and research organisations. To support growth and investments, the Government is extending the temporary double depreciation rules for machinery and equipment to 2024–2025.

To promote electrification, all-electric vehicles will be exempted from the car tax, with a corresponding increase in the basic tax in vehicle taxes for all-electric vehicles. The increase in vehicle taxes will not apply to all-electric vehicles previously taken into use. The exemption from car tax applies to vehicles taxed after 1 October.

The implementation of the tax policies outlined in the Government Programme will continue in 2022. For example, index adjustments to earned income taxation will be implemented in such a way that no one’s earned income taxation will increase as a result of the general development in prices and earned income.

In connection with the government budget session, the Government outlined a number of new tax measures, some of which will enter into force already at the beginning of 2022.

The aim of the new tax decisions is to achieve sustainable growth by promoting investments required for the green transition and employment.

In addition, the Government outlined a tax package to strengthen general government finances by approximately EUR 100 million. Additional tax revenue will be accrued from measures that help strengthen and expand the tax base and from combating tax avoidance. In 2023, the Government will introduce a separate mine tax and a capital gains tax for natural persons that will broaden the Finnish tax base because capital gains on the sale of assets accumulated in Finland will be taxed in Finland even when assets are relinquished while living abroad.

Boosting investments and building sustainable growth: More than EUR one billion in funding from the Recovery and Resilience Plan in the budget proposal for 2022

The focus in Finland’s Sustainable Growth Programme is on renewal. The key priorities of the Programme are the transition from a fossil economy to renewable natural resources, digitalisation, and research, development and innovation. The Sustainable Growth Programme enables Finland’s whole economy to set in motion green and digitally driven international growth. The funding under the Programme will build a foundation for future growth that is socially, ecologically and economically sustainable.

The general national objectives of the Sustainable Growth Programme are: reducing greenhouse gas emissions, productivity growth, raising the employment rate, faster access to care and promoting equality.

In the budget proposal for 2022 a total of EUR 1.2 billion in allocations (appropriations and authorisations together) are proposed for implementing the Recovery and Resilience Plan. Additional appropriations for 2022 amount to approximately EUR 636 million (the largest items are listed in the section ‘selected items from the budget proposal’).

Digitalisation and the data economy will contribute to more robust productivity and make services accessible to all. EUR 15 million is proposed for improving the quality of communication networks and access to these, and EUR 7 million is proposed for the digital economy of companies. A total of EUR 5.6 million is proposed to ensure efficient supervision and enforcement of the prevention of money laundering under different administrative branches, and EUR 3 million to investment in cybersecurity research activities and exercises. A budget authority of 14.7 million is proposed for the microelectronics value chain.

EUR 83 million is proposed for implementing the Nordic labour market service model with a view to raising the employment rate and level of competence and to boost sustainable growth. To develop a digital infrastructure that utilises world-class automation, a total of EUR 12 million is proposed to support the immigration of experts. EUR 33 million is proposed for developing a service system for continuous learning and a related digitalisation programme. EUR 15 million is proposed for new student places in universities. Supplementary budget authorities totalling EUR 93 million are proposed for the Academy of Finland and Business Finland for an RDI funding package to support the green transition.

In connection with the government budget session, the Government approved the policy outlines that will implement the objective of the Government Programme to make Finland carbon neutral by 2035. In the emissions trading sector the emission reductions that are still needed to achieve carbon neutrality by 2035 will be implemented within the framework of the Climate and Energy Strategy and in the effort-sharing sector within the framework of the Medium-term Climate Change Policy Plan.

In its budget session, the Government decided on measures that will support the availability of skilled labour and improve labour market matching. The Government will focus on measures with quick results to address the labour shortages in the labour market and at the same time implement measures outlined in the roadmap for work-based and education-based immigration.

In the course of 2022, the Government will create a two-week fast track to promote work-based immigration. Specialists as well as growth entrepreneurs and their family members are pledged a decision on an electronically submitted residence permit application within 14 days of the date the application is submitted.

An additional EUR 1 million will be allocated to the Finnish Immigration Service for this purpose in 2022.

As education-based and work-based immigration and international recruitment increase, efforts will be made to safeguard the capacity of the Finnish National Agency for Education to recognise foreign qualifications. An evaluation will be launched on whether persons who have received a decision on the recognition of their degree or qualifications could enroll in supplementary studies or take an aptitude test so that they can quickly obtain qualifications to work in Finland.

