According to the budget proposal by the Ministry of Finance, the grand total of the state budget for 2019 will be slightly over 55 billion euros. The income side of the budget consists of taxes and payments close to the total, but a gap of nearly 2 billion euros remains. These figures will become more exact in due once additional budgets are submitted, but the exact bottom line will be known only afterwards, in 2020.  

However, the present level of accuracy is enough for a few observations. To put it simply, the budget proposal tells us that the Finnish economy is not on a firm ground.  

This view can be argued for in many ways. Firstly, the state budget is showing a deficit even after several good years. The cumulative growth of GDP by over 10 percent between 2016 and 2019 has not been enough to balance the budget, let alone to produce a surplus. Such an increase in the national debt during years of growth is exceptional. It is true that along with the economic growth the ratio between national debt and GDP is starting to decline. This is a positive sign, but probably only a temporary one.  

Secondly, the pressures of increasing costs are not diminishing – on the contrary. The calculations presented in the newspaper Helsingin Sanomat (HS 19 August) provide a rough picture of the situation on the growth of costs in the state budgets from 2009 to the 2019 proposal. The figures show a rise in state pension costs (+2.5 billion, 35%), social insurance costs (+1.1 billion, 85%), unemployment benefits (+1.0 billion, 77%) and general housing benefits (+0.8 billion, 100%) imply what is to be expected over the next decade.  

There are no corresponding growth rates in the cost categories that would increase the long-term growth potential of our national economy. Investments in human capital (e.g. in education) or physical infrastructure have been overshadowed by other needs.  

Although the reasons for the growth of social and health care costs are largely justified and partly reflect changes in the respective financing responsibilities of different actors in the public sector, the basic problem remains. The state budget is following a trend where costs are growing faster than income even during good economic times. 

If the estimates for the growth potential of our national economy are even close to accurate, the prospects for the coming years are challenging. According to expert reviews, once the boost coming from the global economy fades and the domestic assets for temporary economic adjustments have been exhausted, Finland’s economic growth will settle to a rate corresponding to its long-term potential at about 1 to 2 percent a year.  

If the state budget cannot be balanced now when the annual growth rate is 2 to 3 percent, it will be even harder in the future. The state budget for 2019 should be showing a surplus, not a deficit, of nearly two billion euros. 

Jaakko Pehkonen, Professor of Economics, Jyväskylä University School of Business and Economics (JSBE)  

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