The National Audit Office takes a positive view of the fact that the Government aims to promote employment and economic growth but considers its problematic that the achievement of the general government deficit targets is largely dependent on factors that are beyond the control of the Government.
Fiscal policy evaluation assessment
As part of its statutory fiscal policy evaluation task, the National Audit Office has assessed the overall steering of general government finances, compliance with central government spending limits and the Stability and Growth Pact in 2015 and whether the Ministry of Finance forecasts used as the basis for the General Government Fiscal Plan prepared in spring 2016 are realistic.
The conclusion of the National Audit Office is that the sub-sector budgetary targets are sufficient for achieving the Medium-term Objective (MTO) for general government finances. According to the fiscal policy evaluation assessment, the measures presented in the General Government Fiscal Plan in spring 2016 are, however, not adequate for achieving the sub-sector budgetary targets.
In the view of the National Audit Office, the central government spending limits were complied with in 2015. However, the 2015 spending limits would have been exceeded unless two supplementary budget provisions had been used, which was an exceptional measure. Furthermore, the spending limits do not support the achievement of the central government budgetary target.
The conclusion of the National Audit Office is that Finland complied with the preventive arm and the corrective arm of the Stability and Growth Pact in 2015.
The conclusion of the National Audit Office is that the Ministry of Finance forecast used as the basis for the General Government Fiscal Plan is realistic and the forecast has been prepared in an independent manner.
Summary of the findings
As part of its statutory fiscal policy evaluation task, the National Audit Office has assessed the overall steering of general government finances, compliance with central government spending limits and the Stability and Growth Pact in 2015 and whether the Ministry of Finance forecasts used as the basis for the General Government Fiscal Plan prepared in spring 2016 are realistic. This report presents the findings made by the National Audit Office as part of fiscal policy evaluation in spring 2016.
The National Audit Office takes a positive view of the fact that the Government aims to promote employment and economic growth but considers its problematic that the achievement of the general government deficit targets is largely dependent on factors that are beyond the control of the Government.
The conclusion of the National Audit Office is that the sub-sector budgetary targets given as binding by the Government are adequate for achieving the MTO. At the same time, however, it should be noted that the measures decided in spring 2016 are not sufficient for meeting the sub-sector budgetary targets. It will be particularly difficult to achieve the budgetary targets laid out for central and local government. If realised, the targets set would ensure the achievement of the MTO and help to put the debt-to-GDP ratio on a downward trend.
The conclusion of the National Audit Office is that the forecast published in connection with the General Government Fiscal Plan is realistic and it has been prepared at the Economics Department of the Ministry of Finance in an independent manner. The change in the forecast compared with the forecast produced as a basis for budget planning in autumn 2015 is justified.
The central government spending limits and the expenditure rule contained in them are the most important instruments for steering national fiscal policy. According the observations of the National Audit Office, the Government was in compliance with the central government spending limits in 2015. Expenditure outside the spending limits has remained stable despite the economic downturn.
The National Audit Office draws attention to the use of supplementary budget provisions. In 2015, in accordance with the previous Government Programme, the Government introduced an annual supplementary budget provision of 200 million euros and in addition to this, in 2015 the Government introduced, in accordance with the new Government Programme, a supplementary budget provision of 300 million euros. Without the supplementary budget provision of 300 million euros laid out in the new Government Programme, the spending limits would have been exceeded in 2015. In the view of the National Audit Office, the introduction of a new supplementary budget provision in the middle of a budget year is not an appropriate way to provide more room for manoeuvre within the spending limits.
The National Audit Office is also of the view that the connection between central government spending limits and the numerical fiscal policy rules is not very clear and the central government spending limits do not adequately support the achievement of the deficit target laid out for central government finances.
In addition to the setting of the objective for local government, the Government also aims to slow down the growth in local government expenditure by setting a limit to local government spending. However, its steering impact is weakened by local self-government under which the municipalities are not obliged to implement all the spending cuts authorised by the state.
The National Audit Office has prepared an assessment of the compliance with the Stability and Growth Pact in 2015. Finland complied with the preventive arm and the corrective arm. However, there is a risk that Finland will breach the rules in the coming years. The National Audit Office draws attention to the structural balance, which is well below the MTO of -0.5 per cent of GDP and the risk of a significant deviation from the requirements in 2016.
Furthermore, an in-year examination suggests that Finland will be in breach of the debt criterion of the corrective arm for 2016. According to the Ministry of Finance forecast, the general government debt-to-GDP ratio will only start to decline in 2018-2019.
The National Audit Office draws attention to the functioning of the preventive arm of the Stability and Growth Pact. Taking into account the economic situation in the required change for the structural balance has increased flexibility in the preventive arm. This helps to avoid deep spending cuts in a situation where the economic downturn is still continuing. However, Finland has been suffering from a prolonged economic downturn, which means that compliance with the preventive arm will not provide us with sufficient margin for the criteria laid down in the corrective arm. The National Audit Office also considers it problematic that in Finland’s case compliance with the preventive arm would provide justification for adhering to the debt criterion, especially when consideration is given to the anticipated risk of a significant deviation from the requirements in 2016 and the level of the structural balance, which is well below the MTO.
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