Fiscal policy monitoring assessment on management of general government finances, autumn 2019

It is a statutory task of the National Audit Office of Finland (NAOF), as part of the auditing of central government finances, to supervise compliance with the Fiscal Policy Act and the provisions issued under it. This task also includes supervising compliance with the decrees issued on the General Government Fiscal Plan. In order to carry out its supervisory task, the NAOF has assessed the draft budgetary plan of Antti Rinne’s Government and the materials on which it is based, including the Government’s budget proposal for 2020, the General Government Fiscal Plan for 2020–2023, and the economic forecast by the Ministry of Finance on which the Plan is based.

According to the NAOF’s assessment, there is a risk that Finland fails to comply with the provisions of the preventive arm of the EU Stability and Growth Pact in 2020. Finland’s compliance with the provisions will be influenced, for example, by the Government’s one-off future-oriented investment programme to be launched in 2020. In addition, the additional permanent expenditure decided by the Government will be realised before the tax increases decided by the Government bring additional income.

At present, it seems that a significant deviation from the provisions may arise in general government structural balance. However, in light of the information presently available, the limit would be exceeded by only a small degree.  The National Audit Office encourages the Government to pay attention to the risk of a significant deviation from the obligations of the preventive arm of the Stability and Growth Pact.

According to the NAOF’s assessment, the General Government Fiscal Plan corresponds in material respects to the statutory requirements, and the forecast of the Ministry of Finance on which the Plan is based is realistic. The targets in the Plan have been set according to the obligations, but, according to current forecasts, they will not be achieved without additional measures. To ensure compliance with the EU fiscal rules in the coming years, Finland should improve the employment rate. In the General Government Fiscal Plan, the Government has not yet presented any detailed measures for achieving the targets.