The Government will promote the employment of international students and their networking with Finnish companies. In addition, ways to support the employment of international students and to promote work-based and education-based immigration by simplifying the residence permit processes will be examined.

The appropriations level is lower than the 2021 Budget particularly due to a decrease in expenditure related to the COVID-19 epidemic. For example, health security spending on the coronavirus epidemic will fall by EUR 1.7 billion and financial investment will decrease by EUR 0.6 billion. Cyclical expenditure, including unemployment security expenditure, will fall by EUR 0.3 billion compared with the 2021 Budget.

On the other hand, the level of expenditure will increase compared with the 2021 Budget in particular because approximately EUR 0.9 billion in funding allocated for the wellbeing services counties in 2023 will already fall due for payment in December 2022. Expenditure in 2023 will decrease by a corresponding sum. The level of expenditure in 2022 will also rise due to statutory and contractual index increases (EUR 0.7 billion), the cost of changes related to the reform of healthcare, social welfare and rescue services (EUR 0.2 billion), and contributions to the European Union (EUR 0.2 billion).

Temporary appropriations related to the coronavirus epidemic for 2022 will amount to around EUR 0.4 billion, including the spillover effects of supplementary budgets in 2020.

Tax decisions strengthen general government finances and support the green transition, economic activity and easier everyday life

The Government will implement several previously agreed tax decisions in 2022. In its government budget session, the Government also decided on a number of new tax measures, some of which will enter into force already at the beginning of 2022. The aim of the new tax decisions is to achieve sustainable growth by promoting investments required for the green transition and employment. In addition, the Government outlined a tax package to strengthen general government finances by approximately EUR 100 million. Additional tax revenue will be accrued from measures that help strengthen and expand the tax base and from combating tax avoidance.

Central government revenue for 2022 is estimated at EUR 57.9 billion, of which tax revenue will account for EUR 48.7 billion. The revenue estimate is based on the August forecast of the Ministry of Finance. Tax revenue is expected to grow by around 8.1 per cent in comparison with the budgeted figure for 2021. Besides economic growth, the increase in tax revenue will be attributable in part to the easing of tax payment arrangements, which will result in a transfer of some tax revenue from 2021 to 2022.

The implementation of the tax policies outlined in the Government Programme will continue in 2022. An index adjustment will be made to taxation of earned income to ensure that no increase in taxation occurs due to an increased general price or earnings level. The strengthening of tax bases will be continued by reducing the right to deduct interest on housing loans, as previously decided.

Excise duties on tobacco will be increased by EUR 117 million over a period of two years. The limit for tax-exempt use of peat fuel will be increased to 10,000 megawatt hours, as agreed at the government spending limits discussion. This change will apply at all generating plants. A floor price mechanism will also be issued for peat. Reductions in tax relief for synthetic diesel and in the tax refund for energy-intensive companies will continue in 2022, as previously decided. The halving of fairway dues will continue. The tax on lottery proceeds will be reduced.

A tax levy will be introduced on biogas used in transport. The use of biogas for heating, on the other hand, remains exempt from tax.

The recycling industry will be transferred to the industrial electricity tax category from the beginning of 2022. Fish farming will be included in the agricultural energy tax refund system, bringing their electricity tax down to the industrial electricity tax category, provided that the necessary approval has been secured from the European Union.

To promote electrification, all-electric vehicles will be exempted from the car tax, with a corresponding increase in the basic tax in vehicle taxes for all-electric vehicles. The increase in vehicle taxes will not apply to all-electric vehicles previously taken into use. The exemption from car tax applies to vehicles taxed after 1 October.

The taxable value of low-emission company cars will be reduced by EUR 85 per month for the years 2022–2025. This applies to low-emission plug-in-hybrids and biogas-operated company cars.

The tax base for taxes on waste will be broadened from the beginning of 2023.

The central government on-budget deficit will decrease by EUR 4.8 billion compared with the 2021 Budget. In addition to a lower level of appropriations, the reduction in the deficit will be driven by an increase in tax revenues, which will be accelerated by the economic recovery. The budget proposal for 2022 shows a deficit of EUR 6.9 billion, which will be covered by increased borrowing.

The budget proposal includes revenue of EUR 355 million and expenditure of EUR 636 million from Finland’s Recovery and Resilience Plan.

According to the budget, central government debt will rise next year to an estimated EUR 146 billion.

The Government will debate the budget proposal on 27 September. The government proposal for the 2022 Budget will then be published on the budjetti.vm.fi website.