The National Audit Office evaluates fiscal policy in the annual report of fiscal policy monitoring

The National Audit Office of Finland (NAOF) assessed in November that Finland risks violating those rules of the preventive arm of the EU Stability and Growth Pact which aim at ensuring stable general government finances. The NAOF has now published a more extensive report on fiscal policy monitoring. The report includes, for example, more detailed analyses of Finland’s compliance with the EU fiscal policy rules.

A significant deviation from the limits defined in the preventive arm of the EU Stability and Growth Pact may arise in the development of general government structural deficit and general government expenditure.

First, general government expenditure will grow faster in 2020 than specified in the EU rules. Moreover, based on forecasts, general government structural deficit will not decrease in line with the recommendation of the Council of the European Union. However, in light of the information presently available, the limit of a significant deviation would be exceeded by only a small degree in the case of structural balance.

The mechanism for exceptional circumstances does not jeopardise the credibility of the spending limits system

According to the NAOF, the spending limits rule of central government has been complied with in the preparation of the budget for 2020 and the supplementary budgets for 2019. The spending limits rule for the parliamentary term 2019–2023 has been supplemented with a mechanism for exceptional circumstances, which makes it possible to increase expenditure in the event of a severe recession.

According to the NAOF’s assessment, the new mechanism will not jeopardise the credibility of the spending limits system. The mechanism is also assessed in the newly published blog post The new mechanism for exceptional circumstances enables EUR 1 billion stimulus measures in the event of a recession by the NAOF’s Senior Auditor Sini Salmi.

According to the NAOF, the economic forecast by the Ministry of Finance, on which the General Government Fiscal Plan is based, is realistic. The GDP forecast of the Ministry for 2019 is among the most optimistic forecasts, whereas the GDP growth forecasts of the Ministry for 2020 and 2021 are lower than the median forecast and the average.

Read the NAOF’s report: Fiscal policy monitoring report 2019